In an attempt to criminalise organisational failings, two new criminal offences based on ‘failure to prevent’ have been introduced into UK law. The first concerns the failure to prevent the facilitation of tax evasion, sections 45 and 46 Criminal Finances Act 2017 effective 30 September 2017. The second concerns the failure to prevent a fraud offence, s199 Economic Crime and Corporate Transparency Act 2023 effective 1 September 2025.
Why was the law changed, what are these two new offences, and how relevant are they to accountants and bookkeepers in practice?
Why was the law changed?
The problem for prosecutors was that, particularly in larger organisations, it was possible to see that a crime had been committed – tax had been evaded or a fraud offence had benefited the organisation – but it was not possible to pin down senior people in the organisation who may have encouraged or condoned the crime, nor was it possible to prosecute the organisation itself.
So there was a perception that those who were most to blame for the crime were not being prosecuted.
What is failure to prevent the facilitation of tax evasion?
The essence of this offence is that
- UK or foreign tax, of some description (including National Insurance), has been evaded by someone,
- A person ‘associated with’ the UK organisation facilitated that tax evasion, and
- The organisation failed to prevent that facilitation by the person associated with it.
So, for example, under this law if an employee of a firm of accountants facilitates tax evasion by a client (for example by knowingly dishonestly preparing and submitting false tax returns for the client), then the firm could now be prosecuted for failing to prevent that facilitation.
This offence therefore is very relevant to accountants and bookkeepers in the UK. A firm of any size may be prosecuted for this offence.
However it would be a defence for the firm to show that either
- it was not reasonable in all the circumstances to expect the firm to have any prevention procedures in place, or
- the firm did have in place such prevention procedures as it was reasonable in all the circumstances to expect the firm to have had in place.
Because there is always a risk that, unknown to the senior management of the firm, someone associated with the firm (such as an employee) could be knowingly helping a client to dishonestly evade tax, firms have been introducing and documenting policies and procedures designed to deter, prevent and detect such activities. In that way the firm would have a defence if it found itself prosecuted for failing to prevent the facilitation of the tax evasion.
What is failure to prevent a fraud offence?
The essence of this offence is that
- A person ‘associated with’ the firm commits a fraud offence,
- The fraud offence is intended to benefit the firm (or a member firm of the same group, or a person to whom the group provides services), and
- The organisation failed to prevent that fraud offence by the person associated with it.
So, for example, under this law if an employee of a manufacturing firm defrauds one of the firm’s customers (for example by knowingly dishonestly charging the customer for goods that were never supplied), then the firm could now be prosecuted for failing to prevent that fraud offence.
However it would be a defence for the firm to show that either
- it was not reasonable in all the circumstances to expect the firm to have any prevention procedures in place, or
- the firm did have in place such prevention procedures as it was reasonable in all the circumstances to expect the firm to have had in place.
Because there is always a risk that, unknown to the senior management of the firm, someone associated with the firm (such as an employee) could be knowingly committing a fraud offence, large organisations have been introducing and documenting policies and procedures designed to deter, prevent and detect such activities. In that way the firm would have a defence if it found itself prosecuted for failing to prevent the fraud offence.
Importantly, only a ‘large organisation’ may be prosecuted for this fraud-related offence. A ‘large organisation’ is one that meets two or more of the following three conditions
- Annual turnover of more than £36 million
- Balance sheet assets of more than £18 million
- More than 250 employees
Very few firms of accountants in the UK would meet the criteria to be a ‘large organisation’.
What should firms of accountants and bookkeepers do?
In many cases it will be sensible for firms of accountants and bookkeepers to introduce and promulgate (if they have not already done so) written policies and procedures designed to deter, prevent and detect the facilitation of tax evasion by employees (including partners and directors of the firm), subcontractors and businesses to whom work is outsourced by the firm.
NOTE: This brief article is only an attempt to outline some of the key points from the legislation and does not constitute legal advice.
