Companies could be prosecuted and face unlimited fines if they fail to spot tax evasion by their suppliers.
Advisers are telling clients to carry out due diligence on their suppliers and contractors and to get to know their responsibilities under “corporate criminal offence” legislation.
The rules apply to the evasion of UK and foreign taxes and attribute criminal liability to companies and partnerships where a business or its employees “fail to prevent” a representative deliberately facilitating any form of tax evasion.
A representative can be an agent, contractor or third party supplier and a company can commit offences under the rules simply by not having the correct procedures in place when a representative facilitates tax evasion.
There have been no prosecutions under the rules, which came into force two years ago, but advisers are reporting more use of the powers and it is understood that HMRC has several investigations under way.
James Egert, a tax partner at BDO, said: “This includes dawn raids and office visits with requests to review all supplier documentation and interviews with employees to see if they had an awareness of the legislation.”
Inspectors are looking particularly closely for instances of VAT fraud in supply chains and the employment status of contractors. Both areas have been the subject of tax evasion adding up to billions of pounds in recent years.
A person who knows HMRC’s approach said that inspectors were told to ask businesses questions on the rules simply to “sense check” if anything has been done by “looking at [their] face”. However, an HMRC spokesman said this was “not part of our approach”.
It is issuing letters to some businesses at which they believe there are issues in the supply chain as a warning of the need to enhance due diligence, with a focus on labour providers and contractors. One letter from HMRC to a company says: “We are concerned that your business could be at risk of involvement in supply chains connected with fraud.”
It seeks to arrange an inspection of customer and supplier lists, invoices, VAT accounts, supplier contracts and transaction histories. The company will also have to provide “certain trading records on a monthly basis”.