Civil investigation no longer guarantees immunity from fraud prosecution

12 January 2012

HM Revenue & Customs is introducing a tough new civil fraud enforcement procedure, the Contractual Disclosure Facility.

To be launched on 31 January, the CDF will be applied to taxpayers suspected of serious fraud. HMRC will first write to suspects and give them 60 days to sign a contract disclosing their wrongdoing.

Anyone who is offered a CDF contract and refuses to sign it, or who does sign it and then fails to reveal their wrongdoing in full, may be prosecuted for fraud.

Those whom HMRC regards as compliant with the CDF contract will pay tax, interest and penalties – perhaps up to 200 per cent of the tax due – but will at least escape prosecution.

Individuals who fear they are about to be investigated for tax fraud can also make a voluntary request to use the CDF. However, in such cases HMRC will reserve the right to prosecute rather than accept a civil settlement.

The new procedure extends HMRC’s powers far beyond the current Civil Investigation of Fraud rules, governed by Code of Practice 9 (COP9). Under a principle established in the case Gill & Gill [2003] 4 All ER 681, these do not allow HMRC to prosecute for a tax offence for which it has previously conducted a civil investigation.

Now, according to law firm McGrigors, taxpayers suspected of fraud will not get automatic immunity from criminal prosecution. This gives the agency two bites of the cherry, as it no longer needs to weigh up the considerable risk and cost of bringing a criminal case, against the much higher likelihood of winning a civil settlement, where the burden of proof is lower. Thus, offers of a CDF settlement will only be made where HMRC reckons that a criminal investigation would not be cost-effective, or whether a prosecution would not be in the public interest.

The Chartered Institute of Taxation gave a cautious welcome to the new system, saying it would “potentially provide greater clarity to those who have deliberately got their tax wrong and now want to engage with the taxman to regularise their affairs”. It would also be limited to “serious and heavyweight investigations, not just routine tax enquiries”, said CIOT’s representative Gary Ashford.

However, he said, there will probably be a “flurry” of big tax investigations starting after 31 January when the scheme launches.

McGrigors director Phil Berwick agreed that the new rules will “help facilitate a very substantial increase in criminal prosecutions in the next few years”, putting taxpayers “at greater risk of imprisonment and losing the family home”.

He said taxpayers with undisclosed liabilities should approach HMRC voluntarily, after seeking professional guidance. In particular, he said, if they have undeclared offshore assets they should consider making an unprompted disclosure under the Liechtenstein Disclosure Facility, which limits penalties to 10 per cent of unpaid tax.



HM Revenue & Customs


Chartered Institute of Taxation

Telegraph (personal finance editor’s blog)

Accountancy Age



Article Search

Browse jurisdictions by clicking on the map regions below


South Africa 2012 Conference

© 2012 Society of Trust & Estate Practitioners