Corporate Criminal Offence – the risks to real estate industry

The COVID-19 outbreak has left governments with a major financial hole and increasing tax revenues will be a major priority for HMRC over the next few years. In view of this, the real estate sector should pay close attention to the Corporate Criminal Offence (CCO).

The CCO regime applies to all corporate entities irrespective of size, together with partnerships and charities. It is designed to prevent companies - and their ‘associated persons’ (broadly, anyone who is acting for or on behalf of the company) - from facilitating tax evasion. This now includes fraudulent claims under the Coronavirus Job Retention Scheme and other Government support packages.

The risks

Real estate businesses often have complicated supply chains and operations can change quickly so understanding and navigating the risks is key. A common risk area for businesses in this area is the use of contractors and subcontractors: if your main contractor uses subcontractors to complete part or all of a job for your company and pays those subcontractors in cash, there is a risk your business could fall foul of the CCO rules.

The onus is on the business to demonstrate that it has reasonable procedures in place to prevent the facilitation of tax evasion. The specific requirement for CCO is that an appropriate process has been implemented, rather than whether or not evasion actually occurs.

What do businesses need to consider?

1. Associated persons

It is vital to consider all of a business’ ‘associated persons’ and re-evaluate the level of risk each poses in view of COVID-19. An associated person is an individual or an entity performing services for the business, including employees, suppliers, contractors and agencies (such as advertising, recruitment or PR). If they are helping to evade tax or knowingly turning a blind eye to tax evasion while working in or for a business, there is a risk that the business will be liable under the CCO rules.

2. New working arrangements

Existing prevention procedures should be reviewed in light of a remote workforce. Are there any elements of the procedure that cannot be carried out remotely? For example, finance processes and authorisations or approvals on invoices may be harder to execute and it may be more difficult to monitor staff compliance with business policies.

3. Use of Government schemes

Government schemes have provided invaluable support for many businesses. The high-profile nature of the COVID-19 support schemes are, however, already attracting scrutiny from HMRC.

4. Reputation

A good reputation and sound governance have become increasingly important in the wake of COVID-19. Companies need to understand what is happening in their supply chains, with their employees and with their business partners alike. The impact of COVID-19 is likely to put more pressure on businesses to demonstrate that they have the right controls in place.

5. Navigate and take account of specific upcoming and recent changes: IR35 and VAT reverse charge

The implementation of IR35 in the private sector, which brings changes to taxation for personal service companies, is scheduled for April 2021. Organisations need to prepare, particularly since if the assessments of contractors are not dealt with correctly any PAYE failure could result in a CCO breach.

Additionally, organisations that fail to amend their PAYE bills where Construction Industry Scheme withholdings have been incorrectly applied may trigger a PAYE failure - and, potentially, a CCO breach.

From an indirect taxes perspective, the domestic reverse charge for VAT must be operated correctly and failure to do so may also constitute a failure for CCO purposes.

6. Senior level buy-in

The Board of the business must set the tone and demonstrate the importance of being aware of and complying with CCO. This awareness must be present throughout the organisation and needs to be genuine; awareness is more than documenting a procedure within the suite of HR materials.

How S&W can help?

It is important that businesses implement reasonable prevention procedures. This is a business’ only defence in case of prosecution.

Risk assessment

We have supported businesses of all sizes and across a range of sectors with their risk assessment process. We can advise on what procedures are likely to be considered ‘reasonable’ by HMRC by benchmarking them against similar businesses. A risk assessment can be performed remotely and usually involves a workshop with key individuals from the business.

Training

We have developed a bespoke e-learning course that is designed to address the training requirement set out by HMRC. The e-learning module can be easily uploaded to your existing Learning Management System for roll-out to staff or, alternatively, we can provide a platform through which you can distribute the training. We can work with you to deliver this on-site, COVID measures permitting.

Ongoing monitoring and review

Risk assessments should be regularly reviewed, particularly for the impact of COVID-19 where working practices and business activities have changed.

For businesses that have already performed a risk assessment, we can carry out CCO health checks, which normally involve reviewing the existing policies and procedures as well as refreshing the current risk assessment to reflect any changes in the business.

Ref: NTAJ141120158

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.