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Contractual Disclosure Facility CDF
Under COP9 Investigation, the taxpayer has the chance to make full disclosure to HMRC about all of the tax frauds, anomalies and any mistakes or misrepresentations that have taken place in exchange for protection from prosecution for those offences if they go through the procedure that is known as the Contractual Disclosure Facility (CDF). HMRC have given this chance, so the taxpayer gets immunity from prosecution for the above offences. In the event you agree to CDF, you and HMRC will work together to negotiate a financial solution that satisfies your tax compliance and tax payable is agreeable to them.
The CDF is a contract between the taxpayer and HMRC. It does not include any additional legal obligations. Both parties have mutually accepted the conditions of the contract. The taxpayer agrees to be responsible for providing full cooperation and making a commitment to revealing any tax offences within the time limit that is agreed upon. And HMRC agrees to keep the investigation as a civil matter and not pursue criminal charges against the taxpayer. HMRC will not prosecute the tax offences and will refrain from pursuing legal action against individuals. On the other side, if the taxpayer breaks the contract, HMRC will not hesitate to prosecute legal action against them and won’t waste any time charging them.
When the HMRC conducts a tax investigation, they do it with teams that are commonly considered the most renowned and well-trained tax fraud investigation teams in the organisation. This is because these teams have received extensive training. Investigations that come under the purview of the CDF procedure are to be carried out by these teams as their duty.
If the taxpayer rejects to accept CDF and does not cooperate with the COP9 investigation, the investigation will be handed over to HMRC Fraud Investigation Team Specialist Branch. It gives the impression that HMRC will work on the pertinent data and conduct the proper investigation to calculate the amount of tax that was avoided. If there is sufficient evidence to demonstrate that a person made an intentional effort to deceive HMRC by falsifying the facts and data in the issue, HMRC may opt to prosecute criminal charges against that person. HM Revenue and Customs Service have the power and authority to lawfully seek information about taxpayers’ financial and commercial concerns from third parties, which may harm their reputation. This information may also be obtained through a freedom of information request. They can carry out this activity without invading the privacy of anyone. If cooperation is not provided, the HMRC reserves the right to apply the highest possible penalties, and there is a greater possibility of being “named and shamed” in public.
When a taxpayer is suspected of tax fraud, HMRC will notify them in writing and provide a copy of the Code of Practice 9 letter, notes and guidance about the process and CDF. Taxpayers will also receive the documents required to decide if they can accept CDF or deny any wrongdoings. Anyone who receives a COP9 letter from HMRC should seek the advice of a specialist tax advisor to ensure they are informed of the CDF contract’s ramifications.
HMRC only offers CDF under COP9 Investigation in the hope that the taxpayer would make a full disclosure rather than the partial one they may otherwise be inclined to make. While HMRC believes the taxpayer will come clean about any disclosure, it will not discuss its suspicions at this stage. If a taxpayer accepts HMRC’s offer and accepts the terms under the Contractual Disclosure Facility, which guarantees they won’t be prosecuted if they don’t break the contract, the taxpayer will be required to make an “outline disclosure” that includes a brief statement of the following items:
- The behaviour of taxpayers that leads to a tax evasion
- Details on all the involved people, including financial associates and business
- Details of Assets and Liabilities
- Estimated Tax which taxpayer owes to HMRC
- A synopsis of the available accounting and supporting paperwork
In the outline disclosure, the taxpayer must explain what happened, when, and why, as well as the tax repercussions. In all cases supporting evidence in the form of business books of accounts, personal and business bank statements, and other evidence must be included in a detailed report to back the outline disclosure.
If HMRC believes the outline disclosure is inadequate or erroneous, it will withdraw CDF and start its investigation. In the worst situation, HMRC may involve Crown Prosecution Service to make a criminal case against the taxpayer.
