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Contractual Disclosure Facility Denial Case Study

Contractual Disclosure Facility (CDF) Specialists

When HMRC issue a letter to someone to invite them to take part in the Contractual Disclosure Facility then in accordance with their own instructions HMRC should have gone through a thorough process, based on evidence that there is a high probability that there is tax unpaid and that on balance this has been as the result of deliberate behaviour.

The matter of whether someone has deliberately under declared their income or not paid enough tax is a simple one. Either they have and they will have knowledge of this or they have not and this is a key question we always ask clients.

We have found that increasingly over the last 5 years or so (this article is written in 2023) HMRC have been issuing invitations for people to partake in the Contractual Disclosure Facility where when asked the simple question as set out above the answer has been no they have not committed tax fraud.

Nil liability settlement

We have recently settled a case for nil liability with regards to a Contractual Disclosure Facility denial which included 4 directors and with a general enquiry into 2 members of staff and two companies.  This has started off as a general enquiry and unfortunately, even thought not legally obliged to do so, the agents acting provided bank statements and other supporting evidence for a number of the directors and employees.

Money was banked in the account from friends and family and for the majority of the funds supporting paid cheques were provided of the bank statement clearly demonstrated the source of the funds.

Never the less HMRC decided that it was suitable for the issue of the Contractual Disclosure Facility and made vague allegations against the directors and family members about:

  • Capital Build Up
  • Funding of Properties (rental and personal)
  • Insufficient Household Income to pay for outgoings

HMRC alleged that the amounts that were banked into the private bank accounts of the individuals were company moneys which were paid to third parties who then deposited the funds into the bank accounts of the directors or employees and had therefore been omitted from sales.

How we handle HMRC

It was relatively simple to demonstrate how all of the properties had been purchased and that these were by way of legitimate savings and loans.

Most of the individuals under enquiry lived in two households and it was demonstrated to HMRC that combined income as declared of P60 and tax returns was well over £100,000 per year with minimal tax as dividends were the prime source of income. Using information provided to HMRC previously by the original agents it was shown that this was sufficient to cover outgoings and leave a significant balance for savings.  The family were all vegetarians and worked long hours in the family business so did not really have time for socialising outside of the family.

HMRC were asked repeatedly over a number of years to provide figures to support their allegations or evidence that company funds had been paid to third parties (as well as how this would be impossible as it would need it to happen hundreds of time in one company and the other generally dealt with large businesses who self billed and the balance were factored for cash flow purposes.

HMRC information notices

Despite the continuous requests HMRC refused to comply and provide any evidence merely repeating the same allegations repeatedly.

One way to flush out HMRC’s evidence is to force HMRC to issue a first party information notice asking for bank statements and answers to questions etc.  This should be done on the basis that an individual has a right to justice and a fair hearing. HMRC issued first party information notices which were appealed and progressing to Tribunal.  This was all in accordance with the law and the guidance in HMRC’s own instructions.

This would have meant that HMRC would have to put their evidence in public before a judge and we would have the opportunity to challenge it on behalf of our client.

Without notice HMRC withdrew the taxpayer information notice and stated they were applying to a Tribunal Approved Notice which is not subject to the same scrutiny as first party notices as all but HMRC are barred from proceedings. This was completely against HMRC instructions for the use of Tribunal Approved notices (cases of risk of flight etc) and despite this being pointed out to HMRC and the Tribunal (as well as the lack of evidence to support HMRC’s allegations) the Tribunal Judge (it may be coincidence but the Judge was ex HMRC) approved the notices.

Most of the information requested had already been sent and in anticipation any balance had been obtained to enable the notices to be complied with.

Avoiding £1,000,000+ in penalties

HMRC then spent 2 years (excuse of Covid restrictions) doing nothing on the case and eventually it was brought to a head by a request for a decision letter and the line manager of the HMRC officer was contacted to explain that the letter should include evidence and reference to documents which supported HMRC’s view. Despite the assurances the officer did not provide proper evidence and appeared to believe that unsupported statements made in previous HMRC correspondence constituted evidence.

The reason for wanting a decision letter is that this can then go for review by an independent HMRC officer. It also gives the chance to make representations to the review officer and as there was Reims of correspondence the decision was taken to address all allegations and show (with the evidence already provided to HMRC) that the allegations made in the decision letter were without foundation and contrary to the facts.

Having reviewed our representation the Reviewing Officer upheld our view that there was no deliberate tax evasion, that HMRC’s allegations were without foundation and that there should be nothing assessed on any individual or the companies with regards to omitted sales.

Obviously as HMRC were demanding well over £1,000,000 tax and penalties the client was delighted with the outcome.


Contractual Disclosure Facility denials are difficult to deal with but it is important that if an individual or individuals have not deliberately done anything incorrect with regards to their tax affairs that they are not steamrollered into just agreeing that they have committed tax fraud.  There are serious implications of this in terms of penalties but also in personal integrity as why should someone admit to something they have not done?

Unfortunately HMRC have a blinkered attitude and in our opinion often ignore facts that do not support HMRC’s view.

It is therefore often preferable when someone is innocent is to obtain all of the relevant information and if HMRC do not wish to engage force matters with regards to trying to get HMRC to issue a first party information request to test their evidence or in asking for a decision letter to obtain a review and if the review is not successful (some reviewing officers will just agree with the decision of the first officer as that is the easy route) but it then moves matters to the Tax Tribunal where In open hearing it is our view that Judges look at the evidence and take a view based on this.

There are more and more cases coming to Tribunal where the Judge is critical of HMRC for being technically incorrect and not having any supporting evidence the most recent being Pavin Trading Ltd.

It should be remembered that just because HMRC accuse an individual of wrongdoing does not mean that they are right to do so and that if innocent it is worth challenging HMRC as a matter of principle.

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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."