Being subject to a tax investigation is very stressful for people, but being subject to the contractual disclosure facility arrangements is one step down from being subject to a prosecution for tax fraud.
It is therefore important that people who receive a letter from HMRC offering them the contractual disclosure facility understand the process and implications of being offered the facility.
The contractual disclosure facility is an HMRC process where they suspect serious tax fraud. The facility is only issued with HMRC’s Code of Practice 9 (investigations where HMRC suspect tax fraud). Anyone who received a letter from HMRC with an offer to participate in the contractual disclosure facility should seek professional tax advice from a specialist in dealing with the contractual disclosure facility and Code of Practice 9 tax investigations.
The facility can only be issued by an authorised officer and generally it is only used by HMRC’s Fraud Investigation Service who also deal with suspected serious tax fraud and criminal investigation. Usually HMRC will only issue the offer of the contractual disclosure facility where they believe that there will be duties unpaid of over £75,000 because of the suspected tax fraud.
The contractual disclosure facility is a prescribed format. The offer to take part in the facility can only be made by HMRC (although the contractual disclosure facility can be requested where appropriate when someone wishes to disclose tax irregularities to HMRC). With the offer to participate in the contractual disclosure facility comes various forms which HMRC ask the individual accused of tax fraud to complete. In effect, the contractual disclosure facility is a guarantee of non- prosecution for tax fraud or tax evasion that is admitted in the facility contract.
The notification letters are usually sent recorded delivery to the person HMRC suspect of tax fraud. The reason for this is that anyone who is offered the contractual disclosure facility has 60 days from the date of receipt to return the necessary forms to HMRC. If the disclosure forms are not returned in 60 days, then HMRC automatically deem the offer to take part in the contractual disclosure facility to be rejected. This will then trigger an investigation of the suspected tax fraud without the benefit of protection from prosecution.
A person can, if they do not believe they have committed tax fraud, complete a relevant form and decline to take part in the contractual disclosure facility. Again this will trigger a tax investigation where they will not have the protection of the contractual disclosure’s guarantee of none prosecution. If someone truly does not believe they have committed tax fraud and wishes to decline taking part in the facility then it is even more important that they seek assistance from a tax advisor who is familiar with dealing with HMRC tax investigations and with all contractual disclosure facility and Code of Practice 9 issues.
If the recipient of the offer letter admits that there may have been a tax fraud, then the individual will be asked to sign a document (Contractual Disclosure Facility Outline Disclosure) where they admit that there has been conduct that HMRC may consider to be tax fraud. In the document it is necessary to complete the contractual disclosure facility undertaking and to describe the tax fraud, the individuals or entities involved in the tax fraud and the time period covered.
It is possible to include other matters where there is not a tax fraud in the contractual disclosure facility outline disclosure, where there may be additional tax irregularities, but where fraudulent conduct has not occurred. It is not possible to participate in the facility where no tax fraud is admitted, even if there are tax irregularities.
The undertaking insists that, on accepting HMRC’s offer to take part in the contractual disclosure facility, the individual signs to agree to take part in the facility, that they have read and understood Code of Practice 9 and that they will be open and honest with HMRC.
It is important that people who have committed tax fraud or whom have a tax investigation get proper professional representation by people whom deal with tax investigations and disclosure of tax fraud to HMRC. With regards to someone who is offered the contractual disclosure facility this then becomes even more important, as if badly represented the person who is offered the contractual disclosure facility increases their risk of, at worst, prosecution and at best significant tax penalties.
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