Emotions run high when playing Monopoly. We have all felt the glory of becoming a property tycoon or the devastation of rolling three double sixes and being sent to jail. For the 75% of businesses unaware of the criminal corporate offence of failing to prevent tax evasion, IR35 has the potential to "load the dice" and make a triple double six more likely.
Since the publication of the government's updated policy paper on off-payroll working earlier this month (see our earlier blog), employers have had time to prepare for the changes before their implementation in April 2020.
One aspect to consider is how the IR35 rules will fit into the wider compliance ecosystem. In particular, the corporate criminal offence of failure to prevent the facilitation of tax evasion has been a risk area for organisations engaging workers through personal service companies (PSCs) since the introduction of the Criminal Finances Act 2017.
It is possible that a worker flouting the current IR35 rules in relation to PSCs is engaged in tax evasion. Correspondingly, it is possible that an organisation assisting in such activity (potentially even by turning a blind eye) will itself commit the offence of facilitation. The offence is strict liability for which penalties can extend to an unlimited fine.
Given the seriousness of the consequences, it is perhaps surprising to read that the latest Ipsos MORI report on corporate behaviour found awareness of the offence to be low - with only 25% of respondents having heard of the Criminal Finances Act 2017. While 47% of respondents had received some internal training on tax evasion generally, only 24% had completed a risk assessment specifically for the offence.
Although the offence is strict liability, it is important to note that a defence is available if an organisation has reasonable procedures in place to prevent the offence from happening. This means that risk can be effectively managed by carrying out and acting on a risk assessment, updating compliance materials and running internal training.
As new legislation comes into force - such as the IR35 changes - reviewing and assessing your compliance becomes both more important and more complicated. In our view, the relative convenience of updating compliance procedures outweighs the risk of falling foul of the rules.
Our advice for businesses is that it is essential to ensure that (i) a risk assessment has been undertaken for the criminal corporate offence, and (ii) a thorough assessment and implementation of the new IR35 rules is undertaken.
Such widespread non-compliance also begs the question about how much of it is fraudulent, what the client/agency’s representatives have known about it and whether there is a risk of prosecution under the Criminal Finances Act 2017.