What recruitment businesses need to know about the Criminal Corporate Offence

criminal corporate offence recruitment businesses

2nd December 2020

International contractor recruitment has the potential to provide a wealth of lucrative opportunities for recruitment businesses, but there are risks if a staffing company doesn’t have the requisite compliance procedures in place. The challenge for many businesses at the moment is that global authorities are increasingly clamping down on tax evasion and fraud, and in order to do so, many are passing the risks and responsibilities down the supply chain.

As we’ve mentioned before, the Criminal Finances Act 2017 (CFA) is one such example where a recruitment agency could face potential criminal charges or fines for the misdemeanours of a contractor – even if the agency itself isn’t directly involved.

One element of the CFA that many recruiters perhaps might not be aware of, though, is the Corporate Criminal Offence (CCO).

What is the Corporate Criminal Offence (CCO)?

The CCO is a suite of measures designed to tackle tax evaders and their enablers that were brought in under the Criminal Finances Act 2017.

The legislation stipulates that the relevant body – usually a company or a partnership – can be held criminally liable in cases where somebody associated with the company engaged in tax evasion. The law aims to engender cultural change in organisations and prevent those at the top from passing the buck to others. HM Revenue & Customs hopes that these new penalties will incentivise members of the C-suite and senior managers to take greater action to prevent the facilitation of fraud at any point in the supply chain.

The law, however, goes further than holding corporate entities liable for the actions of individuals associated with their organisations. It also demands that companies implement proactive measures sufficient to convince HMRC that they are doing all they can to eliminate tax evasion.

The definition of “associated person” is deliberately broad and includes employees, contractors, agents and virtually anyone else who acts on behalf of the company. Penalties for failing to demonstrate that appropriate measures are being put in place include fines, public record of convictions and potential damage to your brand’s reputation.

What minimum actions do businesses need to take to comply with the CCO?

The CCO states that the actions that businesses need to take to comply with the new law should be proportionate to the level of risk that the business faces.

At a minimum, HMRC wants companies to do the following:

  • Identify existing risks in their business
  • Consider the incentives for tax evasion by “sitting at the desk” of each associated person
  • Put in place proper procedures that prevent associated people from facilitating tax evasion

Unfortunately, HMRC makes it clear that it is not sufficient to rely on existing compliance mechanisms. Organisations need to implement CCO-specific steps to ensure that they’ve covered their risks. The actions they take must convince the tax authority that they have done what can be reasonably expected to do in order to prevent tax evasion.

Which sectors are at the highest risk?

Recruitment agencies that deal internationally are widely regarded to be at a higher risk of falling foul of CCO rules due to the complex nature of overseas tax compliance. Specific industries are also at higher risk of tax evasion than others, including financial services and legal firms.

According to the ICAEW, “HMRC currently has 13 live cases, with another 18 under review. It is understood that these span ten different business sectors, including financial services, oil, construction and labour provision, and sit across all HMRC customer groups from small business through to some of the UK’s largest organisations.”

At the moment, the tax authority hasn’t pinpointed any common issues across sectors, but most of the current investigations involve companies previously found guilty of tax evasion.

What should a business do if they identify that an associated person has facilitated tax fraud?

Recruitment agencies can self-report instances of suspected tax evasion (either internally or through an associate) via established reporting mechanisms. However, the current recommendation is to take legal advice beforehand. Due to the current set up of the law, any company reporting under the CCO is admitting a criminal offence, unless they can demonstrate that the required steps were taken to prevent the facilitation of tax evasion of the associated person or entity.

The current advice is for firms to build a defence beforehand to demonstrate that they took the appropriate and reasonable actions to prevent tax evasion from occurring.

Companies should note that self-reporting doesn’t eliminate the possibility that HMRC will charge the company with a criminal offence. However, the courts and the tax authority may take this into account when apportioning legal penalties.

Protecting your recruitment business from the Corporate Criminal Offence

The CCO legislation applies to companies of all sizes, including small businesses, so any recruitment agency that places contractors international will need to ensure they have the appropriate measures in place. But that doesn’t mean you have to handle this alone – in fact, we’d highly recommend you don’t!

Experts in global tax compliance will be able to guide your business and ensure your consultants and contractors are operating compliantly. Why not contact us today to find out more?

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