From "Paper Tiger" To A Real Bite: Is Your Business Prepared As HMRC Steps Up Enforcement On Tax Evasion Offences

As the first prosecution is brought under the Criminal Finances Act 2017 for failing to prevent the facilitation of tax evasion, we consider what action businesses should take.

Although the offences of failure to prevent the facilitation of tax evasion have been on the statute books for eight years, HMRC has only recently secured its first charging decision. The charge, brought against Stockport-based Bennett Verby Accountants, relates to the failure to prevent the facilitation of UK tax evasion, involving alleged research and development repayment fraud. It is understood that six individuals, including one of the firm's former directors, have also been charged with offences, including cheating the public revenue and money laundering. A provisional trial date has been set for 27 September 2027.

What is the failure to prevent the facilitation of tax evasion?

Two corporate criminal offences were introduced by the Criminal Finances Act 2017 with effect from 30 September 2017:

• failure to prevent the facilitation of UK tax evasion (section 45, the "Domestic Offence"); and
• failure to prevent the facilitation of foreign tax evasion (section 46, the "Foreign Offence").

The offences apply to companies, other bodies corporate and partnerships (wherever incorporated or formed). Strict liability is imposed (with no need to prove knowledge or intent on the part of senior management) where an 'associated person' of that organisation (being an employee, agent or other person providing services for or on behalf of that organisation) facilitates tax evasion. 

The only defence available to an organisation is to show that (1) it had in place 'reasonable procedures' to prevent that facilitation, or (2) in all the circumstances it was not reasonable to have such procedures in place (the 'reasonable procedures defence'). Those convicted potentially face unlimited fines.

The importance of the reasonable procedures defence in avoiding a prosecution is underscored in the (recently updated) CPS/SFO joint guidance on Corporate Prosecutions. (The CPS is responsible for prosecuting the Domestic Offence, whereas the SFO is responsible for investigating and prosecuting the Foreign Offence.) That guidance makes clear that careful consideration of the availability of the reasonable procedures defence will form a critical part of assessing whether the evidential part of the test for bringing a prosecution has been satisfied. Accordingly, an organisation's ability to evidence its prevention procedures (and their reasonableness) may make the difference between the serious adverse publicity (and jeopardy) of a charging decision, and a decision to take no further action.

Part of a wider compliance crack down

Following criticism last year of HMRC's failure to bring any prosecutions for the facilitation offences (including from Dame Margarat Hodge MP, who said that the lack of enforcement of the "paper tiger" law was "appalling"), HMRC now has 11 live investigations and a further 27 "live opportunities" under review (in addition to this first prosecution). These span 13 different business sectors, including software providers, labour provision, accountancy, legal services and transport.

HMRC's increased activity in relation to the facilitation offences forms part of a wider compliance effort. One of the Government's key priorities for HMRC is to close the 'tax gap' (which was said to stand at £46.8bn in 2023/24) with the stated aim of raising over £1 billion in additional gross tax revenue per year by 2029/30 (highlighted in HMRC's Spring Statement 2025). An escalation of compliance activity forms part of HMRC's plan to achieve this aim. In addition to its focus on the facilitation offences, HMRC is pursuing a number of other compliance workstreams, including:

• building out its compliance workforce, with plans to recruit 5,500 additional compliance staff and 1,800 debt management staff;
• modernising the tax administration system, including through the investment of funds in new IT and data systems, and an increased use of AI;
• prioritisation of its focus on the prevention of non-compliance (referred to as 'upstream compliance'), for example, through increased use of 'one to many' or 'nudge letter' campaigns and addressing 'legal interpretation disputes';
• introduction of new measures to target promoters of marketed tax avoidance, such as the proposed changes to the Disclosure of Tax Avoidance ('DOTAS') regime in Finance Bill 2026, which include a new strict liability criminal offence for failure to disclose;
• raising standards in the tax advice market, including through the introduction of mandatory registration with HMRC of all tax advisers; and
• increased use of third party data, through new regulatory powers obliging third party data holders, such as financial institutions, to report certain taxpayer data to HMRC, to be used for risk assessment and tax compliance purposes.

What should businesses be doing now?

This first prosecution of the facilitation offence evidences HMRC's willingness to pursue a case to prosecution, rather than relying solely on the offence's deterrent effect. Given the live prosecution risk, and given that the reasonable procedures defence is the only defence available, businesses should take the following actions to mitigate the risk of exposure:

• Review existing risk assessments. Have any changes to the business affected the risk of associated persons facilitating tax evasion (for example, changes to the structure or work force of the business, of to the geographies and sectors in which the business operates)? Remember that the Government's guidance on the offences indicates that risk assessments should be reviewed and updated periodically (so failing to do so could negatively impact on the availability of the reasonable procedures defence).
• Reconsider existing 'prevention procedures' and policies for dealing with the offences within the organisation, to ensure they remain appropriate. An organisation's procedures and policy should evidence a commitment to prevention within all levels of the business, including senior management.
• Deliver updated training to employees (and any other relevant 'associated persons'). It is key to ensure awareness of how to identify and deal with tax evasion and facilitation risk, especially among new employees (who may not have received such training, or training relevant to the operational environment of the business, previously).
• Ensure all compliance efforts are properly documented. This will assist in evidencing implementation of reasonable prevention procedures should HMRC investigate any instances of suspected failures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.