HMRC changes its approach to investigating and settling cases of tax fraud - taxpayers need to be aware

HM Revenue & Customs (HMRC) has significantly changed how it investigates and settles cases of tax fraud by introducing the new Contractual Disclosure Facility (CDF). The changes are designed to strengthen the HMRC's civil investigation of fraud procedures and encourage cooperation from taxpayers by making it easier for taxpayers to cooperate with the investigation process. The changes also aim to identify those taxpayers who choose not to cooperate with HMRC more quickly so that appropriate action, including criminal investigation in some circumstances, can be taken. The CDF is supported by a rewritten Code of Practice 9 which explains the new process in detail.

Key features of the CDF

• HMRC inviting taxpayers suspected of fraud to enter into a contract with HMRC to make a full disclosure of any fraud.
• If someone enters into the contract and fulfils their obligation to make a full disclosure, HMRC will undertake not to pursue a criminal investigation with a view to prosecution.
• A challenging 60 day time limit to make an initial outline disclosure of any irregularities. Depending on the complexity of the disclosure this may be followed by a more detailed disclosure report within a timescale agreed with HMRC.
• The risk of criminal investigation in cases where an incomplete disclosure is made or where a person chooses not to cooperate.
• A recommendation from HMRC that independent advice is sought from specialists used to dealing with COP9.
• Reduced penalties for those who make a complete disclosure.

The CDF process is underpinned by HMRC’s existing enquiry powers, which give HMRC the power to charge penalties of up to 200% of the tax due and assess tax over 20 years in certain circumstances.

This new approach will see HMRC taking a harder line with those it perceives aren't cooperating with potentially serious consequences for clients including, in some cases, criminal investigation and potential prosecution. It's therefore vital that someone who's offered the CDF or who has a disclosure to make seeks specialist advice.

PwC’s Tax Dispute Resolution specialists have many years experience of helping clients make disclosures to HMRC of unpaid tax liabilities, including those made under Code of Practice 9. We would be happy to meet with anyone who is affected, or thinks they might be affected, by these changes.