Changes to the Contractual Disclosure Facility and those affected

30 June 2014 was a significant date in the tax investigations world for two reasons.  First, Offers made after this date under the Contractual Disclosure Facility (CDF) will no longer include an option to make a “denial with co-operation” leaving taxpayers with the two rather stark choices:

  • to admit to fraudulent behaviour; or
  • to deny the same and face a potential criminal investigation.

Secondly, any accounts held on or before 30 June 2014 in the Crown Dependencies and Overseas Territories by UK residents will be deemed ‘reportable accounts’ for the purposes of the Intergovernmental Agreements (IGA) with the UK and details of these accounts will be reported by the relevant overseas Financial Intermediaries (FI) to HMRC by 30 September 2016.

Denial with cooperation route no longer an option

Prior to 1 July 2014, anyone approached by HMRC under the CDF these had one of three options open to them:

  • To make an admission of fraudulent behaviour and accept HMRC’s offer to resolve the past.
  • To deny any irregularities resulting from deliberate behaviour and to refuse to cooperate with the investigation (the “non-cooperation route”).
  • To deny any irregularities resulting from deliberate behaviour with agreement to cooperate with the investigation (the “denial with cooperation”)

This third option did not provide a guarantee of immunity from prosecution but what it did allow was an opportunity to engage with HMRC and potentially resolve matters without the need for an admission of fraud.  This was seen by many as a significant factor, particularly those working in a regulated profession for whom any label of ‘fraudulent’ behaviour could have a serious negative impact. This third option is no longer available, leaving the taxpayer to either admit to fraud or deny any wrongdoing and face an HMRC investigation, with the added threat that this may be escalated to a criminal matter.

Since its introduction, the CDF has been viewed by many as an ineffective and confusing means by which to disclose irregularities to HMRC.  This latest development will only exacerbate concerns.  Clients receiving an offer under the CDF post-30 June 2014 will need to take specialist advice at an early stage.

‘Reportable accounts’

UK residents (including individuals, partnerships and unlisted companies) holding financial accounts in the Crown Dependencies and Overseas Territories on or before 30 June 2014 are to have their details passed to HMRC.  While the deadline for providing this information to HMRC is 30 September 2016, the information could be passed at any stage and those with relevant accounts should be mindful of this.  Details to be provided to HMRC include the name, address, date of birth and NI number of the account holder, along with the account number, name of the institution and the year end account balance.  HMRC will therefore be provided with adequate information to identify individuals and contact those where there are concerns that tax has been underpaid.

Where serious tax fraud is suspected, HMRC will, of course, have the option to contact individuals through the CDF and, as explained above, this will leave those individuals with a very difficult choice to make.  For such individuals, the Liechtenstein Disclosure Facility (along with similar facilities for the Isle of Man and Channel Islands) would have represented a distinctly more attractive option.

Those with assets in:

The Crown Dependencies

  • Isle of Man
  • Guernsey
  • Jersey

The Overseas Territories:

  • Anguilla
  • Bermuda
  • British Antarctic Territory
  • British Indian Ocean Territory
  • The British Virgin Islands
  • The Cayman Islands
  • The Falkland Islands
  • Gibraltar
  • Montserrat
  • The Pitcairn, Henderson, Ducie & Oeno Islands
  • Saint Helena, Ascension and Tristan da Cunha (including Gough Island Dependency)
  • South Georgia and the South Sandwich Islands
  • Sovereign Base Areas, Akrotiri and Dhekelia (on Cyprus)
  • The Turks & Caicos Islands

who wish to bring their tax affairs up to date are strongly advised to make a voluntary disclosure before HMRC come knocking with a CDF offer.

For advice on how to respond to a CDF offer, and how best to make a voluntary disclosure, please call TaxDesk on 0845 4900509 and ask for John Hood or Isobel Clift.