The most significant change introduced by the Civil Investigation of Fraud (CIF) procedure is the removal of the underlying threat of prosecution, which was an integral part of the old Hansard investigation carried out by SCO. Where HMRC decides to investigate using the new CIF procedure, the taxpayer will be told at the outset that HMRC will not seek a prosecution for the tax fraud that is the subject of the investigation.
As a result of making the proceedings entirely civil, Special Civil Investigations (SCI) interviews will not be held under caution and nor will they be tape-recorded.
Finally, there will be a single meeting to discuss both direct and indirect tax matters. Pending the outcome of the ongoing review of HMRC powers, the powers relating to direct and indirect taxes remain separate and distinct. The meeting will therefore have to be structured so that the taxpayer is aware of what tax is being discussed and so that each tax is dealt with separately.
When the investigation is complete, the tax, interest and penalty in respect of both direct and indirect taxes will have to be negotiated. The way in which the penalty is calculated will depend on the return period:-
The threat of prosecution is only lifted in respect of the tax fraud itself. Having been given the opportunity to make a complete disclosure, the taxpayer who, in the course of a civil investigation, makes materially false statements or provides materially false documents with the intention to deceive will still face the possibility of a criminal prosecution. The prosecution would, however, be in respect of the deceitful conduct, not the tax fraud being investigated.
If HMRC decides not to use the CIF procedure, they can instead refer the matter to the RCPO for consideration for prosecution where they consider it necessary or appropriate. The civil procedures are unlikely to be offered in the cases outlined in the prosecution policy statement issued by the Inland Revenue on 14th July 2004. Instead, HMRC would seek to mount a prosecution in respect of the tax fraud itself.
HMRC are satisfied that the new procedures are compliant with the Human Rights Act 1998, and in particular art.6 which gives the right to a fair trial.