CONTRACTUAL DISCLOSURE FACILITY: NEW OPPORTUNITY FOR TAX FRAUDSTERS?

Written 14th May 2014 by Olliers Solicitors

HMRC has introduced a series of (more or less) widely known ‘amnesty’ provisions, dealing in recent times with offshore bank accounts, doctors, and plumbers, which permit those in the know to regularise their position vis a vis HMRC.

The numbers involved are not small: by June 2010 The Fraud and Avoidance section of the Specialist Investigations directorate had approximately 25,800 persons with enquires open under Code of Practice 8. The estimated tax value was £7 billion.

In these times of economic doom and gloom there are therefore a substantial number of individuals whose affairs are attracting the interest of HMRC Special Investigations.

The more recent approach seems to ‘incentivise’ disclosure by promising reduced penalties.

Mike Eland Director General, Enforcement and Compliance, HMRC, in evidence before the Public Accounts Committee summarised features of the new system:

The new penalty regime will set minimum levels and it will also specify things for different types of behaviour. If your behaviour is that you deliberately committed evasion and you concealed it – that’s the worst category you can get into – then the minimum penalty will be 50% and the maximum will be 100%. Co-operation will only influence between the two of those1.

Contractual Disclosure Facility – Consultation

More recently HMRC have embarked on a consultation exercise2 which was due to conclude in December 2011.

The principal suggestion was that there be a ‘Contractual Disclosure Facility’ (CDF). This would seek to incentivise taxpayers (T) who are prepared to make an admission of fraud, by setting out in contractual form the basis upon which T could avoid prosecution.

This has been followed, in January 2012 by the HMRC3 announcement that it will introduce tougher procedures for civil fraud investigations with a new CDF which will be launched on 31 January 2012. Under the new facility, HMRC will contact taxpayers (‘T’), in writing, to inform them that they are suspected of serious tax fraud, and offer them the opportunity to enter into a contract to disclose that fraud within 60 days.

This will be a new procedure whereby T will then be able to be assured that there will be no criminal prosecution (by HMRC) of the evasion.

Failure fully to comply with the agreement (‘contract’) with fairly strict boundaries set by HMRC might lead to potentially severe consequences. Prosecution could follow if HMRC believe that there is less than full and frank disclosure in a report (to be compiled at T’s expense) and other certified statements which will be required.

HMRC recommend that anyone receiving a COP9 Notice take professional advice. It is almost certain that specialists will be required in dealing with these sensitive questions.

Those who practise in the field – whether as solicitors, counsel or accountants, or as a less regulated ‘tax adviser’ will be familiar with the consequences of R v Gill and Gill.

The Revenue sought to use answers given in ‘Hansard’ interviews which had been given without PACE 1984 Code C Caution having been given. T found their answers used against them in criminal proceedings. The Court of Appeal Criminal Division (Clarke LJ) were unable to accept submissions (that Code did not apply) as having given too narrow an interpretation of the expression “charged with the duty of investigating offences”.

The new CDF would, according to the consultation, avoid (sic) this potential difficulty being revisited.

“In the case of CDF the fraud would be disclosed. This would mean there is no need for PACE, as at the stage the CDF is accepted HMRC accepts in good faith that a complete disclosure will now be made and thus there is no longer an intention to proceed criminally”4.

If there is no intention in mind (Gill & Gill) to commence criminal proceedings then PACE may be irrelevant. But the whole basis of CDF is to incentivise T in such a fashion to avoid (same word) the risk of prosecution. How then is commencement of proceedings not in mind?

In that case it made little difference to the outcome; the Revenue sought to adduce evidence of answers as lies rather than as confessions.

It is assumed that there will be a series of meetings, in more complex cases, before the final agreement as to liability to back tax, penalties (reduced in light of full co-operation) and interest are resolved. Would it be appropriate to administer the Caution at the outset of these meetings? At that time there will be no ongoing criminal investigation. T should, however, be aware that if HMRC subsequently suspect that she or he has been in any way less than forthcoming in the disclosure process then they may revert to criminal investigation. And by then, of course, HMRC will be in possession of some pretty strong evidence – the original admission of fraud.

There are a number of other matters – some less or more obvious – which will be addressed by the author in the course of a seminar in February when Kai Luckham will be joined on a panel with other expert speakers in this field.

Please do not hesitate to contact Matthew Claughton or Richard Holliday if you feel that you might benefit from a confidential discussion of issues arising from this article.

Sources

  1. http://www.publications.parliament.uk/pa/cm201011/cmselect/cmpubacc/uc765-i/uc76501.htm see answer to Q41 (uncorrected internet publication)
  2. http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_031476
  3. http://www.hmrc.gov.uk/press/
  4. Consultation document, para 4.37

Kai Luckham

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