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.
Sources
HM Revenue &
Customs
McGrigors
Chartered Institute of Taxation
Telegraph (personal finance editor's blog)
Accountancy Age