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Failure to Prevent Tax Evasion – What You Need to Know

Graham Fisher, Group Chief Executive at Orange Genie, explains the new offence of Failing to Prevent Tax Evasion and how you can protect your business. 

From 30th of September 2017 corporate bodies, including recruitment agencies, are at risk of criminal prosecution for failing to prevent tax evasion. This will include any employee recommending providers and receiving cash incentives where there is a reasonable expectation that the correct level of tax will not be paid.

Penalties will include unlimited fines and criminal record for corporations if convicted.

From a recruitment agency’s point of view, there are two main areas of concern:

  1. Incentives paid to recruitment consultants for introduction to a provider.

Failure to disclose such payments on the consultant’s tax return constitute tax evasion, and unless reasonable steps are in place, the recruiter (the consultant’s employer) will be liable for any unpaid tax. Recruitment agencies must take steps to stop consultants receiving “brown envelope” payments.

  1. Recommending a provider in the expectation that the worker will pay less tax.

All providers operate under the same rules, so the worker should receive a similar net pay from any provider. Where a provider is selected in the expectation of a higher return for the worker, the recruiter is at risk of prosecution under the new rules and it will be difficult to mount a defence.

In order to protect themselves, recruiters need to take control of their supplier listings and ensure all the providers they work with are paying the correct taxes. A preferred supplier list of vetted, compliant providers is an effective protection.

Overview of the new offence.

The aim of the new offence is to make it easier to convict corporations for the facilitation of tax evasion by their employees and associated parties.

HMRC have been very clear that all corporations are in scope. The legislation takes a strict liability approach, so the onus is on corporations to demonstrate that they have reasonable procedures in place.

A corporation will be guilty of the new offence if:

  • A tax evasion offence is committed by a tax payer (for example a contractor, an employee or a supplier)
  • The offence was facilitated by a third party (for example a recruitment consultant making a recommendation).


  • The facilitator is associated with the corporation (for example a recruiter who is the consultant’s employer).

Criminal intent on the part of the tax evader and the facilitator must be established, so two criminal offences must be committed for the corporation to be liable, but these two offences don’t need to be prosecuted and the offenders don’t need to be convicted.


How can recruiters protect themselves?

If stages one and two (see above) are committed, then the recruiter will have committed the new offence unless they have reasonable preventative procedures in place.

The legislation and supporting guidance takes a principle-based approach, with 6 “guiding principles”.

  • Risk assessment

  • Proportionality of risk-based prevention procedures

  • Top-level commitment

  • Due diligence

  • Communication (including training)

  • Monitoring and review

What is “reasonable” will vary depending on the particular circumstances relevant to the recruiter’s business and a bespoke risk assessment is advised. HMRC expects any compliance regime to include immediate self-reporting on discovery of a suspected facilitation offence.

Using a Preferred Supplier List (PSL)

Obviously, the ideal protection is to only work with providers who don’t engage in tax evasion. A PSL of trusted providers will help you achieve this, but only if all providers are correctly vetted. You should also ensure that all staff are aware of the importance of your PSL, and that you don’t work with suppliers who have not passed your vetting procedure.

There are many providers who pay lip-service to compliance, and relatively few who live by their words. Vetting providers can be difficult and expensive – both in terms of resources used and delays to service.  One quick and effective way to ensure all your suppliers are compliant is to only work with FCSA Accredited Members.

Many recruiters already use a PSL of trusted suppliers, because it has a number of important benefits. As well as making compliance issues easier to manage, the partnerships created by using a PSL can reduce administration and operating costs, improve brand recognition and increase sales and market share.

How Orange Genie can help

We’re rightly proud of our reputation for excellent service, expertise and integrity and our position as FCSA Accredited Members.

As well as ensuring all taxes are correctly paid, we also ensure that any incentives/gifts to individuals are covered by an HMRC Taxed Awards Scheme for both PAYE and NIC’s, that no incentives are paid in cash and that you are aware of any incentives being provided to your employees.

As an experienced contractor management company we’re ideally placed to help you navigate the pitfalls of tax and employment law, and provide best practice guidance to your staff and contractors.

If you have any questions about how you can prepare for the new legislation, need help creating a PSL or if we can help with anything at all please contact us on 01296 468185 or email

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