Aziz Rahman of Rahman Ravelli
Aziz Rahman, of business crime solicitors Rahman Ravelli, explains how companies can ensure they do not fall foul of HM Revenue and Customs.
A recent news story showed that the tax man can make mistakes.
The story proved what many of us may have always believed. But it also emphasised the need for those in business to ensure their tax affairs are in order.
It was reported that HM Revenue and Customs (HMRC) had fined taxpayers for failing to submit their self-assessment returns online, even though the deadline was two weeks away. HMRC eventually admitted that people had been wrongly charged, cancelled the penalty charges it had imposed and apologised for a “human error in processing’’.
While it has now admitted and corrected the mistake, the swiftness with which penalties were issued in error indicates both the power HMRC has and the enthusiasm it has for wielding it. Which is why everyone in business must take all the appropriate steps to make sure their tax affairs are in order. Unlike HMRC, those in business are not allowed to make such taxation mistakes.
The tax paid – or not paid - by those in business has become an increasingly important issue for the authorities. The Criminal Finances Act is perhaps the clearest example of that.
The Act came into effect 16 months ago and introduced an offence of corporate failure to prevent tax evasion. A company committing this offence can face unlimited fines. Before the Act, a company employee suspected of tax evasion would be prosecuted for it. The Act means that the company can also now be prosecuted.
It is just one example of why those in business must know how to stay on the right side of the law regarding tax. On a simple level, this means being aware of the risks. Is it hard to see how a deal will benefit all those involved? Is it needlessly complicated? Has it been proposed by someone you have not dealt with before? Does it seem odd that you have been asked to be involved? If the answers to any or all of these questions is yes, you need to be careful.
But a company wanting to avoid becoming embroiled in tax evasion cannot be dependent on an ability to suspect wrongdoing. Measures must be introduced that make it too difficult for an employee, client or other third party to use the company as a vehicle for tax evasion.
Such measures do not have to be complicated or unique. But they must be fit for purpose. For example, the company’s accounting system should be appropriate for the size of the business and the nature and frequency of its transactions. Its effectiveness should be reviewed on a regular basis and any necessary changes introduced promptly. Restrictions on who can gain access to the accounts should also be enforced.
It is worth remembering that the best weapon against a company being used for tax evasion (or any other criminal activity) can be its staff. Creating a whistleblowing procedure that allows staff – and anyone else with a connection to the company – to voice concerns about wrongdoing, knowing that they will be properly investigated, can be a major deterrent to anyone thinking of using a company for any form of wrongdoing.
Such a procedure will be complemented by training that makes staff aware of the importance of preventing tax evasion and alert to the possibility of it.
As I said, introducing such measures is not a huge task. And if there are some in business who do not feel either sufficiently skilled or experienced to devise and implement them, legal specialists can be brought in to determine a company’s vulnerability to tax evasion and any other type of corporate crime. They can introduce the preventive measures to design out that vulnerability from a company’s working practices.
This will mean that if a company is investigated for tax evasion, it can demonstrate that it did everything it could to prevent it. This can be of great value as having reasonable prevention procedures in place is a valid defence in such cases.
And that can be important in a world where HMRC is allowed to make mistakes regarding tax - but those in business are not.
Aziz Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides.
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