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HMRC’s proposal for a Civil Investigation of Fraud (CIF) Contractual Disclosure Facility was released in a discussion document on 20 July 2011 …

Scope of the discussion document is to look at ‘toughening and tightening HMRC’s approach to Civil Investigations of Fraud through a Contractual Disclosure Facility’.

HMRC have set out a two month period – until 20 September – to receive responses on the Contractual Disclosure Facility proposal. They are asking for the views of those who have been affected by the way HMRC handle Tax Fraud. And more importantly, the views of tax agents, lawyers and accountants, specialising in Civil Tax Fraud Investigations.

Section 1.9, of HMRC’s CIF – Contractual Disclosure Facility discussion document, says that:

“The purpose of this discussion paper is to seek views on the need to further improve our process for tackling suspected tax fraud through civil investigation.”

The work is being led by Juliet Roch, from HMRC Specialist Investigations and Tori Magill, from HMRC Criminal Enforcement Policy.

On introducing how HMRC think they can now take steps to tighten Civil Investigation of Fraud procedures, the discussion document states that:

“No legislative change will be needed to do this and this is the first consultation on one option for modernising that process.”

The tightening of HMRC CIF procedures is in response to the National Audit Offices (NAO) ‘HMRC: Managing Civil Tax Investigations’ report, which discovered that 20% of Civil Investigations of Fraud cases involved no disclosure.

NAO’s report challenged HMRC to carry on improving their operational effectiveness and to further toughen up the CIF process, in order to ‘reduce the length of time it takes to deal with these cases’ and ‘benefit both HMRC and taxpayers’.

HMRC have recently responded to the NAO report by updating Code of Practice 9 procedures, on 18 July this year, to keep up to date with legislative changes.

Changes made include alteration to the existing set of nine questions, required to be asked at a Code of Practice 9 interview, plus an additional tenth question being added (For more information click here).

Upon launching the discussion document, David Gauke, the Exchequer Secretary to the Treasury, said:

“The Civil Investigation of Fraud procedure is an important tool for HMRC, producing many valuable disclosures every year. This proposal will help HMRC to ensure that the procedure is used in cases where taxpayers genuinely want to come clean. Appropriate action can then be taken sooner against fraudsters who do not choose to disclose their crimes.”

Civil Investigations of Fraud are currently undertaken by HMRC when a criminal investigation is not considered the best way to settle a Tax Fraud case . CIF tend to be more cost effective and are used when tax prosecution is unlikely to be of public interest.

The aim of the Civil Investigations of Fraud Contractual Disclosure Facility is to give taxpayers who have committed Tax Fraud, the chance to come forward to make a full disclosure, which means they will not be prosecuted for the offence.

Upon receiving a letter from HMRC, saying you have been suspected ofTax Fraud, the proposed Contractual Disclosure Facility would give you the opportunity to avoid criminal investigation by entering a contract to disclose tax irregularities.

Section 4.8, of the CIF discussion document, states that an outline disclosure would need to cover:

– a general description of what had happened

– entities affected and other parties involved

– time span

– an indication of the amounts involved

– an admission of fraud

A suggested period of 60 days would then be given for the contract to be accepted and an outline disclosure to be made. This time would allow individuals to seek professional advice and to see whether any irregularities would class as Tax Fraud.

HMRC hope that the proposed Contractual Disclosure Facility, along with tightening the ability to prosecute for Tax Fraud, will deter non disclosure and bring many taxpayers forward to admit their tax irregularities.

Section 1.15, of the CIF discussion document, says:

“Taxpayers who disclose and co-operate with the contract will see reduced penalties, as they will be entitled to penalty reductions for disclosure and co-operation.”

In some cases the threat of HMRC Tax Penalties is not enough. A further deterrent under proposition means that deliberate tax defaulters details can be published for any case where Tax Fraud exceeds £25,000.

HMRC’s emphasis on criminal prosecution for non co-operation with the proposed Contractual Disclosure Facility, is in response to The National Audit Offices (NAO) Managing Civil Tax Investigations report. Which also recommended that HMRC should ensure there is a ‘credible deterrent to non-co-operation’.

HM Revenue and Customs are encouraging responses and enquiries to the Civil Investigations of Fraud Contractual Disclosure Facility discussion document.

HMRC are keen to gain feedback on the operational policy objective, 60 day period given in which to make an outline disclosure, benefits of the Contractual Disclosure Facility and whether people agree with HMRC’s assessment of impacts.

A full copy of the report can be obtained from their website and responses to the document can be sent via post or email.

The deadline closes on 20 September 2011.

Have you already received that dreaded letter from HMRC?

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