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Tax fraud: HMRC launches contractual disclosure facility

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Taxpayers who are not under investigation but want to admit to tax fraud may ask HMRC to consider their suitability for a new contractual disclosure facility (CDF), HMRC announced last week.

The CDF, which is set to begin at the end of January, presents taxpayers with three options, according to new HMRC guidance – owning up to fraud, deciding not to own up, and not co-operating. Under the CDF route HMRC will ‘agree not to criminally investigate and prosecute’ the taxpayer.

‘This is a positive development,’ said Gary Ashford, who represents the CIOT on HMRC’s Compliance Reform Forum. ‘HMRC’s proposals would potentially provide greater clarity to those who have deliberately got their tax wrong and now want to engage with the taxman to regularise their affairs. It would also tighten the net on those who think they can carry on evading or seek to drag out HMRC enquiries without any intention of paying.’

McGrigors, the law firm, noted that taxpayers will lose the right to ‘automatic immunity’ under the new rules. Taxpayers under civil investigation under the current Civil Investigation of Fraud process had automatic immunity from criminal prosecution, it said.

If HMRC opted to bring a civil investigation, it could not then mount a criminal prosecution for the same offence. But taxpayers approached under the new rules who fail to admit to irregularities will not get immunity from prosecution for those offences.

McGrigors Director Phil Berwick added: ‘This new procedure represents a significant change in the way HMRC conducts investigations where fraud is suspected. The change will help facilitate a very substantial increase in criminal prosecutions in the next few years.

‘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.’

Ashford said ‘a flurry of big tax investigations’ was likely to begin at the end of January. ‘Those pursued under the CDF can expect to have to pay the tax owed, interest and substantial penalties. HMRC’s “offer” is that in return for full disclosure and no procrastination, the penalties will be civil rather than criminal,’ he added.