A New Offence for Charities - Failure to Prevent the Criminal Facilitation of Tax Evasion

Charities should be aware that a new offence of failure to prevent the criminal facilitation of tax avoidance has been introduced from September 2017. Charities may face unlimited fines upon conviction. 

The law now provides that if an employee, agent or service provider of a charity facilitates tax evasion, the charity itself will be criminally liable if it failed to have the appropriate procedures in place to prevent such facilitation. This applies to any charity which is a legal entity, including companies, CIOs, charter or statutory corporations or trusts run by a corporate trustee. The legislation catches both UK offences and foreign offences (if there has been criminal facilitation of foreign tax evasion by an associated person).

Appropriate Procedures

The only defence available to a charity accused of the offence is that it had appropriate procedures in place which are reasonable and proportionate to the size and nature of the charity. It is irrelevant that the charity trustees were unaware of the tax evasion itself and there is no requirement that the charity benefited in any way. Charities should therefore take steps to carry out a risk assessment and review their current policies and procedures to establish any actions that may be required.

Actions that may be required include introducing or updating policies or procedures, undertaking due diligence with service providers, communicating such policies and procedures externally with suppliers and providing training to all staff to make them aware of their legal responsibilities and the procedures in place. Charity trustees may wish to seek legal advice to assist with the risk assessment and ensure they have taken all appropriate steps.

HMRC has made it clear that it expects top level commitment from all corporations in developing and implementing procedures to prevent tax evasion. HMRC expects 'rapid implementation' of such procedures and, whilst there is some recognition that certain procedures will take time to roll out, they expect a clear plan and timeframe for such implementation. Charity trustees should also ensure they keep their procedures under regular monitoring and review.

Action Needed

Charities should be aware of the likelihood that the Charity Commission will regard failure to implement appropriate procedures as misconduct or mismanagement by the charity trustees. Risk assessments should therefore be carried out as soon as possible to establish what action, if any, is needed.

For more information, please contact Andrew Wherrett in our Charity Law team on 0117 314 5269.