Contractual Disclosure Facility (CDF)
The CDF was introduced on 31 January 2012 and is the latest incarnation of HMRC’s Code of Practice 9 (COP9), which is used to investigate suspected tax evasion and fraud. There is no de minimis limit and each case is judged on its individual facts.
COP9 can be triggered in two distinct ways:
- HMRC suspect from their internal records or from information received from a third party that an individual has been involved in tax fraud; or
- A voluntary disclosure is made by the individual and the issues are deemed to be serious enough to merit an investigation under COP9.
When HMRC notifies an individual that they are suspected of committing tax fraud they will be given 60 days in which to decide whether they wish to:
- Admit to tax fraud deliberate behaviour that has brought about a loss of tax;
- Reject the offer.
Admission of fraud
If the individual does admit tax fraud then they must provide an outline of the deliberate behaviour and an estimate of the tax lost.
It is important that a full disclosure is made as only the issues disclosed will be immune from prosecution. Should a partial disclosure be made to HMRC there is a real risk that the individual may still be subject to criminal investigation.
In certain circumstances it may be necessary to make a voluntary disclosure via the CDF, although anyone considering this route should initially review whether the Liechtenstein Disclosure Facility may be more beneficial.
Should HMRC accept the outline disclosure, the next step will be to discuss the irregularities, timescales and where appropriate request a disclosure report is commissioned.
It is important to consider if you have acted deliberately and if you do not believe you have intentionally evaded taxes you should reject the offer made under the CDF. This may be done by way of a formal response to HMRC. In the event of a rejection HMRC will launch an enquiry either civilly or criminally into the individual’s tax affairs.
HMRC would use its formal powers to assess the tax lost, interest and penalties believed due. In certain cases, HMRC may decide to use its insolvency powers. Any enquiry conducted by HMRC will be more intrusive and disruptive than if the individual had co-operated in the first place.
In addition the individual would lose the opportunity to mitigate penalties, which in certain cases can be as high as 200% of the tax at risk.
There is also the risk that HMRC will consider publishing the individual’s personal details and face greater scrutiny going forward under the ‘managing deliberate defaulters’ regime. This means that their tax affairs will be closely monitored by HMRC for a period of between two to five years to ensure they comply.
Extreme care should be taken if considering the rejection route due to the potential implications.
How we can help?
We specialise in representing clients suspected of committing tax fraud and can advise on all aspects of the CDF, including establishing whether tax fraud was committed and the options available under the CDF. Each case is reviewed on its merits and we then advise on the most suitable course of action. At Gabelle one size does not necessarily fit all and we pride ourselves on our bespoke service.
For more information on our Tax Investigation services, please phone our TaxDesk on 0845 4900 509 or email firstname.lastname@example.org.