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Contractual Disclosure Facility

On this page you will find out...
  • What the Contractual Disclosure Facility / Code of Practice 9 is
  • The process after applying to take part in the CDF
  • What happens if you don't admit to deliberate errors in your tax affairs
  • Whether you should accept or decline to partake in the Contractual Disclosure Facility

What is the Contractual Disclosure Facility / Code of Practice 9?

The Contractual Disclosure Facility is a none statutory process used by HMRC where they suspect serious tax fraud and is solely used by HMRC Fraud Investigation Service.  The offer to take part in the Contractual Disclosure Facility and the issue of Code of Practice 9 are only undertaken where HMRC suspect serious tax evasion.

What happens when I receive a letter relating to the Contractual Disclosure Facility?

The letter explains that if you have committed tax fraud this is a one-off opportunity to make a full disclose disclosure of any irregularities in your tax affairs to HMRC.  There then follows a process of meeting with HMRC and HMRC expect, as part of the process, that a report will be commissioned to disclose any tax fraud and to do a biography of your tax history.

If you have not committed tax fraud, then HMRC will not just go away.  There is a form provided to deny any irregularities or if you do not contact HMRC within 60 days of the date the invitation to take part in the Contractual Disclosure Facility is received, HMRC automatically treat this as a denial.  Where HMRC deem the matter to be a denial they will write to say that they are commencing their own investigations.

Will HMRC tell me what the suspected tax fraud is?

The simple answer is no.

During the 60 days to accept or deny taking part in the Contractual Disclosure Facility HMRC will not engage in any communication with you or your advisor.

Once the process is started HMRC still keep their cards close to their chest, but experienced advisors can usually work out what the issues are by reference to the questions asked by HMRC

What if HMRC’s suspicions are not correct?

HMRC will still assume their suspicions are correct.  HMRC will ask for a meeting and for various information to be provided and they will continue to carry out their investigations. This is explained in more detail below.

What if HMRC’s suspicions are correct?

The tax fraud and any irregularities should be admitted and there are various forms and documents enclosed with the Contractual Disclosure Facility letter these include:

Code of Practice 9

Code of Practice 9 is a Document which sets out HMRC's position on, and how to complete, the Contractual Disclosure forms and what the process of the HMRC investigation into their suspected serious tax fraud.  It is important that you read and understand this document.

In effect, Code of Practice 9 sets out the protocols and procedures that HMRC expect to work under, where they are suspecting serious tax fraud outlining that:

  • This is a person’s one-off opportunity to make a full and complete disclosure of all tax irregularities
  • That, in order to take part in the process, an individual must admit to deliberately not declaring all of their income (or deliberately making claims for reliefs, expenses or VAT that they know are incorrect and not due)
  • That if there are none deliberate errors as well that these also need to be disclosed on the relevant disclosure
  • Sets out that by deliberate, HMRC mean that the individual knew that entries included in the tax return or accounts were incorrect but chose to submit them to HMRC anyway
  • That if materially false statements are made as part of the process then the individual will be considered for prosecution
  • If a full disclosure is made then the person will not be considered for prosecution
  • That the individual only has 60 days from the date of receipt of the offer to take part in the Contractual Disclosure Facility to accept
  • That if HMRC have not received the relevant forms back from the individual within this period then HMRC will treat this as the individual saying that they have not made any deliberate errors

Outline Disclosure Document

This document allows for an outline of the disclosure to be made.  The disclosure should include:

  • A request for payment on account of any tax liabilities.
  • An outline disclosure of any loss of tax or duty brought about by the deliberate conduct of not declaring all income to HMRC.  This relates to all taxes and duties and all world wide income.  The period to be covered is the last 20 years.
  • Details of your deliberate conduct in not paying all taxes.  This is:
  1. What you did
  2. When you did it
  3. How you did it
  4. How you benefited
  5. The involvement of other parties.
  • Details of the entities involved.  The Contractual Disclosure Facility is only issued to individuals but often the issues will also involve other entities such as Limited Companies and partnerships.
  • Approximate details of the amount of tax that is owed.
  • What records are available to support the disclosure of tax irregularities.
  • Details of any non-deliberate tax irregularities.

The document also encourages you to appoint a tax advisor with experience of dealing with Contractual Disclosure Facility cases.

It is important to note that this is merely an outline.  It may be that the tax cannot be calculated and estimates may need to be used.  What is important is that the form includes an outline of any tax irregularities as if it does not cover the matters which HMRC suspect they will reject the application to take part.

This document needs to be signed and dated.

Application to take Part in the Contractual Disclosure Facility

  • This is headed “Your acceptance” and in effect it merely confirms you understand the process and that you will make a full and open disclosure of any tax irregularities.

Along with the Outline Disclosure this also needs to be signed and dated and there is a cross reference to this in the Outline Disclosure which also need to be completed.

Failure to send both forms back signed and dated in the 60 day time scale will result in the rejection of your application to take part in the Contractual Disclosure Facility.

Where I apply to take part in the CDF what is the process?

How the HMRC tax investigation is handled where the Contractual Disclosure Facility is offered is most important, as if dealt with badly an individual can get a dramatic increase in penalties. Poor handling can also result in an individual having their name published on the HMRC website for tax fraud.

When HMRC accept you into the CDF process they will request a meeting to discuss the outline disclosure in more detail.  This is a very scripted meeting as HMRC have to make certain statements and get confirmation that you understand.  It is important to go into this meeting fully prepared and we advise having a pre meeting with an experience advisor who can take you though the process and the sort of questions HMRC will ask so you are fully prepared.

Towards the end of the meeting HMRC will ask that you prepare a disclosure report.

What is a disclosure report?

A disclosure report sets out in detail the tax irregularities.  An ideal disclosure report should include the following:

  • Background information
  • Sources and availability of information
  • Estimate and assumptions made
  • Sources and availability of information
  • Description of irregularities and how they have been calculated
  • Adoption certificate
  • Certificate of bank accounts operated
  • Certificate of credit cards operated
  • Certificate of full disclosure.

During the process HMRC will expect updates on progress as the report and supporting documents are being collated.

What happens once HMRC have the report?

HMRC will always review the report and have 90 days to do so in theory.  

What happens after that depends to a great extent on the quality of the report.  

If the report has been compiled properly and in detail and regular contact has been made with HMRC to discuss any potentially contentious areas, then the report is usually accepted after some check’s reviews and discussions.

From discussions with HMRC where advisors have not done the report to a high standard then HMRC have to start to conduct their own enquiries and these can drag on for years and often increase both the tax due and also the penalties.

What happens after HMRC accept the report?

Although it is an ongoing matter of discussion throughout the period of the CDF, penalties are negotiated and the interest due is calculated.  Where funds are not readily available to pay all of the duties due then discussions are had about a time to pay arrangement.

When all of this is agreed HMRC often want a final meeting called a settlement meeting.  In this meeting the final settlement is signed off by you making a letter of offer to HMRC (which they will accept at a later as everything should have been agreed prior to the meeting).  HMRC will also ask that a Certificate of Full Disclosure is signed and stress the importance of diligence in ensuring your tax affairs are always in order.  

Can I make a request to be offered the opportunity to take part in the Contractual Disclosure Facility?

The simple answer is yes.  If you have tax irregularities, you wish to disclose to HMRC using the Contractual Disclosure Facility there is a form to complete to request this. A request can be made where HMRC do not have an open investigation or whether there is an open HMRC civil investigation.

HMRC do not ask for any details of why you wish to participate in the CDF process but will review your tax position and usually accept the applications and the CDF process as outlined above applies.

What happens if I do not admit to deliberate errors in my tax affairs as part of the Contractual Disclosure Facility?

Where someone is invited to take part in the Contractual Disclosure Facility HMRC are supposed to have based this on review of significant intelligence about your tax affairs. HMRC have a wealth of digital information from many sources including the Home Office, Land Registry, Banks (both UK and overseas) and foreign governments.  HMRC treat the information as true and accurate when it is frequently flawed or based on false assumptions.

We have seen many examples where HMRC believe that supposition is a substitute for evidence and make wild claims without any supporting hard evidence.

These are often the hardest cases to deal with as HMRC have already decided you are guilty of tax fraud.  HMRC often ask for bank statements and other financial documents yet will not provide anything but vague explanations as to what the suspected tax fraud is.  HMRC will often just say that they believe that there is an issue with means or property purchases.

HMRC are not legally entitled to most of the information they request, and due consideration should be given to what is and is not provided.  One way to flush out any evidence is to explain that although the desire is to cooperate with HMRC this should be done within the scope and parameters of the law and that any information request is approved by the Tribunal where HMRC have to provide evidenced reasons to suspect.

How long does it take to go through the Contractual Disclosure Facility?

When the CDF forms have been sent to HMRC accepting the offer it usually takes about 1 to 2 months before a meeting with HMRC takes place.

Preparing the report depends on the complexities of the nature of the irregularities.  Where the matter is relatively simple then the report can be completed, and settlement agreed in a 6-to-12-month timescale.

An average case usually takes about 12 to 24 months.

More complex cases where are many aspects to consider take longer.

Although HMRC may suggest that a report takes 6 months, most officers who deal with the enquiries understand that these are reasonable time scales and as long as they are regularly updated on progress are comfortable with these sort of time scales.

What about if I have an existing accountant?

Many accountants refer their tax enquiry work to us.

Where we do not have a relationship with your accountant they are often relieved that a specialist is taking over the enquiry and we will work with them as best suits your needs.

What about my ongoing tax affairs whilst I am part of the Contractual Disclosure Facility process?

It is important that your keep your tax affairs up to date.  If you do not have someone who deals with your day to day tax affairs, should you require, we will look after the standard dealings with HMRC on your behalf.

Is there a typical profile of people who have the offer to take part in the Contractual Disclosure Facility?

There is not typical profile, over the years we have dealt with professionals such as accountants, solicitors, barristers, doctors and surgeons.  We have dealt with sole traders to owners of multimillion pound businesses.  We have used the CDF process to get people into the tax system where they were not on HMRC’s radar and they were worried that if they declared they had been trading then they would be prosecuted.

Some of the professionals now refer work to us when they become aware their clients have tax issues, even if they do not require to take part in the CDF.  Accountants where we have dealt with their clients to sort a tax enquiry often use us time and again where there other clients have tax investigations or receive letters inviting their clients to take part in the CDF process.

"What should I do if I get an letter from HMRC offering me the opportunity to take part in the Contractual Disclosure Facility?"

  • Don't panic. Provided a CDF enquiry is dealt with properly from the start it is a manageable process whether you accept that there is something wrong with your tax affairs or believe that you are completely innocent of the allegations made.
  • Take action. Decisions on the best option, whether to accept or deny the HMRC allegations and, if relevant, making the outline disclosure to HMRC need to be undertaken within 60 days of receipt of the CDF letter if you wish to participate in the process.
  • Take advice from a specialist. The Contractual Disclosure documents suggest that specialist advice is taken and this is something that we agree with HMRC on.  
  • Make sure you find an advisor who not only has the relevant experience but that you get along with as a person too. Whether an acceptance or denial this is an intrusive process and you have to be sure the advisor has got your back.
  • If a potential advisor tells you that if you do not go with them you will go to prison then run a mile.  It is the advisor’s job to explain how to get through the process and calm any concerns, not to stoke fear up just to make a sale.

It cannot be stressed enough that advice should be taken from people who have extensive experience in dealing with the Contractual Disclosure Facility: both acceptance and denial cases.

If you find yourself in possession of a CDF letter it is important to find an advisor you like who has the right experience.  It may seem costly, but they can save you in tax, interest and penalties as well as piece of mind.

What are the generic triggers for HMRC to send a CDF letter?

The reasons for each CDF letter and disclosure are varied but a typical CDF case includes the following elements:

  • Purchase and or Sale of Property as this information is available to HMRC via the Land Registry.
  • Undeclared rental income.  HMRC often obtain information about let property from letting agents using their information powers.
  • Bank interest not been declared which HMRC use to calculate the likely balance of funds in the account.  HMRC are provided with this information on an annual basis by the banks and financial institutions.
  • VAT issues discovered on a routine VAT visit.
  • An existing routine tax enquiry
  • Having work undertaken privately and having this billed to the company.
  • Money Laundering Reports.
  • Publicly available information such as Court cases.

What have our clients said about Gilbert Tax and guiding them through the CDF process?

We have assisted hundreds of clients through the CDF process and the forerunner to this.

A common theme amongst clients after the relief of closure of what is a stressful time is thanks for our help and support both on a professional and personal level.  At the beginning we always explain the process and our plan to get the client through it and most clients appreciate this and the open dialogue throughout the process.

Many clients keep in touch but all state that they hope never to have to use our services again.

Here to help, not to judge
Tax Investigation Specialist
Scott Gilbert, Partner and Tax Investigation Specialist

"We understand that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.

Our firm of tax advisors specialise in resolving people's problems with HMRC. We have extensive expertise in dealing with all forms of tax investigations and tax disputes as well as with taking matters to the Tax Tribunal where agreement cannot be reached.

We deal both directly with the individual who is under enquiry and also work with many firms of accountants supporting them in dealing with HMRC disputes and advising them on how to handle HRMC to get the best result.

The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.

Our expert team are none judgemental and rigorously defend your position within the scope and parameter of the law. We take control and manage the process to minimise the interruptions that any form of tax investigation causes to an individual's life and business."