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.
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.
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
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.
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 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 document allows for an outline of the disclosure to be made. The disclosure should include:
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.
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.
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.
A disclosure report sets out in detail the tax irregularities. An ideal disclosure report should include the following:
During the process HMRC will expect updates on progress as the report and supporting documents are being collated.
HMRC will always review the report and have 90 days to do so in theory.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The reasons for each CDF letter and disclosure are varied but a typical CDF case includes the following elements:
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.
Get in touch with us for confidential and no-obligation tax advice.
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"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."