The Criminal Finance Act 2017

Criminal Finance Act 2017: What does this mean for you?

The Criminal Finance Act 2017 announced in April 2017, subsequently came into force on the 30th September 2017. So what does this mean to you, a recruitment agency? Well it makes Ltd companies ‘criminally liable’ if they do not prevent their staff, suppliers and/or clients from carrying out tax evasion. Please note ‘prevention of tax evasion’ offence can be assumed to have taken place even if senior management were not involved in, or aware of, the act of tax evasion being carried out.

Criminal Liability

HMRC altered the way that the criminal liability is now assigned. As an ‘associated business’ you may be liable for a tax avoidance offence simply because they were aware of the offence and did nothing to prevent it. HMRC can now convict companies that facilitate tax evasion in some way. Even if that is just by not completing their due diligence on all companies within the supply chain.

Recruiters and The Criminal Finance Act 2017

So for recruiters / recruitment businesses, the onus is now on them to ensure that their industry colleagues are not committing, encouraging, or turning a blind eye to tax evasion activity. If caught, the legislation requires an evidential defence. So now is the time to know exactly who you are dealing with and to ensure your due diligence delivers the proof you may need. So how do you proactively protect yourself from liability?

Umbrella Risk Assessment

1. Conduct and document a full Risk Assessment.
This is an assessment into the ‘nature and extent of your exposure to risk’ both from internal parties; your staff, and external parties – your suppliers and your contractor clients.

Preventing Facilitation of Tax Evasion

2. Ensure that your senior team is committed to preventing the facilitation of tax evasion.
This focus on top-level commitment appears throughout the HMRC legislation. It’s clear they are expecting management teams to be committed to prevention throughout the company and its supply chain. They also expect companies to be committed to encouraging a culture where the facilitation of tax evasion is considered totally unacceptable.

Umbrella Company PSL

3. Build, and operate through, a tightly controlled Preferred Supplier list.
This should be created via a thorough and robust vetting procedure. So you know exactly who your suppliers are, and can ensure you are not exposed to any risk. The best way to do this is to work with APSCo or FCSA accredited umbrella companies and contractor accountants. You should also communicate relevant policies and procedures to all your clients and suppliers. If operating with an umbrella company, they should be able to provide payslips. Also ask for matching Real Time Information reports (RTIs) to confirm all taxes are being paid directly to HMRC.

Train Staff on the CFA 2017

4. Retain hard evidence that appropriate training has been conducted for all staff.
If you ever need to demonstrate that you have put the necessary prevention measures in place, this will be extremely helpful. You should also keep evidence that you are monitoring and reviewing these prevention procedures, as well as making improvements as and when necessary.

Liabilities under the CFA 2017

One last thing to mention here is ‘proportionality’, which means the extent to which you can reasonably be deemed liable for an offence. This depends entirely on the level of ‘control and supervision’ which your company was able to exercise over the guilty party.

Disguised Remuneration Loans

A first draft of the new Disguised Remuneration Legislation was published on 13th September 2017. This introduces a tax charge specifically relating to tax-free remuneration loans. This means any which have payments outstanding as of 5th April 2019 will be taxed as remuneration. What’s even more alarming for anyone affected by this change – these loans will attract tax penalties and interest going back to when the loan was originally set up. This can be retrospectively charged as far back as 6th April 1999!

HMRC is aware that some umbrella companies are still using loan repayment. There are also companies using other similar schemes to help their contractor employees pay less tax and NI. Combine this with an increase in the use of umbrella companies by recruiters since the public sector IR35 changes in April 2017! And it’s clear that there could be many such agencies who are open to risk without even realising it. If the taxpayer decides not to declare a loan of this type in their tax return, then it is classed as tax evasion! Suddenly, under the new prevention of tax evasion rules, the recruitment agency or the umbrella company can become liable.

To read the legislation on The Criminal Finance Act 2017, click here.