The opening letter from HMRC will notify the taxpayer of their suspicion that the taxpayer has committed tax fraud and enclose a copy of Code of Practice 9 (COP9).
The letter will include the offer of a contract through the CDF. Taxpayers have just 60 days to respond from the date of HRMC’s initial letter. Three options are available:
- "Owning up to tax fraud – The CDF route"
- "Deciding not to own up – The denial route"
- "Not replying to HMRC – The non-cooperation route"
Under both options HMRC will consider all of the information available to them and decide whether to begin a civil or criminal investigation. If the taxpayer issues a denial, the response may be used as evidence in criminal proceedings.
By agreeing to proceed under the CDF the taxpayer will be expected to sign a contract with HMRC. In return for full disclosure and cooperation from the taxpayer, HMRC agrees not to prosecute.
If the taxpayer chooses to disclose under the CDF, an outline disclosure of all tax irregularities and signing of the CDF contract (admitting to tax fraud) will need to be made within the 60 days limit. If HMRC are satisfied with the response the opportunity is given to submit a full disclosure to HMRC with a view to a civil settlement for tax, interest and a financial penalty. If any fraud is not set out in the outline disclosure, but is later disclosed or discovered, HMRC still reserve the right to undertake a criminal investigation and possible prosecution for that fraud. This emphasises the importance of the outline disclosure.
HMRC will expect cooperation throughout the process and reserve the right to withdraw the agreement and commence a criminal investigation if, in HMRC’s opinion, cooperation has been withdrawn.
HMRC will issue an Outline Disclosure form with their initial letter. The Outline disclosure must also be submitted to HMRC within the 60 day time limit. The disclosure is not expected to contain precise details if they cannot reasonably be obtained within those 60 days. The contents will vary from case to case but generally it will be expected to include:
- A brief personal and business history
- Description of each fraud
- Entities involved
- Period of fraud
- Details of amounts involved – estimates may be appropriate at this stage
- Description of records available
- Details of any further work required to quantify the fraud.
If HMRC are satisfied with the Outline Disclosure, they will look to conclude the disclosure without unnecessary delay. In complicated cases further work will be required to produce a detailed disclosure report to fully describe and quantify the tax irregularities. HMRC may invite the taxpayer to a meeting to agree the content of that report, or it may be sufficient for the adviser to meet HMRC.
HMRC may also request an initial meeting early in the CDF process during which the taxpayer will be expected to make an outline disclosure of the tax irregularities.
HMRC may request a progress meeting to check if matters are moving forward.
On conclusion of the investigation, the taxpayer will need to certify that a full and complete disclosure has been made. The taxpayer will also need to provide:
- A certified statement of worldwide personal assets and liabilities
- Certificates of bank accounts and credit cards operated
- A Certificate of Full Disclosure.
Any taxpayer receiving a CDF letter from HMRC should seek expert advice immediately. The options will need to be considered carefully and expert advice sought to determine which is the most appropriate way to respond.
The CDF is only suitable for people who want to admit to tax fraud. People who want to tell HMRC about errors, mistakes or avoidance schemes where fraud is not involved should use alternative routes of disclosure.
KPMG has extensive experience over many years advising clients to achieve successful resolution of fraud investigations undertaken by HMRC as well as working with clients to make voluntary disclosures to regularise historical tax issues.
If you would like further information, please contact us to arrange a free, no obligation initial discussion to explore your options.