Be careful how you pay cleaning contractors. Your company may now be liable for tax evasion ©123RF
Be careful how you pay cleaning contractors. Your company may now be liable for tax evasion ©123RF

What procurement needs to know about the Criminal Finances Act

6 October 2017

Since the start of October, companies can be held liable and fined if any one of their suppliers, anywhere, evades taxes

Changes to the Criminal Finances Act may not be a major issue for large businesses, but for SMEs the burden is disproportionate, says Tim Wright, partner at Pillsbury Winthrop Shaw Pittman.

From the end of September, the act includes a new offence of facilitation of tax evasion, which makes businesses liable for tax evasion activities undertaken by employees and any person or business performing services on their behalf.

So if your contracted cleaning company, for example, agrees to cash payment from anybody in your business, not only is the contracting company committing an offence, so too is your firm, Wright says. 

The law covers both UK and foreign tax and, as it is broad, it has the potential to catch people out. To ensure compliance, Wright advises you look at the processes and policies already in place for the Bribery Act. “You can expand on that to bring the new offences into remit and expand training and risk assessment,” he says, and follow the steps in the government’s guidance document (see link below).

It is not enough to just read it – you need to enhance your processes, and regularly. In certain sectors where risk is higher for, say money laundering, the need will be greater.

There is no case law to refer to yet, and businesses will be given latitude to implement changes, but Wright warns that implementation could be swift: “If you have put reasonable precautionary measures in place, you will have some defence,” he says. bit.ly/CFAguide

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