Oct 13
The failure to prevent fraud offence came into force on 1 September 2025, and more than a year later, it continues to apply directly to large organisations. Smaller businesses are not necessarily unaffected. They can become involved as employees, agents or subcontractors performing services for large organisations, face additional contractual requirements from customers, or become subject to the legislation as their businesses grow. Companies within qualifying corporate groups may also be affected. For most owner-managed businesses, the sensible response is to complete a proportionate fraud risk assessment, establish clear internal controls and document how potential fraud risks are managed.
The offence is established under section 199 of the Economic Crime and Corporate Transparency Act 2023.
A qualifying organisation may commit the offence when an associated person commits a specified fraud offence intending to benefit the organisation or, in certain circumstances, its clients. The organisation must not be the intended victim of the fraud.
The legislation can apply to organisations incorporated outside the UK, provided there is a sufficient UK connection to the underlying fraud.
Importantly, directors and senior managers do not need to know about or authorise the fraudulent conduct for corporate liability to arise.
Organisations have a defence if they can demonstrate reasonable fraud prevention procedures were in place, or that it was unreasonable to expect any such procedures.
The Crown Prosecution Service has emphasised the importance of preparing for these requirements.
Conviction can result in an unlimited fine, making effective fraud prevention an important governance responsibility for qualifying organisations.
Direct answer: Generally, the offence applies to large organisations meeting at least two of three statutory thresholds in the financial year preceding the underlying fraud.
However, smaller subsidiaries within qualifying groups may also face corporate liability in specific circumstances. Smaller businesses working for larger organisations can additionally face contractual obligations and scrutiny.
| Test | Threshold | Applies if you meet |
|---|---|---|
| Employees | More than 250 | At least two of the three thresholds |
| Turnover | More than £36 million | At least two of the three thresholds |
| Total assets | More than £18 million | At least two of the three thresholds |
The employee threshold concerns the relevant average employee count. Parent undertakings are assessed using aggregate group figures, with specific rules governing turnover and balance sheet totals.
Most independent SMEs fall below these thresholds, but smaller subsidiaries of large groups should not automatically assume they are excluded.
Understanding both corporate structure and the activities performed for larger customers is therefore important.
An associated person can include an employee, agent, subsidiary undertaking or anyone performing services for or on behalf of a relevant organisation.
Whether this relationship exists depends on the circumstances, rather than simply how an agreement describes the parties.
A sales agent, broker or outsourced service provider acting on behalf of a large business could potentially qualify.
The ICAEW notes that smaller firms may be affected through relationships with organisations covered by the offence.
Ordinary suppliers providing goods or services to a large organisation are not automatically associated persons merely because they have a commercial relationship.
The distinction depends on whether they perform services for or on behalf of that organisation.
Large organisations may need evidence demonstrating that reasonable fraud prevention procedures are operating throughout relevant business relationships.
Consequently, smaller suppliers and service providers may encounter updated contractual clauses, anti-fraud declarations, due diligence questionnaires and audit requirements.
Although these requirements are not automatically statutory obligations on every smaller supplier, failure to satisfy reasonable customer expectations could affect commercial relationships.
Maintaining straightforward documentation can make these requests easier to manage.
A business with £30 million turnover and 200 employees may cross the statutory thresholds as it expands.
However, satisfying just one threshold is insufficient, and group structures must also be considered.
Businesses planning acquisitions, investment or significant recruitment should review whether their financial position could bring them within the legislation.
Establishing controls early may be more efficient than introducing them shortly before a major transaction.
The fact that a smaller company falls outside the corporate offence does not make fraudulent conduct lawful.
Individuals may still face prosecution for fraud, false accounting or fraudulent trading under other legislation.
Company directors also retain their existing legal responsibilities, including those explained in our guide to director duties during insolvency.
The Home Office guidance identifies six fraud prevention principles.
Although smaller independent businesses are not generally required to implement procedures specifically under this offence, these principles provide a useful framework for managing everyday commercial risks.
| Principle | What it can look like in a smaller firm |
|---|---|
| Top-level commitment | Directors establish a written anti-fraud policy and review responsibilities regularly |
| Risk assessment | Document potential risks involving invoices, payroll, expenses, sales and supplier payments |
| Proportionate procedures | Introduce payment approval limits, separation of duties and appropriate authorisation controls |
| Due diligence | Verify relevant suppliers, agents and customers, particularly when payment details change |
| Communication and training | Provide staff guidance on fraud risks and a confidential process for reporting concerns |
| Monitoring and review | Review procedures periodically and maintain records of incidents, weaknesses and improvements |
Proportionality remains important.
A business employing fifteen people will usually require different procedures from a multinational organisation.
However, even small firms benefit from identifying their most significant risks and keeping records of the steps taken to address them.
These steps can strengthen internal controls without creating unnecessary administrative burdens.
Financial pressure can increase the temptation to manipulate financial information or conceal business problems.
Examples include overstating sales to secure finance, creating false invoices or deliberately misrepresenting financial performance.
However, financial difficulty itself is not evidence of fraud, and late tax payments do not automatically constitute criminal conduct.
Our guide to financial distress warning signs explains indicators businesses should monitor.
Preparing a 13 week cash flow forecast can also help management anticipate financial pressures before they become critical.
Recent reporting on company failures and personal insolvencies illustrates why ongoing financial monitoring matters.
Where tax liabilities become overdue, our guide to HMRC tax debt explains potential options.
Businesses should address tax difficulties transparently rather than conceal liabilities or submit inaccurate financial information.
The failure to prevent fraud offence can apply to large organisations incorporated outside the UK where the underlying fraud has a sufficient UK connection.
This generally requires relevant conduct, financial gain or financial loss to occur within the UK.
An Irish company is therefore not automatically subject to the offence simply because it trades with UK customers.
However, Irish businesses acting on behalf of qualifying organisations may encounter contractual requirements designed to support those organisations’ fraud prevention procedures.
Group structures also affect how statutory thresholds and responsibilities are assessed.
Our article on setting up a company in both the UK and Ireland explains relevant structural considerations.
Maintaining consistent financial records is equally useful, particularly for businesses dealing with multiple currencies.
Our guide to sterling and euro books explores this further.
Specialist cross-border accounting and tax advice can help businesses understand reporting and compliance responsibilities across both jurisdictions.
If suspected fraud arises, organisations should act promptly to preserve evidence, protect financial information and investigate appropriately.
Access to relevant systems may need restricting, while professional legal advice can help determine reporting responsibilities.
Self-reporting and cooperation with enforcement authorities may be relevant considerations, although neither automatically prevents prosecution or guarantees more favourable treatment.
Forensic accountants and investigations specialists can examine financial transactions, identify irregularities and assess potential losses.
Where suspected fraud creates serious financial difficulties, an insolvency practitioner can explain available restructuring or insolvency options.
Experienced recovery accountants can improve cash flow through financial analysis and operational planning.
Lenders and commercial customers may also request independent financial assurance.
An external audit can provide assurance on financial statements within the scope of the audit, although it does not guarantee that every instance of fraud will be detected.
The offence came into force on 1 September 2025 under the Economic Crime and Corporate Transparency Act 2023.
Generally, large organisations meeting at least two thresholds: more than 250 employees, turnover exceeding £36 million or total assets exceeding £18 million. Special provisions also apply to qualifying corporate groups and subsidiaries.
Yes. A smaller business may qualify when performing services for or on behalf of a relevant organisation. However, being an associated person does not automatically make that smaller business directly liable for the corporate offence.
A qualifying organisation can defend a prosecution by demonstrating that it had reasonable fraud prevention procedures, or that it was unreasonable in the circumstances to expect any such procedures.
If a large customer has requested information about your anti-fraud controls, or you want to strengthen your own procedures, our team can help review financial risks and establish proportionate safeguards.
Contact your nearest office at SCC Chartered Accountants to discuss your business requirements.
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