Criminal Finances Act 2017 (CFA) – Record keeping, documents, audit trail

October 12, 2017

Categories Tax and Wealth Preservation

The Criminal Finances Act 2017 makes it a criminal offence if there has been a failure to prevent facilitation of tax evasion by relevant bodies with effect from 30 September 2017 in both the UK or overseas.
Relevant bodies include corporations (limited companies and LLPs) and partnerships.

Relevant bodies are expected to be able to demonstrate senior-level involvement in preventing facilitation of tax evasion. HMRC no longer needs to prove that the directing mind of a business was also knowingly involved in any facilitation offences.

The number of criminal prosecutions is likely to rise as HMRC have been previously criticised by the Public Accounts Committee for failing to sufficiently prosecute offshore tax evasion.

Large companies (which have a turnover of more than £200m or balance sheet totals of more than £2b) have to publish their tax strategy.

There are three stages to the failure to prevent facilitation of tax evasion:

  1. There is fraudulent tax evasion by a taxpayer;
  2. A person acting in their role of ‘associated person’ of a corporation or partnership facilitated evasion; (an associated person may be an employee, agent or other person including an adviser)
  3. The corporation or partnership failed to prevent the associated person from committing the act.

The penalties for failing to prevent facilitation of tax evasion are unlimited fines, confiscation orders, serious crime prevention orders, regulatory issues and damage to reputation (naming and shaming).

The offences are strict liability offences where the only defence against financial and reputational sanctions is to prove that reasonable procedures were in place at the time the offence occurred.

In order to prove that reasonable procedures were in place a relevant body must demonstrate six steps:

  1. Adequate risk assessment;
  2. There is proportionality determined by implementation of practical procedures that reflect the nature and complexity of the business;
  3. Top level commitment where senior management condone  the practical procedures implemented;
  4. Due diligence carried out for associated persons;
  5. Communication and training policies should be integral to the whole organisation;
  6. There should be monitoring and review of procedures.

Businesses cannot rely on existing protocols to protect them. There needs to be a fresh review and documented thought processes in combatting corporate crime.

The highest risk businesses are considered to be Financial Advisers, Tax Advisers and Lawyers.

There is considerable overlap with the Bribery Act and AML but the basic difference seems to be that consideration must be given to relationships with clients and advice given together with ensuring internal procedures are kept to a satisfactory standard.

There is further useful guidance on the Chartered Institute of Taxation website with links to HMRC.

For advice about tax please contact Ian Gilmour on 01227 763939 or email