Taxpayers who are not under investigation but want to admit to tax fraud can come clean in exchange for not being criminally investigated under a new HMRC arrangement which came into force this week.
Under the contractual disclosure facility (CDF) a taxpayer will be given 60 days to decide whether to sign a “contract” with the HMRC agreeing to co-operate in putting things right. If the offer of the contract is accepted, and full disclosure made of all tax irregularities, no criminal investigation will be undertaken.
However, if the CDF opportunity is declined or ignored, HMRC will consider starting an investigation along “criminal” lines, potentially leading to prosecution. Previously, taxpayers who faced a civil investigation could be fined up to 200 per cent of the tax due but the Revenue’s new emphasis on seeking criminal prosecutions could lead to an unlimited prison sentence in addition to the fine.
Taxpayers not under investigation can also opt to volunteer information to the CDF.
David Gauke, Treasury exchequer secretary, said: “This new facility is a valuable tool which will help HMRC in its fight against fraud. HMRC will set out clearly what is expected of taxpayers, and what will happen to fraudsters who choose not to disclose their crimes.”
McGrigors, the commercial law firm and tax investigation specialists, said HMRC is under immense pressure to prosecute more taxpayers for tax evasion and noted that it is likely to make extensive use of the new powers.
HMRC was set a target of increasing criminal prosecutions for tax evasion fivefold at the Spending Review last October. Figures obtained by McGrigors from HMRC show that criminal convictions for tax evasion have jumped by 38 per cent already in the past year to 148.
Phil Berwick, director at McGrigors, said: “This new procedure represents a significant change in the way HMRC conducts investigations where fraud is suspected. The change will help facilitate a very substantial increase in criminal prosecutions in the next few years.
“Taxpayers will be at greater risk of imprisonment and losing the family home. For the more determined tax evaders, the chances of getting off with a fine and a slap on the wrist are diminishing.”
He added that under previous rules HMRC had to weigh up the probability of securing a criminal conviction against a civil settlement. “It’s much easier to secure a civil settlement, which means HMRC was often reluctant to gamble on criminal proceedings, where the burden of proof is higher. In effect, HMRC now gets two bites of the cherry,” he said.
However, other accountants warned HMRC to be careful about who they singled out for the CDF.
Mike Down, head of the tax risk and investigations management group at Baker Tilly, said: “It is in everyone’s interest that the CDF process is seen to work well. If unsuitable cases are identified then the new procedure will get off to a bad start, from which it may not recover. HMRC’s recently appointed band of up to 200 criminal investigators will waste their time looking at cases which can never be prosecuted.”
Accountants warn any taxpayers with undisclosed liabilities to come forward voluntarily, under professional guidance. For many taxpayers with tax problems, particularly serious ones, the Liechtenstein Disclosure Facility (LDF) may offer the most favourable terms.
Get alerts on HM Revenue & Customs when a new story is published