New HMRC corporate self-reporting process

From 30 September 2017, the new corporate offence of failing to prevent the facilitation of tax evasion has been in force (as we have previously explained here).

The offence renders businesses criminally liable if they fail to prevent those acting on their behalf from facilitating tax evasion. The offence carries an unlimited fine on conviction.

Criminal facilitation of tax evasion involves a person deliberately and dishonestly helping another person to evade tax. This does not include the accidental, ignorant or negligent facilitation of tax evasion.

Simultaneously to the offence coming into force HM Revenue & Customs (HMRC) issued guidance on how a  business can self-report their own failure to prevent the facilitation of UK tax evasion.

Key points:

Any self- report of this offence should be made by email as detailed below.

As the HMRC guidance indicates, professional legal advice should always be sought before submitting any self-report.

Only a self-report of the failure to prevent the facilitation of the evasion of UK taxes should be reported to HMRC. A failure to prevent the facilitation of the evasion of foreign taxes should be made to the Serious Fraud Office (SFO).

If a business is in the “regulated sectors” as defined by schedule 9 Proceeds of Crime Act 2002, it may be necessary for a Suspicious Activity Report (SAR) to be made to the National Crime Agency (NCA). The submission of an email to HMRC, self-reporting the position, will not obviate the need to also submit a SAR.

To the extent permitted by law, HMRC may share information provided in a self-report email with other enforcement agencies in the UK and overseas.

The self-report email

The email submitting any self-report should be sent to: corporate.self-reporting@hmrc.gsi.gov.uk

Any person submitting the email must be authorised by the relevant body on whose behalf the report is made.

The email is voluntary and, as the guidance stresses, both the individual sending the email and the relevant body upon whose behalf it is sent have the right to remain silent.

It is a matter for the relevant body and the individual sending the email as to how much information is provided to HMRC. However, a criminal offence may be committed if the email contains wrong information, or information that it is not honestly believed to be true.

The guidance states that the email should only give information already available. For the safety of the individual submitting the email, attempts should not be made to find additional information so that the email can be sent.

Third parties must not be encouraged to commit a crime or continue committing a crime in order to obtain more information, and the person submitting the email must not continue committing a crime to get more information.

Information to be included in the email:

The guidance sets out four key areas to include within the email:

1. Information about the reporter and relevant body

This should include details about the individual reporting the offence, including their role within the relevant body, and whether any previous reports have been submitted.

2. Information about the tax evasion facilitation offence

This will include detail about someone performing services on behalf of the relevant body deliberately and knowingly helping a taxpayer evade taxes, including when this occurred, whether it is on-going and how it was discovered.

3. Information about the tax evasion offence

This will include detail such as what taxes were evaded (e.g. Income tax, VAT, corporation tax), how they were evaded, whether the evasion is on-going, the identity of known individuals involved and the amount evaded.

4. Information about the prevention procedures

This information may be at the core of whether a relevant body can establish the defence of having reasonable procedures in place to prevent the facilitation of tax evasion.

The information in this section prescribed by the guidance is as follows:

• Does the relevant body have procedures in place to prevent persons acting on its behalf from criminally facilitating tax evasion?
• When were these procedures produced or last updated?
• Would the relevant body be willing to give a copy of these procedures to HMRC if requested?
• If there are no procedures in place, why is this?
• Which of the following are part of prevention procedures:
  • risk assessment;
  • proportionality of risk-based prevention procedures;
  • top-level commitment;
  • due diligence;
  • communication;
  • training;
  • monitoring and review.

Osborne Clarke comment

As the guidance makes clear, a self-report is no guarantee that prosecution will not follow.  However, the content of the self-reporting email could form part of a defence to a prosecution, be taken into account by prosecutors when making decisions about prosecution or, following any conviction, be reflected in any associated penalties.

As the content of any self-report could ultimately be used against the maker, very careful thought will, though, need to be given to whether a report is made and, if so, what it should contain.

We expect that HMRC will bring prosecutions utilising the new offence, to incentivise corporate self -reporting going forward. Businesses that may encounter difficulties will want to ensure that they are not exposed to prosecution; self-reporting may achieve that.

The new offence is intentionally modelled on the corporate offence under the Bribery Act 2010, and as such we should also expect HMRC to consider using Deferred Prosecution Agreements (DPAs) as already deployed by the SFO. If so, a self-report is likely to be viewed as a significant factor as to whether the public interest is served by proceeding with a DPA, as opposed to a full prosecution.

We also await with interest how HMRC and the SFO will approach their respective roles, what co-operation there will be between the agencies, and whether there will be consistency in the decisions that are taken.

This guidance is aimed at those self-reporting with the authorisation of the business, rather than whistleblowers looking to report of their own volition. Businesses should ensure that they have whistleblowing policies and mechanisms to allow concerned individuals to raise any concerns internally first, without fear of reprisal. This will allow the business to assess those concerns and decide whether they need to make their own self-report to the authorities.