The Chartered Institute of Taxation (CIoT) has warned HM Revenue and Customs that its new corporate tax evasion offence which is due to come into force late in 2017 may result in too many unnecessary minor prosecutions in cases where civil penalties can already offer sufficient punishment.
The CIoT has suggested that it might be preferable if HMRC were to consider delaying the introduction of the new offence: the legislation is scheduled to come into effect on 1st September 2017, but CIoT believes the tight deadline means HM Revenues & Customs will not have sufficient time to adequately respond to the many concerns accountants and tax practitioners have already voiced. Concerns like how the new criminal sanctions will work in tandem with the existing civil penalties already in place for tax avoidance. What the CIoT is calling for is clearer guidance on the practical steps businesses can take to be fully compliant when the changes take effect.
The problem stems from the fact that the timetable for the new corporate tax evasion criminal offence was set some time before the EU referendum; after the UK voted to leave, the government has understandably been focusing on preparing the necessary ground work before Article 50 is invoked. The consequence of that is that normal government activity for preparing for the introduction of new legislation like the corporate tax evasion offence has been put on the backburner.
Glyn Fullelove, chair of the technical committee of the CIOT, says the institute accepts the necessity of the proposed legislation, albeit with concerns about its implementation, but is worried that if implementation is rushed through many small cases, which would be better dealt with under the civil penalty regime, will fall into a criminal classification unnecessarily:
“We do not wish to see the serious nature of a criminal prosecution downgraded by prosecutions in relatively small cases that simply add an extra fine on top of civil penalties and are a long way distant from the behaviours that have spurred the introduction of the offence,” Mr Fullelove said.
“If criminal sanctions need to be strengthened in this area, the rule should only be applied in significant cases where large organisations have failed to take their obligations seriously.”
“Prosecuting a small company for failing to prevent the evasion of, for example, a small amount of VAT, where the company can already be subject to heavy tax penalties, and where the staff who actually perpetrated the evasion can themselves be prosecuted, could be seen as one punishment too many for the small firm involved and is unlikely to affect the conduct of the management and the overseas staff of a major multinational bank,” he added.
In its response to HMRC’s consultation on the new offence, the CIoT also suggested that the new offence needs to be subject to the appropriate defences being available, with clearly defined guidelines made available by Government. If these are included it believes that businesses will then know exactly what is required from them in order to fully comply.