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HMRC have announced a facility to allow tax fraudsters to come forward without risk of criminal prosecution.
The contractual disclosure facility (CDF) is a new opportunity that will come into effect at the end this month, when the Revenue will write to taxpayers suspected of tax fraud.
The individuals will be offered a CDF contract and provided with an acceptance letter, a denial letter, a disclosure form and a copy of COP9 - thereby providing three options: own up, rebuff the allegation, or do not reply.
Entering into a CDF contract will mean HMRC will not enter into criminal investigation. In return, the taxpayer will be obliged to:
- reveal details of all tax deliberately evaded, with no exceptions, within 60 days of being offered the contract;
- sign a statement to say he or she has provided accurate and complete details of the fraud;
- pay all taxes, duties, interest and penalties due; and
- stop all fraudulent behaviour immediately.
The process – to be known also as a formal disclosure – is the only way by which a taxpayer will be able to admit to fraud without the taxman launching a criminal enquiry. Taking advantage of the CDF is also likely to result in low penalty levels.
The individual will have 60 days to decide whether or not to tell the Revenue about his or her tax fraud. During which period he or she will not be contacted by the department – although officials will still be able to take action against goods the taxpayer owns, start or continue debt collection or any other action needed as part of HMRC's legal obligations.
Taxpayers not under investigation, but who want to admit to tax fraud, may fill out a form to request that the Revenue considers their suitability for a CDF contractual arrangement. The department retains the discretion to decide which cases are dealt with civilly, and which are investigated with a view to criminal prosecution.
The latest of a considerable number of disclosure facilities is a ‘major change from the existing civil investigation of fraud procedure’, said Derek Scott, director of tax investigations at KPMG UK.
‘Under the previous Code of Practice 9 procedure, there was a risk of prosecution in certain circumstances… regardless of whether or not people co-operated with the authorities. The CDF addresses the balance by introducing the threat of criminal proceedings only in the event of non-co-operation,’ he added.
Phil Berwick, director at law firm McGrigors, said the new disclosure opportunity ‘represents a significant change in the way HMRC conduct investigations where fraud is suspected’ and suggested it ‘will help facilitate a very substantial increase in criminal prosecutions in the next few years’.
He warned that fraudulent taxpayers ‘will be at greater risk of imprisonment and losing the family home. For the more determined tax evaders, the chances of getting off with a fine and a slap on the wrist are diminishing.’
Under the current rules, the Revenue has to balance the probability of securing a criminal conviction against a civil settlement and, because it is easier to secure a civil settlement, the department has ‘often been reluctant to take a gamble on criminal proceedings, where the burden of proof is higher’, claimed Mr Berwick.
‘A significant minority of individuals have been stonewalling the Revenue… [which] will now have the option of hauling those individuals in front of the criminal courts, the threat of which alone should prompt greater cooperation.’
