ASSISTING WITH 'SERIOUS' TAX CASES
CODE OF PRACTICE 9 - CONTRACTUAL DISCLOSURE FACILITY (CDF) (Cases of suspected serious fraud)
In cases where HMRC have decided not to pursue a criminal investigation they may instead decide to investigation using the Code of Practice 9 investigation of fraud procedure.
Under the Code of Practice 9 procedure, HMRC will give a taxpayer the opportunity to enter into a Contractual Disclosure Facility ('CDF') to make a complete and accurate disclosure of all their deliberate and non-deliberate conduct that has led to irregularities in their tax affairs.
By entering into a CDF and in exchange for the taxpayer's full disclosure of all irregularities HMRC will not pursue a criminal investigation into the conduct that they disclose. This is the only facility that provides such a guarantee of immunity from prosecution.
In accepting the offer for a CDF, the taxpayer is required to provide HMRC with a valid Outline Disclosure within 60 days of the date the taxpayer receives HMRC's offer of the CDF (this is the same date as the time given for taxpayer to decide whether to accept or reject HMRC's offer.)
The Outline Disclosure must set out sufficient information including, but not limited to:
• what the taxpayer did
• how the taxpayer did it
• the involvement of other people and entities
• how the taxpayer benefited from the deliberate conduct
This has to be completed for each separate tax loss brought about by the taxpayer's deliberate conduct.
Where the taxpayer's Outline Disclosure does not disclose all tax losses brought about by their deliberate conduct, then HMRC may start a criminal investigation into any deliberate conduct that has not been disclosed. It is therefore of the utmost importance that any disclosure made is a complete and accurate disclosure of all irregularities.
In more straightforward cases, where the Outline Disclosure confirms what HMRC suspected and as long as HMRC think that no additional information is needed, they will proceed as follows:
• with the taxpayer's assistance HMRC will look to agree the additional duties, the interest payable and any penalty that is due
• the taxpayer will be asked to make their Formal Disclosure - this means that they will need to certify that they have made a full and complete disclosure of all the tax irregularities that they have been involved in by giving HMRC the following
– a certified statement of worldwide assets and liabilities
– a certificate of bank accounts operated
– a certificate of credit cards operated –
a Certificate of Full Disclosure
• The taxpayer will then be invited to make a financial offer to cover the tax, interest and appropriate penalties to settle the investigation.
However, in complex cases, more work or additional information will be necessary to complete the investigation.
Where this is the case, the taxpayer will need to arrange for a Disclosure Report to be prepared.
The nature and content of the Disclosure Report will depend on the individual circumstances of the taxpayer's case, but HMRC expect the taxpayer to agree the scope of the report with them prior to the work starting. Depending on the circumstances of the case, HMRC may ask the taxpayer to attend a meeting to discuss the scope of the Disclosure Report. In other cases, it may be enough for HMRC to meet the adviser to discuss what needs to be done.
If the taxpayer do not believe that they have brought about a loss of tax through their deliberate conduct they can sign and return the CDF Rejection Letter, within the same 60-day period.
HMRC will consider any explanations or documents that support the rejection. Taxpayers should only choose the rejection route if they genuinely believe that they have not brought about a loss of tax through their 'deliberate conduct'. By signing the Rejection Letter, HMRC will start its own investigation which can be a criminal investigation.
Code of Practice 9 has changed over the years and I have been involved in assisting accountants, solicitors and their clients over the past 15 or so years. I have dealt with many Outline Disclosure and prepared a large number of Disclosure Reports over the years.
If your client has received a Code of Practice 9 letter, get in touch. I can help but time is of the essence in the initial stages.
CODE OF PRACTICE 8 (Specialist investigations for fraud and bespoke avoidance)
Where HMRC suspect that a taxpayers has deliberately tried to pay less than the correct amount or take advantage of a scheme or device to reduce a tax liability and where Code of Practice is not appropriate, HMRC will conduct an investigation using the procedures under Code of Practice 8. These cases will normally involve a substantial amount of tax.
HMRC have stated that they will not undertake a Code of Practice 8 investigation with a view to a criminal prosecution but they may take a different approach if they suspect or find evidence of 'fraud' at any time during their investigation. They would then consider dealing with the investigation under Code of Practice 9 or, if it is being conducted with a view to criminal prosecution, they will investigate under the Police and Criminal Evidence Act 1984 and the Criminal Procedure and Investigation Act 1996 and their respective Codes of Practices.
Under Code of Practice 8 HMRC will normally seek to meet with the taxpayer to discuss their concerns and may ask for records, documentation and information to help them understand further the case. HMRC may also seek to visit the taxpayer's premises to inspect business records.
Ultimately where HMRC are able to prove that there has been a loss of tax they will want to come to a financial settlement with the taxpayer to cover the outstanding tax or duties together with the interest and any appropriate penalty.
I have dealt with the settlement of many scheme participations with HMRC under Code of Practice 8 and I am able to handle the case from receipt of the Code of Practice 8 initial letter through to completion and settlement.
If you or your client have received a letter under Code of Practice and you need assistance - get in touch and I will be able to handle the case.
DISCOVERY ASSESSMENTS (section 29 of the Taxes Management Act 1970
Where HMRC consider that there could be or has been a loss of tax, it has the ability to issue a discovery assessment to protect the collection the (disputed) tax.
However, where a taxpayer has already made a Self Assessment, case law has established the principle that unless the loss of tax has been brought about by the taxpayer's careless or deliberate actions then HMRC have no right to issue a discovery assessment. This is because there is a statutory time limit for enquiring into a taxpayer’s return which is normally twelve months after the date of filing, or longer if the return was submitted late.
Therefore, it can be seen that the first thing that needs to be considered when a discovery assessment has been received is whether it has been issued in time. If this is outside of the statutory 'enquiry window' then it will depend on whether the loss of tax resulted from the 'careless or deliberate' conduct of the taxpayer.
Establishing what constitutes 'careless or deliberate' conduct is not easy and there are many cases which have been brought before the courts to establish whether there has been an error despite taking reasonable care or whether there has been carelessness. Understanding the principles contained within these tax cases and correctly applying them to your case is essential if the discovery assessment is to be successfully appealed.
I have dealt with many discovery assessments. Establishing all the facts and applying them to appropriate case law, I have been successful in getting some assessments completely cancelled.
If you or your client have received a discovery notice you need to act quickly as there are strict statutory time limits for making any appropriate appeal. If you or your client have received a discovery notice and you need advice on how to proceed, please get in touch.