So, you have received a CDF letter from HMRC. After the panic has subsided, what should you do?
HMRC launched the Contractual Disclosure Facility (CDF) on 31 January 2012; it appears to be a new departure for HMRC as far as tax fraud is concerned. It is certainly a move away from the "pay up and we will say no more about it" approach of the recent past, which probably means that the relatively "softly softly" approach wasn't working, or not working quickly enough.
The CDF applies to all code of practice 9 investigations, and essentially, HMRC will write to any tax payer they suspect of tax fraud, without supplying any of the "evidence" that allegedly supports their suspicions. This is an important point, more of which later. The tax payer has 60 days in which to respond to the letter and to decide what s/he wants to do.
The tax payer has 3 options:
- To disclose all tax fraud;
- To deny, but co-operate with HMRC;
- Not co-operate at all (and possibly run the risk of a prosecution).
If you have received a CDF letter, contact both a specialist lawyer (such as Jeffrey Lewis or Siobhain Egan) and a specialist tax accountant (we work with leading tax accountants throughout the UK).
You have decided to make a full confession to HRMC and there are now two stages for you to complete:
- Make an outline of the disclosure (again ensuring that you take specialist advice first);
- Sign a certified statement, giving all relevant details in a full and frank manner. Essentially, you should come to HMRC with "clean hands".
You will be protected from prosecution in relation to all issues disclosed, but NOT from any issues omitted; again, this is why it’s important to take specialist advice throughout this process.
So what are the chances that you would be prosecuted for non-cooperation? There is certainly a higher chance of this now than there was in the past, and doubtless you will have read of the many millions the Government has given HMRC to pursue tax fraudsters and the 100 additional inspectors now assigned to the "affluent” unit. You will also have read of the DPP's recent promise to increase tax prosecutions 5x over the next 2-3 years (providing he gets the money from the Government to do it).
However, these prosecutions are time consuming, costly and uncertain, and would require HMRC to disclose the evidence which they allegedly had supporting their original suspicions to the requisite criminal standard of proof. The latter may cause some difficulties for HMRC who are protective of their sources of information.
We are not at all convinced that there will be a sudden surge of HMRC prosecutions but we are certain that a lengthy, drawn out and aggressive tax inquiry is not something that anyone would relish!
Contact Jeffrey Lewis or Siobhain Egan.
