Businesses receive a warning with the commencement of the first UK corporate tax prosecution

UK Accounting Firm Charged in First Prosecution for Failure to Prevent Tax Evasion

In a landmark move, HM Revenue & Customs (HMRC) has charged Bennett Verby, a UK accounting firm, for failing to prevent tax evasion. This is the first prosecution of a company under the Corporate Criminal Offenses (CCOs) introduced eight years ago, serving as a reminder to all businesses to manage CCO risks.

The CCOs make a business vicariously liable for the criminal acts of its employees and associated persons. If a business fails to prevent its employees or any person associated with it from facilitating tax evasion, it can result in an unlimited fine and a criminal record.

The case against Bennett Verby involves an alleged fraud in relation to research and development tax credits, according to press reports. Six individuals have also been charged alongside the firm for various alleged offences.

Such a prosecution could restrict the business's access to some regulated markets. Moreover, it could prevent the business's ability to bid for government contracts in the UK and overseas.

Penny Simmons, a tax risk expert at Pinsent Masons, has commented on the first prosecution of a company for failing to prevent the facilitation of tax evasion. She suggests that businesses should conduct a risk assessment to determine their exposure to CCOs and introduce enhanced prevention controls without delay, and should ensure review procedures are in place.

The defense for the new failure to prevent fraud offence, which became law on 1 September, is similar to that of the CCOs. A business can have a defense if it can prove it had reasonable procedures in place to prevent tax evasion, or if it was not reasonable to expect procedures in place under certain circumstances.

Businesses should undertake effective due diligence in relation to their suppliers, contractors, and employees, and should closely examine payment methods for goods and services to manage CCO risks. HMRC's guidance on the reasonable procedures defense identifies six guiding principles, one of which is risk assessment to determine exposure to CCOs.

It's worth noting that the new failure to prevent fraud offence applies to large organizations with a turnover of more than £36m, assets of more than £18m, or 250 employees, or group organizations regardless of headquarters or subsidiary locations.

Recent publicly documented cases of British companies successfully prosecuted for violating anti-tax evasion regulations are not detailed in the provided search results. However, there are indications of investigations and legal scrutiny related to tax issues involving German Warburg bank managers connected to meetings with German officials, but no specific British companies mentioned as convicted or successfully defending such charges.

HMRC has been increasing compliance and enforcement activity related to the offenses for some time, and discussions about control procedures to prevent tax evasion often occur during routine business risk reviews. Simmons notes the introduction of the new failure to prevent fraud offence, expanding the government's fraud and tax prevention measures.

In conclusion, the Bennett Verby case underscores the importance of businesses taking proactive steps to prevent tax evasion and fraud. By conducting thorough risk assessments, implementing robust prevention controls, and ensuring regular review procedures, businesses can protect themselves from potential prosecution and maintain their reputation.

Businesses receive a warning with the commencement of the first UK corporate tax prosecution