An introduction to the Criminal Finances Act 2017 and how it affects the UK sports industryMichelle Sloane, Adam Craggs
All of us working in the sports industry should be aware of the new Criminal Finances Act 20171 (the Act), which provides two new strict liability offences for failing to prevent the facilitation of tax evasion - a particularly topical subject given the recent Paradise Papers revelations.
The changes are designed to overcome the difficulty often encountered by prosecuting authorities in attributing criminal liability to companies for the criminal acts of employees, agents, or those that provide services for, or on their behalf.
The consequences are extreme, with companies potentially facing an unlimited financial penalty and/or ancillary orders such as confiscation orders or serious crime prevention orders. Non-compliance will result in a criminal investigation by HMRC, which brings with it the risk of a dawn raid.
This article briefly summarises the new offences under the Act, specifically with regard to the sports industry, which remains firmly in the sights of the tax man. It goes on to describe the practical steps that should be taken now in order to minimise the risk of a criminal conviction.
HMRC has been under pressure from politicians for some time to increase criminal prosecutions for tax evasion. In September 2010, the Chief Secretary to the Treasury pledged to make funding available to HMRC for a five-fold increase in criminal prosecutions for tax evasion2. Perhaps not surprisingly given such targets and the availability of additional funding, HMRC increased the number of "dawn raids" it carried out from 499 in 2010 to 1,563 in 2016. There has also been a dramatic increase in the number of criminal prosecutions for tax evasion from 430 in 2010 to 1,258 in 2015. Following claims that HMRC have increased their hit-rate by targeting "small time" offenders, HMRC are under significant pressure to pursue high profile prosecutions which will attract widespread publicity.
In the authors’ experience, there is a commonly held perception within HMRC that football clubs, players and agents are avoiding and evading tax. The authors are also aware that HMRC have similar concerns in relation to rugby clubs and the boxing industry. In response, HMRC recently established a task force to consider the tax affairs of the football industry. In evidence to the Public Accounts Committee in December 2016, the Chief Executive of HMRC said that image rights payments are the most significant risk in football3. HMRC confirmed, in July 2017, that they are currently investigating 67 players, 13 agents and 39 clubs for a range of issues including image rights abuse, transfer fee splits and the use of tax avoidance schemes4. Since 2014/15, HMRC claim to have collected £269 million of additional tax as a result of focussing on the football industry.
Tax authorities across Europe are also scrutinising the football industry. In Spain, football agent Jorge Mendes has been accused of using a network of shell companies in the British Virgin Islands, Republic of Ireland, Colombia and Panama, to avoid tax in relation to players' image rights and Cristiano Ronaldo is also under investigation in Spain for tax evasion in relation to image rights. It is alleged that he concealed income via Ireland and the British Virgin Islands. Ronaldo denies these allegations and the case is proceeding in the Spanish Courts5.
HMRC are now even better placed to target tax evaders with the introduction, from 30 September 2017, of two new strict liability offences of failure to prevent the facilitation of tax evasion, introduced by the Act. HMRC will be investigating how businesses and their employees might be assisting or encouraging tax evasion. The aim of the legislation is to require relevant bodies to put in place reasonable procedures to prevent those providing services for, or on its behalf, from dishonestly and deliberately facilitating tax evasion.
Tax evasion and its facilitation are already criminal offences, however, the new offences aim to overcome the difficulty often encountered by prosecuting authorities in attributing criminal liability to relevant bodies for the criminal acts of employees, agents, or those that provide services for, or on their behalf.
What are the new offences?
The Act creates two new offences. The first offence relates to the evasion of UK tax and the second to the evasion of foreign tax.
Section 45 of the Act relates to the UK tax evasion offence. Section 45(1) provides:
"A relevant body (B) is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with B".
Section 46 of the Act relates to the foreign tax evasion offence and section 46(1) provides:
"(1) A relevant body (B) is guilty of an offence if at any time—
(a) a person commits a foreign tax evasion facilitation offence when acting in the capacity of a person associated with B, and
(b) any of the conditions in subsection (2) is satisfied".
Only a "relevant body" can commit the new offences. A relevant body is defined as "a body corporate or a partnership"6, wherever incorporated or formed. The offences therefore apply to companies, partnerships and not for profit organisations. The offences do not apply to natural persons.
A relevant body will commit the new offences if a person associated with it (a person is associated with a relevant body if that person performs services for or on behalf of the relevant body) deliberately and dishonestly facilitates a tax evasion offence and the relevant body failed to prevent such facilitation.
What are the Consequences of Non-Compliance?
Under sections 45(8) and 46(7) of the Act, the penalties for these new offences include an unlimited financial penalty. The fine payable will be at the discretion of the Court. There will also be possible ancillary orders such as confiscation orders or serious crime prevention orders.
Non-compliance will result in a criminal investigation by HMRC with any prosecutions being brought by the Crown Prosecution Service (CPS), whilst the foreign tax offence will be investigated by the Serious Fraud Office (SFO) or National Crime Agency and prosecutions will be brought by either the SFO or CPS. In addition to these penalties, any adverse publicity is likely to impact on the profitability of the business concerned.
Is there any defence to the new offences?
The only defence available to a business is if it can demonstrate that it:
1. has in place reasonable preventative procedures; or
2. it was not reasonable, in all the circumstances, to expect it to have any preventative procedures in place.
The offences are modelled on section 7 of the Bribery Act 20107 (offence of corporate failure to prevent bribery) and the above statutory defence is similar to the defence of "adequate procedures to prevent" bribery, contained in section 7 of the Bribery Act 2010.
In order to maximise their prospects of mounting a successful defence, businesses should follow HMRC's guidance.
Risk assessment: The relevant body should assess the nature and extent of its exposure to the risk of those who act for, or on its behalf, engaging in activity during the course of business to criminally facilitate tax evasion. The risk assessment is key to the other guiding principles which need to be evaluated based on the results of the analysis of risk.
Proportionality of risk based preventative procedures: To be "reasonable", preventative procedures should be proportionate to the risk the relevant body faces of persons associated with it committing tax evasion facilitation offences. This will depend on the nature, scale and complexity of the relevant body's activities.
Top level commitment: Senior management of a relevant body should be committed to preventing persons associated with it from engaging in the facilitation of tax evasion.
Due diligence: The relevant body should apply due diligence procedures, taking an appropriate and risk based approach.
Communication (including training): The relevant body should ensure that its prevention policies and procedures are communicated, embedded and understood throughout the organisation, through internal and external communication, including training.
Monitoring and review: The relevant body should monitor and review its prevention procedures and make improvements where necessary.
What action should be taken?
Those in the sports industry who met the definition of a relevant body should, if they have not already done so, be taking action to ensure that they are aware of and have control over how their associated persons operate in order to reduce the risk of exposure to the new offences.
Conducting a risk assessment is central to putting in place reasonable preventative procedures so that, if necessary, the above defence can be relied upon. Relevant bodies need to conduct a thorough risk assessment of their "associated persons" and consider whether such persons have a motive, the opportunity and the means, to facilitate tax evasion and if they do, appropriate procedures should be implemented. For example, in a football player's transfer, there are a number of intermediaries who will be classed as "associated persons" that will all need to be considered.
The procedures should be documented so that an audit trail can be provided to support any policy decisions regarding the implementation of new procedures to reduce the risk of exposure to the new offences. Relevant bodies need to bear in mind that if they receive advice from an accountant regarding the procedures that it should put in place, this advice is likely to be disclosable to HMRC as it will not be subject to legal privilege in the way a lawyer's advice would be.
Failure to implement reasonable preventative procedures is likely to leave a relevant body exposed to a possible criminal prosecution in the event that an associated person facilitates tax evasion.
The Government has acknowledged that the reasonableness of preventative procedures will change over time. What is reasonable on the first day the new offences came into force will not necessarily be the same as what is reasonable when the offences have been in effect for a number of years. The preventative procedures should therefore be reviewed regularly to ensure that they remain reasonable.
The Act is of particular concern to companies in the sports industry when, for instance, clubs become liable for the actions of their employees (i.e. athletes) and intermediaries (i.e. agents').
Given the current political pressure on HMRC to increase the number of significant criminal prosecutions for tax evasion, it is likely that HMRC will seek some early "high profile" prosecutions using the new powers available to them under the Act and those associated with the sport industry may well find themselves being targeted by HMRC. The number of dawn raids and criminal prosecutions for tax evasion is likely to continue to increase for the foreseeable future and individuals and businesses need to ensure that they are prepared and have in place robust systems should they be unfortunate enough to receive the "knock".
1† Criminal Finances Act 201, 7 https://www.legislation.gov.uk/ukpga/2017/22/contents/enacted
2† ‘£900 million to tackle non compliance in the tax system’, gov.co.uk, 20 Sept 2010, last accessed 12 Jan 2018,
3† ‘Public Accounts Committee meeting’, parliamentlive.tv, 7 Dec 2016, last accessed 12 Jan 2018,
4† ‘Tax Avoidance: Sports and Entertainments: Written question – 5391’, parliament.uk, 17 July 2017, last accessed 12 Jan 2018, https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2017-07-17/5391/
5† Stephen Bugen, ‘Cristiano Ronaldo denies €14.7m tax evasion in Madrid court’, theguardian.com, 31 July 2017, last accessed 12 Jan 2018, https://www.theguardian.com/football/2017/jul/31/cristiano-ronaldo-denies-tax-evasion-madrid-court
6† See Footnote 1, definitions: https://www.legislation.gov.uk/ukpga/2017/22/part/3/crossheading/preliminary/enacted
7† Bribery Act 2010, https://www.legislation.gov.uk/ukpga/2010/23/contents
8† HMRC, ‘Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion’, gov.uk, 1 Sept 2017, last accessed 12 Jan 2018, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/642714/Tackling-tax-evasion-corporate-offences.pdf
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- Tags: Anti-Corruption | Bribery Act 2010 | Criminal Finances Act 2017 | HMRC | UK | United Kingdom (UK)
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About the Author
Michelle specialises in contentious tax. Michelle has particular expertise in advising sports clients in relation to indirect tax enquiries and HMRC criminal investigations and prosecutions covering all tax types, including managing HMRC "dawn raids".
Adam leads RPC's market-leading tax disputes team and has over 25 years' experience in this area. Adam has particular expertise in advising sports clients on matters involving image rights, agents' fees, residence/domicile and Employee Benefit Trusts (EBT) arrangements. He acts on behalf of a range of high profile clients including international Premier League football players, their agents and advisors, and clubs.