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Tax fraud: HMRC seek views on contractual disclosure facility

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HMRC are inviting comments on a proposed contractual disclosure facility to tighten the department’s procedures for the civil investigation of fraud and identify taxpayers who are not ‘honestly engaged’ with the system.

HMRC would offer a taxpayer suspected of tax fraud the opportunity to enter into a contract to disclose that fraud in exchange for ‘certainty that HMRC would not carry out a criminal investigation’.

The contract would require the taxpayer to make an outline disclosure within ‘a short time’, including an indication of the amounts involved.

The consultation document published on 20 July suggests a period of 60 days and asks whether this is a reasonable time frame for the taxpayer to ‘talk to their adviser and make an outline disclosure of their tax irregularities’.

Phil Berwick, Director at McGrigors, said 60 days is ‘too short a timeframe in which to ask somebody to make such an important disclosure, even in outline form’.

He added: ‘They have to be given time to get the disclosure right because they face criminal prosecution and possible jail if they get it wrong.’

Comments are invited by 20 September and HMRC plan to host a presentation for professionals who specialise in fraud investigation work.

Tax yield

HMRC finalised 350 civil fraud settlements in 2009/10, generating £115 million. But the National Audit Office found that in 2009/10 the ‘average elapsed time’ of these investigations was 25 months.

The NAO said last December that HMRC needed to exert more management pressure to reduce elapsed times. It identified a ‘potential to re-model’ the civil investigation of fraud process.

‘Investigation teams have made over 900 settlements over the last three years, resulting in yield of £294 million. In 2009-10, the average yield per investigation was £329,000 – nineteen times their cost – reflecting the larger amounts of tax at stake and their potential,’ the NAO said.

HMRC said that while they will be ‘substantially increasing’ the number of tax fraud prosecutions over the next four years, the selective nature of their criminal investigation policy ‘allows us to choose a civil investigation route where this will be more effective or appropriate’.

CIF is chosen ‘where criminal investigation is not considered the most cost effective way to tackle the fraud or for situations where a prosecution is unlikely to be in the public interest’.

The stated operational policy objective is to ‘encourage those who have committed tax fraud to make a full disclosure of irregularities by giving a clear message that full disclosure will not result in prosecution, and deter non disclosure or partial disclosure by improving the ability prosecute for fraud following non-disclosure or partial disclosures’.


‘HMRC’s proposals would potentially help and provide greater clarity to those who want to engage with the taxman,’ said Gary Ashford, the CIOT’s representative on HMRC’s Compliance Reform Forum.

‘This is yet another announcement in relation to countering tax evasion so no one should doubt the direction of travel of the government’s drive to close the tax gap … With HMRC targeting a five-fold increase in criminal prosecutions for evasion, the consequences of not clearing up tax irregularities could be grave.’

An updated Code of Practice COP 9, published earlier this week, takes account of recent changes in legislation. The revised code applies to investigations started after 1 August 2011.