In cases of suspected tax evasion, HMRC’s Fraud Investigations Service (FIS), which is the premier investigations team of HMRC, conducts the investigation on either a civil or criminal level.
Contractual Disclosure Facility (CDF)
Where it is decided that the case is not suitable for criminal investigation, HMRC writes to the individual offering them the opportunity to make a full and accurate disclosure under the terms of the CDF. 60 days are given to decide whether to accept or reject the offer. Along with the opening letter, HMRC also provides their leaflet, Code of Practice 9, which sets out how the investigation is conducted and what is required, as well as a form to make an outline disclosure, if the individual accepts that they acted deliberately.
The important milestone is the 60-day deadline to accept or reject the offer of CDF. It is recommended that the individual makes a decision to accept/reject as early as possible within the prescribed time frame. In exceptional circumstances, HMRC may be prepared to provide more time, if the investigating officer is satisfied that the individual has a genuine reason for requiring more time.
Reason for enquiry
At Moore Kingston Smith, we are often asked to find out from HMRC what they are concerned about to give the individual some guidance. In our experience, the officers are under strict instructions not to engage in any discussions whatsoever concerning the cause of the enquiry. However, our experienced tax dispute resolution specialist can identify probable areas of concern and advise on whether to accept or reject the offer of CDF.
HMRC does not always get it right and their risk-based system that is used to identify tax evasion is not perfect.
Make a full and accurate disclosure
Where it is accepted that tax was evaded, considerable care should be taken to disclose all the pertinent issues. HMRC undertakes not to elevate cases for criminal investigation where a complete and correct disclosure is made. It is inadvisable to make a partial disclosure and rely on HMRC to highlight any other points for consideration, as this may, in the most serious cases lead to HMRC reviewing its decision to investigate on a criminal or civil basis and lead to significantly higher tax-geared penalties.
HMRC will request that the individual signs a statement that they deliberately evaded tax and provide an outline disclosure of what happened, who was involved and when the problem first started. The form that accompanies the opening letter also states that the individual should provide details of any other unpaid taxes.
Professionals working in a regulated profession will almost certainly be concerned with the prospect of signing a statement that they had deliberately evaded tax, as this may have serious consequences with their professional body. It is critical that specialist advice is sought at the earliest opportunity and a holistic approach taken to minimise the individual’s exposure.
In view of the heightened risk that HMRC might start a criminal investigation where they consider the disclosure was not complete and correct, it is essential that the recipient of the Code of Practice 9 letter seek independent specialist advice. The benefits of doing this are that it ensures that the right decisions are made and best strategy adopted from the beginning. HMRC recommend that a specialist adviser is instructed in the Code of Practice 9 booklet.
Moore Kingston Smith has a dedicated tax dispute resolution team that focuses on enquiries by FIS and Code of Practice 9 and can either represent the client throughout the investigation or work alongside the current adviser to ensure that specialist advice is sought when required.
HMRC request for a meeting
We are often asked when HMRC will disclose the reason(s) for the enquiry, as it is the uncertainty that is frustrating for the client. HMRC will normally insist that they will not disclose what caused the enquiry within the 60-day window. However, once the response is submitted, the adviser can meet HMRC to discuss their principal concerns.
Usually, the individual subject to the enquiry is invited to attend the meeting. There is no statutory obligation for the individual to attend but this may be advisable with the aim of expediting matters. HMRC often infers that not attending the meeting will affect the level of cooperation and tax-geared penalties that are applied to the tax paid late. We do not consider that this should materially affect the level of cooperation and can be irrelevant where there is no further tax to pay.
Ultimately, where HMRC start an investigation under Code of Practice 9, the aim is to reach a civil settlement to recover the unpaid tax, interest and penalties. It is important that advice is sought from the start, as the key to success is starting with the end in mind. Our tax dispute resolution experts build their strategy around the individual’s requirements to minimise their exposure and achieve the objectives that are set.