TaxMay 13 2020

How HMRC deals with suspected tax offences

  • Explain what the contract disclosure facility is
  • Identify reasons to reject CDF offer
  • Explain what happens when CDF offer is accepted
  • Explain what the contract disclosure facility is
  • Identify reasons to reject CDF offer
  • Explain what happens when CDF offer is accepted
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
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How HMRC deals with suspected tax offences

HM Revenue & Customs is not renowned for its generosity. 

However, in circumstances where the department comes across suspected tax evasion, it can offer immunity from prosecution for tax offences in exchange for a full and accurate disclosure of any tax irregularities. 

This is the contractual disclosure facility.

The CDF follows a prescribed format and can only be issued by an authorised officer at HMRC, usually a member of the Fraud Investigations Unit. 

The opening letter from HMRC will notify the taxpayer of their suspicion of tax fraud and enclose a copy of the Code of Practice 9 (COP9).

The taxpayer will then have 60 days from HMRC’s initial letter to respond and will be given only two choices; either to accept HMRC’s offer of a CDF (and in doing so admitting deliberate tax evasion) or decline the offer.

If no response is filed or received after 60 days, then HMRC will automatically assume the offer to take part in the CDF has been rejected.

Declining the offer will then trigger an investigation by HMRC, which will consider whether to investigate the suspected tax fraud under a civil route or under a criminal investigation. 

Proof of tax evasion 

On all occasions, the circumstances of any tax underpayment must be closely reviewed by an experienced specialist who is skilled in tax investigations and tax resolutions work, and well-versed in CDF work. 

While the potential threat of criminal prosecution should be taken seriously, receiving a CDF is not quite all it seems.

Key Points:

  • A CDF can offer immunity from prosecution for tax offences
  • The facility does not always mean tax authorities meet the required standard of proof
  • COP9 is a way to collect tax from perceived or actual tax evaders

Firstly, it may mean the quality of any evidence held by the tax authorities does not meet the required standard of proof (beyond all reasonable doubt) to mount a successful criminal prosecution. 

Secondly, HMRC’s use of this facility is not what it was 25 years ago when a client in receipt of such an offer might reasonably be advised that this was serious and that the offer would not have been made lightly. 

In more recent years the CDF has been used more frequently to elicit confessions from those who have participated in unpalatable tax schemes with a logic little stronger than, ‘They must have known better’.

While dodgy tax schemes should not be condoned, many individuals who have historically participated in tax schemes will have done so under ‘professional’ advice.

Reliance on professional advisers, ignorance of the law or simple stupidity are not ingredients of tax evasion, which by its very nature requires a deliberate intent to evade taxes. 

Reasons to reject CDF offer

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