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Contractual Disclosure Facility: All Change or No Change?
Some excitement is evident following HMRC's recent publication of the "Contractual Disclosure Facility". This is essentially an attempt to streamline the processes by which HMRC tackle suspected serious tax fraud (the sort of thing handled by that part of HMRC successively known as Enquiry Branch, Special Compliance Office, Special Civil Investigations, Special Investigations etc). But how new is it really?
Out goes the old procedure under which a challenge would invariably be followed by a lengthy initial meeting at which the taxpayer would be invited to spill the beans – a meeting at which in our experience the accused was often far too intimidated by the entire proceedings to make any coherent contribution to them. Instead, taxpayers suspected of serious tax fraud will henceforth be invited to respond in writing (within a time limit of 60 days) either to agree that matters are awry and to enter into a contractual agreement to come clean; or to confirm that there is "nothing to declare". We suspect the latter route will be taken only rarely and only by the brave or foolhardy. Failure to choose one or other response will be regarded as non-co-operation and is likely to precipitate a civil or criminal investigation by HMRC.
As now, making a full disclosure, quantifying irregularities as promptly as possible and making realistic payments on account will minimize penalties and protect from prosecution. By contrast, if a disclosure is found to be incomplete HMRC's gloves will be off. In some ways an incomplete disclosure will be worse than no disclosure at all. Expert help in framing the disclosure will usually be invaluable and HMRC are explicit in advising that "If you already have an appointed adviser you should contact them immediately. However, many people find it helpful to appoint a specialist adviser who is familiar with this Code, in addition to their regular adviser."
What is new is that HMRC say that there will be some reasonably straightforward cases in which they will not require the same detailed "disclosure report" as has hitherto been a feature of tax fraud investigations. But whether this is likely to make much real difference is a moot point: disclosure reports have always in our experience been tailored to the case and, regardless of what HMRC want to see for themselves, it will remain crucial that clients can show that they have taken reasonable care to satisfy themselves that any disclosure is complete. Any temptation to make an off-the-cuff or ill-researched disclosure should be resisted.
The key point running through the new Code of Practice 9 (replacing that which was issued only in July last year, incidentally, which must be some kind or record) is that in this as in much of its practice nowadays HMRC are determined to make life as easy as possible for compliant taxpayers (we refuse to use the word "customers"!) and to focus its resources on the non-compliant minority.
For more on the CDF or on tax investigations please contact us or visit our web pages.
