Article on Injunctions Explained

An application can be made to the Court seeking an order that an individual or a company stops doing, a prohibitory injunction, or to do, a mandatory injunction, a particular act or thing. Anyone that breaches an injunction can be held in contempt of Court which in some circumstances can lead to imprisonment.

An injunction may be obtained before a case goes to trial. This type of injunction is known as an “interlocutory” or “interim” injunction. It can remain in force for a specified period of time or it can remain in force until the matter comes to trial or the Court makes any further order. When the case comes to trial, the Court will decide whether or not to make a “final” injunction.

An application for an injunction can be made before or after Court proceedings have been issued. The Court can grant an injunction before the start of Court proceedings where the matter is urgent or if it necessary in the interests of justice. In some instances, the injunction can be applied for on ex parte basis. This is a Latin phrase which means that the application is applied for without notice being provided to the opposing party. This can be done where there is a real and serious risk that the party against whom the injunction is being sought will dissipate assets or destroy evidence if they had notice of the forthcoming application.The Courts are extremely cautious in such circumstances and the onus is on the applicant and his legal advisors to make full and frank disclosure of all of the relevant facts to the Court, including any matters that may go against the applicant’s case. Any failure to do so will lead to the injunction being dismissed and costs being awarded against the applicant. The Court could also award any damages that the other party may have suffered as a result of the injunction.

Where an application is made on an “inter partes” basis, the Court will hear submissions from both parties.
In cases that are not so urgent, the application for the injunction may be made “ex parte on notice”. This is where the opposing party may be allowed make limited representations.

The following general principles are applicable to all injunctions:

  1. The party applying for the Injunction must have a valid underlying claim. The applicant must be able to show that it has a substantive cause of action (i.e. one capable of founding an action before the Court).
  2. Injunctions are a discretionary and equitable remedy. Accordingly, the Court is not obliged to grant an injunction and will use its discretion to only grant an injunction where it appears to be just and convenient to do so.
  3. There should not be any delay in applying for an injunction. The Court may refuse to grant the injunction if there is any significant delay.
  4. The party applying for the injunction must come with “clean hands” (i.e. they must have acted properly themselves).
  5. Damages must not be an adequate remedy

The Court will not grant an injunction if an award of financial compensation would be an adequate remedy (i.e. if the party applying for the injunction can be redressed in full, simply by an award of damages).

If an “ex parte” injunction is granted the Court will then fix a return date for a further hearing where all parties can attend to present their cases. The interim injunction will continue until the return date hearing. The Court may allow the interim injunction to last indefinitely until the final hearing of the matter, but with a provision that the opposing party can apply to the Court to vary or discharge the undertaking.

One of the normal conditions imposed by the Court for anyone applying for an injunction is that they provide to the opposing party a “cross- undertaking in damages”. This is in general terms a promise to the Court and the other side that the applicant will pay any damages caused, if the Court should decide at a later date for whatever reason that the injunction should not have been granted or should be discharged. The party giving such an undertaking may also have to prove to the Court that it has the means to be able to pay such a liability. This will be a factor that the Court will take into consideration when deciding on whether to grant the injunction.

If an application has to be made on an urgent basis there may not be time to issue proceedings or issue the application in the normal. In these circumstances, the applicant will have to undertake to the Court that the proceedings and the application will be issued urgently after the injunction is granted. Any application for an urgent injunction must usually be supported by evidence in the form of a witness statement or affidavit. There is no need for any witnesses to attend the hearing, it will be dealt with on paper only.

Applying for or resisting an injunction is, without doubt, expensive as the legal team will have to act on an urgent basis putting aside any other work and proceeding on many occasions out of normal office working hours. Costs can easily run into many thousands of pounds. The costs will be determined by the individual facts and circumstances of each case subject to matters such as the complexity of the issues involved, the number of witnesses and how quickly the injunction is required.

It is extremely important that anyone considering an application seeking an injunction should obtain legal advice before proceeding.

If you would like to discuss any matters in this article or require any advice in relation to business litigation or injunctions please contact Shahid Miah or Taj Barring.

Statutory Demands and The COVID-19 Pandemic

The UK Government, in its bid to soften the unprecedented and devastating impact on the UK economy of the Covid-19 pandemic, has amongst other measures temporarily placed restrictions upon the use of Statutory Demands and winding up petitions. The provisions for this have been set out in the Corporate Insolvency and Governance Act 2020 (the “Act”) which came into force on 26 June 2020.The Government had previously on 23 April 2020 announced restrictions on the use of Statutory Demands and winding up petitions during the COVID-19 pandemic. The Bill was pushed through an accelerated Parliamentary process.

The Act applies to any debt owed by a company and does not just apply to rent or other commercial lease liabilities. The provisions do not apply to financial services companies, insurance companies and banks.

The relevant dates are that any Statutory Demands served between 1 March 2020 and 30 September 2020 cannot be used as the basis for representing a winding up petition after 27 April 2020.

It is important to note that the Act does not provide a blanket ban on the presentation of winding up petitions. The criteria to be considered is either the COVID-19 pandemic has not had any financial impact on the debtor company or that the company would not have been able to pay its debts irrespective of the pandemic. The petitioning creditor will need to include a statement setting this out in the winding up petition.

If the Court finds that the pandemic has had a financial impact on the debtor company then the winding up petition will be dismissed. If the Court is satisfied that the debtor company would have been unable to pay its debts regardless of the pandemic then the petition will proceed. The Court will consider carefully if the COVID-19 pandemic had a financial impact on the company and if its financial position has become worse as a result of the pandemic. It would appear that petitioning creditors will have difficulties in proving that no financial difficulties have been caused to most debtor companies as the economic crisis in the UK deepens and worsens for many sectors. It will not be sufficient to argue that the debt was incurred before the pandemic. It may influence the Court if the petitioning creditor can provide evidence that the debt is significantly old and has never been disputed.

The cost will be awarded against the petitioning creditor in the event that the Court orders the dismissal of the winding up petition. Accordingly, creditors must take extra care when considering the Statutory Demand and winding up route. It is highly recommended that specialist insolvency legal advice be taken before deciding to serve a Statutory Demand.

The Act can also apply to winding up orders that have been made before 25 June 2020, the Court has the power to make the order void if it believes that it does not meet the requirements set out in the Act.

The normal route to challenge a Statutory Demand served upon a company or the presentation of a winding up petition is to seek an injunction from the Court to restrain the presentation of the winding up petition or to restrain the presentation of the advertisement of the petition. There have been a number of relevant reported cases this year.

In Re A Company [2020] EWHC 1406 (Ch) the injunction was granted by Mr Justice Morgan to restrain the presentation of the winding up petition. The Court decided that the COVID-19 pandemic had had an impact on the financial standing of the company.

It should be remembered that the Act is only temporary and many companies will find themselves in difficulties once the provisions set out in the Act come to an end, unless they are further extended. Companies that find themselves in financial difficulties should sensibly use this time and other financial support being provided by the Government in restructuring and taking proper legal advice and thereby avoiding insolvency.

For advice and assistance please contact:

Shahid Miah

Tajinder Barring

14 July 2020

Changes To Insolvency Legislation Due to Coronavirus

The impact of the coronavirus (COVID-19) is currently being felt all over the world not only from a health point of view but the strain that is being placed upon the world economy. The economic impact has been unprecedented and Anthony Guterres, the Secretary General of the United Nations, recently stated that the current coronavirus outbreak is the biggest challenge for the world since World War II. He said it could bring a recession, “that probably has no parallel in the recent past“. His warning came amid dire predictions about the possible economic impact of measures imposed to fight the virus. Many countries, including the United Kingdom, face not just a recession but potentially a depression. In the UK household names such as Debenhams have been placed into administration with many other businesses and individuals facing insolvency.

The Chancellor of the Exchequer, Rishi Sunak, has made substantial funds available to different sectors of the UK economy to try and assist in softening the blow of the Coronavirus.

The UK government recently announced new insolvency measures to prevent businesses unable to meet debts due to the impact of the Coronavirus from being forced into insolvency. Alok Sharma, the UK business secretary, said that the wrongful trading law would be suspended to protect directors during the pandemic.

Section 214 of the Insolvency Act 1986 states, “ If in the course of winding up of a company it appears that: the company has gone into insolvent liquidation and at some point before the commencement of the winding up of the company that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation and that person was a director of the company at that time. The court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the court thinks proper unless the court is satisfied that that person took every step with a view to minimising the potential loss to the company’s creditors as he ought to have.”

With the problems that the UK faces the coronavirus pandemic, many directors would find themselves in breach of section 214. As a result, this section has for the time being been suspended.

However, this should not be seen as an indicator that all personal liabilities for directors now do not exist. It is important for directors to understand how to properly and lawfully extract funds from the company during this time in order to avoid other personal liabilities in the event that their company in the near future is placed into any kind of insolvency process.

There are currently three ways in which directors can normally extract funds from a company, these are as follows: –

  1. By way of a salary through the payroll;
  2. By way of dividends;
  3. By way of director’s loans.

Directors must be careful in relation to remuneration and personal liability.

The safest way currently for directors is to receive payment via a salary. As long as the company continues to trade the directors can receive reasonable salaries according to market rates.

Directors should be extremely careful about taking remuneration by way of director’s loans from the company. If the company subsequently falls into some sort of insolvency process it is highly likely that payments taken by way of director’s loans by the directors may well be challenged. These payments may be challenged in two different ways:

  1. a) Preferences pursuant to section 239 Insolvency Act 1986. These are payments made by the company to a director at the time when it was insolvent and there was a desire to prefer the party who received the payment.
  2. b) Misfeasance pursuant to section 212 Insolvency Act 1986. This is where a director beaches his fiduciary duty to the company and causes a loss to the company. He may be personally liable to pay the amount of that loss.

It would be extremely difficult to argue that the payment of director’s loans was not a preferential payment.

In relation to dividends, this may be considered unlawful and subject to clawback if:

– The company did not have sufficient distributable profits to make the dividend; or

– The payment of those funds left the company insolvent; or

– The company had not taken proper steps to declare the distribution in accordance with the appropriate legislation.

If a director has any doubts about extracting funds from a company, the safest method currently is by way of a salary in line with market rates for his role.

There may well be further changes to the insolvency legislation during this pandemic. If there are, we will continue to provide the relevant updates.

In these uncertain times it is highly recommended that if directors are in any doubt about the insolvency of their company, personal liabilities or any other issues relating to insolvency matters they should seek professional advice urgently.

If you require any advice in relation to this article please contact:

Shahid Miah – shahidmiah@dpp-businesstax.com

Tajinder Barring – tajinderbarring@dpp-businesstax.com

0207 416 6745

28 APRIL 2020

 

 

 

Border Force to Pay 100% of the Cost of Wine Seized Over Fears of Excise Evasion

Border Force has been ordered to pay for 100% of the defendants costs after the seizure of more than 16,000 litres of wine over fears of customs evasion was ruled unlawful.

Tajinder Barring, DBT & Partners, acted on the case for an established drinks supplier from whom Border Force seized a full lorry.

May 2018

Back in May 2018, Border Force officials at Anglesey Port stopped and inspected a vehicle carrying over 16,000 litres of wine coming from Ireland.

The officers believed there was a possibility of an attempt to evade excise duty, as they suspected the vehicle was not destined for France, as the driver had suggested.

Border Force contended that “an offence had been committed in respect of the goods by a person who had knowingly been concerned in the taking of steps with a view to the fraudulent evasion of excise duty” and therefore the wine was liable to forfeiture.

June 2019

A District Judge at Llandudno Magistrates court ordered the wine to be confiscated and disposed of last June.

Cork-based Euromax Commodities, the company who organised the shipment, appealed against the decision, with the help of DBT & Partners.

“There was no suggestion duty would be evaded”

After a three day hearing in Caernarfon Crown Court, Border Force’s case was roundly rejected. The Court ruled that the seizure of a shipment of wine should not have happened, and there was no suggestion that duty would be evaded.

Judge Huw Rees said, upon announcing the court’s decision, that Euromax Commodities was a reputable company and the decision to stop the vehicle was because it had been seized previously.

Since then, the vehicle has been sold and the ownership of the vehicle and the company’s operating license was questioned, but was not relevant to the ruling.

The court has ordered the UK Border Force to pay the costs of the appellant, which could include compensation of wine that was now out of date or disposed of.

 

Are you being accused of excise or duty evasion? Has HMRC or the Border Force seized your goods? Contact the experienced solicitors at DBT & Partners. to see how we can help you get the best possible outcome.

Source: North Wales Live

Photo © Malcolm Neal (cc-by-sa/2.0)

Disguised Remuneration Settlements: What You Should Know

Following a government crackdown on illegal Employee Benefit Trusts (EBTs) and wider Disguised Remuneration tax avoidance schemes, a deadline was drawn up whereby employees and contractors who had received funds via these methods could voluntarily settle any tax they owed as a result.

This deadline allowed recipients of Disguised Remuneration schemes to:

  • Come to a settlement with HMRC regarding the amount of tax they owe
  • Set up a payment plan over 5-7 years or more
  • Pay a lower rate of tax on any required loan charge
  • Avoid any extra costs if the scheme in question was to move to litigation

However, that deadline has now passed, and the only remaining options for recipients of Disguised Remuneration schemes are to repay their loan in full, or to pay a loan charge.

Despite this, however, many individuals are still asking questions regarding the loan charge of 2019, e.g. “should I settle?”

So what exactly is disguised remuneration, when was the deadline to settle your tax affairs, what is the loan charge 2019 latest, and how much is the loan charge?

Disguised Remuneration Settlement “Rules”

In 2011, a set of “rules” were applied by the UK government to seize control of these illegal schemes and to ensure that tax was paid correctly. These rules included the following orders:

  • Loans made by Employee Benefit Trusts in place of wages or salaries must be made subject to the same amount of
  • PAYE
  • and National Insurance Contributions
  • Only if the loan is repaid will those contributions be waived
  • Those with salaries under £50,000 who have stopped using Disguised Remuneration Schemes can spread the cost over at least 5 years, while those earning under £30,000 can do so over more than 7 years.
  • Those who fail to begin to settle their affairs with HMRC before the deadline must pay a loan charge in full before 31st January 2020.

In 2016, additional clauses were added, stating that this same legislation would also apply to loans made prior to 2011.

The above rules apply to users of Disguised Remuneration Schemes whose loans have remained unpaid to date, and who have failed to provide HMRC with information regarding the settlement of their outstanding taxes by the deadline.

They also affect employers who provided any loans involved in Disguised Remuneration schemes and had not settled their affairs with HMRC by the deadline.

When is the Deadline for HMRC Disguised Remuneration Settlements?

Loan charge legislation terms were drawn up in November 2017 to assist any recipient of Disguised Remuneration schemes in settling their tax affairs with HMRC.

The deadline for action of this kind to be taken was 5th April 2019, so if you were the recipient of a disguised remuneration scheme, the time to negotiate your position with HMRC has now passed.

Everyone who has outstanding loan balances and has not discussed a settlement agreement should send all information about your loans to HMRC by 30 September 2019.

How Much is the Loan Charge 2019 & Should I Settle?

The size of a loan charge applied to the recipients of a disguised remuneration scheme depends directly on the amount of Income Tax and National Insurance Contributions that would otherwise have been required to be paid during the tax year on the amount that was “loaned”.

All amounts received through a Disguised Remuneration loan will be combined and made subject to the charge at the same time. HMRC has quoted the median settlement as £13,000.

For those who know they are likely to be affected by the loan charge 2019 and wonder “should I settle my tax affairs with HMRC?”, it is now too late to do so.

This means that anyone who still owes tax repayments connected to Disguised Remuneration will be required to pay the loan charge in full, and if the scheme in which they were involved is made the subject of litigation, they may receive further fines or charges.

If you are in the process of settling and began before the 5th April deadline, the aforementioned November 2017 terms still apply to you and you can continue to work with HMRC towards a settlement.

I Missed the Deadline – What Can I Do?

When it comes to the loan charge, as of 2019, the latest ruling is that you are simply required to pay it in full. However, as of April this year, HMRC have extended their support services to provide assistance to those who are unable to pay.

For further information on this subject, you should call HMRC directly, or contact cl.resolution@hmrc.gsi.gov.uk for contractor loan schemes or ca.admin@hmrc.gsi.gov.uk for all other disguised remuneration schemes. If you don’t arrange to pay the loan charge, you may be prosecuted for tax evasion.

It’s important to take immediate action if you’re concerned that you may need to pay the disguised remuneration loan charge. DBT & Partners can assist any individual who has missed the deadline to voluntarily settle their tax liabilities.

Proceeds of Crime Act 2002, Part 5: Civil Recovery or Criminal Recovery?

Part 5 of the Proceeds of Crime Act 2002 (or POCA 2002) enables enforcement agencies to recover property which has been obtained through unlawful conduct or organised crime, such as money laundering. This right can be exercised by the National Crime Agency (NCA) or another authority whether or not any proceedings have been brought in relation to a criminal offence.

Read More

Section 22 Proceeds of Crime Act: A Second Bite of the Cherry

Section 22 of the Proceeds of Crime Act refers to the revisitation of earlier confiscation orders that were made at a time when the full amount originally believed to have been illegally obtained by a defendant was not available for recovery, and can currently be called upon by the prosecution at any time in order to confiscate the remaining sum.

If a defendant has come into an inheritance, won money or property, received any form of compensation, accumulated savings or purchased goods or property, Section 22 permits these finances or assets to be confiscated by the law until the total value of the original benefit figure has been covered.

Is Section 22 of the Proceeds of Crime Act Unfair?

There are a number of potential problems regarding the justness and morality of this particular piece of legislation. Firstly, if the defendant is not the only individual who has invested in a property, for example, and that property is duly confiscated by a law enforcement body citing Section 22 of the Proceeds of Crime Act 2002, any third party involved will potentially be required to forfeit their portion of the investment despite being innocent of any crime.

Secondly comes the matter of rehabilitation. According to legislation passed back in 1974, the UK legal system should be thoroughly engaged in the rehabilitation of offenders – yet there is very little possibility of this being achieved when those who have committed an offence in the past are liable to have any finances, property or assets seized from them at any given time. The possibility of purchasing a home or setting up a business becomes far more difficult, potentially forcing the individual in question to seek out “under the radar” or unlawful ways to make a living once again and thus creating a vicious circle of financial crime.

If a defendant owns property already, and that property increases in value over a number of years, there is always the possibility of Section 22 of the Proceeds of Crime Act kicking in and any amount of interest that has accumulated being seized, trapping the individual in place.

Pensions, too, are potentially no longer safe. From 2015 onwards, pension pots have been accessible in full to the people set up to benefit from them. However, because of this they have also become “fair game” under Section 22. Stripping an elderly individual of their financial support could be argued to be very unfair, no matter their criminal history.

As of the present time, it is up to the court to determine when sufficient time has passed since the original offence to confirm that Section 22 can no longer be invoked. Prosecutors can also argue that significant inflation has taken place since the original confiscation order was made, meaning that the law can confiscate more money or assets than was originally stated.

How Can I Protect Myself from the Application of Section 22?

The best approach to take in order to steer clear of the threat of Section 22 is to ensure that there is a clear and transparent paper trail for any and all sums of money, assets and properties that may have come into your possession, for example by way of inheritance, interest in property or accumulating savings.

You should seriously consider engaging the services of an experienced confiscation specialist to help you to protect yourself from incorrect use or misuse of this legislation.

Can You Appeal a POCA Section 22 Judgement or Confiscation? 

It is possible to appeal against a decision in a court of appeals to confiscate your goods, property, finances and assets under Section 22 of the POCA 2002, although many of the specifics of this legislation still rely heavily on the court’s discretion.

One way of successfully arguing against the confiscation of property, assets or monies is to engage a confiscation lawyer to study and contest the “trigger condition” stated by the prosecution. This term refers to the occurence or change in conditions that has prompted the prosecution to revisit the confiscating procedures in question. If, for example, the prosecution has argued that your available finances have significantly increased since the original confiscation took place, and you and your legal advisor are able to conclusively prove that they have not, or there are third party interests that have not been taken into consideration during your original confiscation proceedings or your original solicitor failed to advise you adequately in respect of the confiscation proceedings. All of these scenarios present potential grounds to appeal the prosecution’s decision to pursue asset seizure under Section 22.

Another approach is to argue against fairness of these proceedings. If it can be argued that the passage of time since the original confiscation is excessive, or proven that assets that you now possess are not under your sole name and that seizing them would negatively affect an innocent third party, your appeal may be successful.

If you have been affected by Section 22 of the Proceeds of Crime Act, DBT & Partners can help. In these cases, it’s vital to seek profess

Failure to Prevent the Facilitation of Tax Evasion: What You Need to Know.

The Criminal Finances Act of 2017 serves to criminalise the failure of businesses to prevent the facilitation of tax evasion. The two offences created under this new legislation have a basis in the Bribery Act 2010, and mean that your company can be held responsible for illegal tax-related activity undertaken by contractors or other organisations with which it has professional dealings – whether the tax in question is:

  1. Owed to the UK government or
  2.  Overseas tax

In order to ensure that your company will not be investigated by Her Majesty’s Revenue and Customs as a result of another organisation’s attempts at tax evasion, it is worth examining the new act to see what actions to take.

What Constitutes the Facilitation of Tax Evasion?

Under the new act, the offence is defined thus: “a relevant body (B) is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with B”.

Will My Business Be Prosecuted?

To find out whether you are liable to fall foul of facilitation of a tax evasion inquiry, you and your management team must first understand the stages that would constitute an assessment of your company.

  1. The uncovering of proof that criminal tax evasion has taken place. This evasion may have been undertaken by an individual or a body professionally connected to your organisation.
  2. The discovery that this offence was facilitated by an individual, group or department within your organisation, and that this facilitation took the form of aiding, abetting, counselling or procuring the aforementioned evasion of tax.
  3. The historical refusal or neglect of your organisation to put in place processes and implement procedures that may have prevented the aforementioned evasion of tax from taking place. Those investigating your company’s potential failure must consider whether it would have been reasonable to expect you to have had such measures in place at the time.

Investigators can only consider the final stage once they are satisfied that your circumstances meet the requirements in stages one and two.

If your company has been found lacking, or at fault, throughout all three stages, then it is liable to be prosecuted for failure to prevent the facilitation of tax evasion.

What Are the Six Guiding Principles of Failure to Prevent the Facilitation of Tax Evasion?

While policing the activities of all the individuals and companies connected with your organisation may seem considerably difficult, there is in fact an official set of six guiding principles of adherence to the new legislation in existence – created by HMRC and designed to help organisations improve their understanding of the activities of their partners and service providers and tighten their security against any potential fraud or tax evasion.

Principle One: Risk assessment

When developing your risk assessment, your company should first take into account how likely it is that any of the individuals or organisations acting on your behalf or alongside you would evade the correct payment of tax. This will require considering that party’s potential motives, means and opportunity – asking questions such as:

“Why would this company commit taxation fraud?”

“Can we think of ways in which they would be likely to do it if so?”

“Is it at all possible that this would happen?”

You should then work towards a strong risk management strategy, which should continue to be reviewed for as long as your company and the third party do business together.

This is the most vital step, as not only will it shield your organisation against the dangers of entering into a contract with a potentially fraudulent body, but it will also provide you with a defence in response to the aforementioned third stage of an assessment.

Principle Two: Proportionality of risk-based Procedures

Preventative procedures should be proportionate to the risk you/your company faces. Your organisation should be proactive in the implementation of its chosen approaches of persons associated with you committing evasion facilitation offences. However, while it is tempting to make sure that your back is covered when it comes to new government legislation, you must ensure that the plans you intend to put in place are achievable.

Your management team must consider the scale of the risk in order to construct procedures that are straightforward and proportionate. For example, close, extensively recorded supervision of each agent/employee is not always achievable without creating unmanageable amounts of extra work. The new offences do not require you to undertake excessive procedures, so simpler alternatives should be sought.

The scale and complexity of your companies activities are important factors. The reasonableness of prevention procedures should take account of the level of the control supervision the organisation is able to exercise over a particular person activity acting on your behalf. A combination of formal policy and practical steps to ensure such a policy is implemented and monitored is a good step.

Principle Three: Top Level of Commitment

All changes that are to be made via the implementation of new procedures should become embedded into the working life of your business and taken as seriously as possible so as to adopt a no-tolerance attitude towards facilitation of tax evasion.

A committed approach should be adopted from the “top-down”, with the CEO and management leading by example, so that diligence and care can spread throughout the senior ranks of your organisation. The prevention of tax evasion facilitation should be the duty of your entire staff, and of top-level management in particular.

The involvement of senior management will also enable a greater and clearer communication of the existence of your prevention processes to external bodies. Partners, contractors and any other individuals with whom your company works will be made more acutely aware of your position on the facilitation of tax evasion if it is championed by the CEO in person.

Principle Four: Due Diligence

Proper due diligence procedures should be applied and followed by persons who perform services on behalf of your company to reduce risks, and quantifiable steps taken in order to recognise and prevent criminal behaviour. This approach should not only be applied to companies newly entering into your organisation’s list of partners and contractors but should also be applied in hindsight.

Now that the Criminal Finances Act has been initiated, all of your company’s external contacts and service providers should be made subject to due diligence checks, however long your history with them may be. You may believe that a certain industry poses a higher risk than others of being utilised for tax fraud. Consequently increased levels of checks should be applied to address such risks.

Principle Five: Communication

Every member of your company should have a practical understanding of both the significance and implementation of your prevention policy. Not only should each individual be confident in the inner workings of your prevention policies these new processes, but your organisation should also be able to effectively communicate them to contractors, service providers and partners.

Regular training should be provided where possible in order to pass on the message that tax fraud will not be tolerated at any level, and no person or body that engages in such activities will be able to continue their dealings with your company. In addition, news feeds communicating your companies anti-tax evasion policy can act as a deterrent to those who seek to use your company for illegal activity

Principle Six: Monitoring and Review

Your systems and procedures should never be considered a finished product but should be adjusted, adapted and improved in response to the ongoing observation. When you first set them out, you should work into all documentation an agreement that the procedures must be revised and reconsidered once a set period of time had passed.

If your company is a large multinational, personal implementation of preventative measures by seniors may not be practical and instead, a sub-department being delegated may be seen as reasonable.

What are the Penalties for Failure to Prevent the Facilitation of Tax Evasion?

Your business could receive an unlimited fine for failing to prevent the facilitation of tax evasion. The minimum amount to be recovered will be 100% of the amount of tax the third party neglected to pay. Criminal convictions can also be imposed and recovery actions such as confiscation orders may be taken.

Of course, when it comes to the expected timescale for implementing new processes and procedures, the government and HMRC will take into account the nature and size of your company and the resources it is able to draw upon. However, it is expected that you will do all in your power to ensure that a well-considered plan of action is put in place at your company’s earliest possible convenience.

What Types of Activities Could Put My Business at Risk?

Sector: If your organisation is part of a particular sector, such as financial services or law, it is immediately more likely to be investigated for facilitating tax evasion.

Value of projects, products or services: Should you be dealing with high net worth companies and service providers, they and you are perhaps more likely to be the subject of taxation investigations than other organisations.

Transparency: If a partner or contractor connected to your company gives the impression of being unreasonably covert with regards to financial activity, there is a possibility that suspicions will be raised.

System complexity: If a supply chain or transaction process seems from the outside to be purposefully opaque or complex, investigators may believe that the companies involved are masking fraudulent financial activity. Therefore, it is highly advisable to keep fiscal processes as straightforward and above board as possible.

History: If there is a history of the products or services provided by your company or its partners being utilised in a way that facilitates tax evasion, this again may raise the suspicions of HMRC and could see you investigated for the facilitation of tax evasion.

In any of the above circumstances, there should be no cause for concern as long as you have ensured that your organisation has undertaken a full risk assessment and has put efficient processes in place.

Contact our Business & Tax solicitors team for full support and advice.