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Contractual Disclosure Facility

Contractual Disclosure Facility

KPMG has extensive experience advising clients to achieve successful resolution of fraud investigations undertaken by HMRC.

KPMG has extensive experience advising clients to achieve successful resolution of frau...

The opening letter from HMRC will notify the taxpayer of their suspicion that the taxpayer has committed tax fraud and enclose a copy of Code of Practice 9 (COP9). 

The letter will include the offer of a contract through the Contractual Disclosure Facility (CDF). Taxpayers have just 60 days to respond from the date of HMRC’s initial letter. Only two options are available:

  1. Accept HMRC’s offer of CDF - Here you sign a contract stating that you accept HMRC’s offer to disclose any loss of tax that has been brought about by your deliberate conduct.
  2. Reject the offer of the CDF – You must sign a form stating that you reject the offer of CDF and have not brought about a loss of tax through deliberate conduct. If you reject the offer of the CDF, HMRC will consider whether to investigate your tax affairs under a civil route or under an investigation with a view to a criminal prosecution.

What to do if you receive a letter from HMRC

Any taxpayer receiving a CDF letter from HMRC should seek expert advice immediately. The options will need to be considered carefully and expert advice sought to determine the most appropriate way to respond.

KPMG has extensive experience over many years advising clients to achieve successful resolution of fraud investigations undertaken by HMRC as well as working with clients to make voluntary disclosures to regularise historic tax issues.

KPMG will review your tax position and work with you to complete a report addressing HMRC's areas of concern. We will attend meetings with HMRC on your behalf and negotiate, where possible, the level of the omitted tax and the level of the penalties, to ensure you do not pay more than you owe.

The CDF process and subsequent investigation under COP9 can be stressful, intrusive and prolonged. KPMG will help make the process as quick and pain free as possible so you can complete your disclosure and move on. We have a strong track record of resolving prolonged and difficult disputes with HMRC. It does not matter where you are in the process, we can provide a fresh approach and a much needed solution.

If you would like further information, please contact us on 01624 681090 to arrange a free, no obligation initial discussion to explore your options.

“The CDF route”

By agreeing to proceed under the CDF the taxpayer will be expected to sign a contract with HMRC. In return for full disclosure and cooperation from the taxpayer, HMRC agrees not to prosecute.

If the taxpayer chooses to disclose under the CDF, an outline disclosure of all tax irregularities and signing of the CDF contract (admitting to a loss of tax through deliberate conduct) will need to be made within the 60 day limit. If HMRC is satisfied with the response the opportunity is given to submit a full disclosure to HMRC with a view to a civil settlement for tax, interest and a financial penalty. If any deliberate conduct is not set out in the outline disclosure, but is later disclosed or discovered, HMRC still reserve the right to undertake a criminal investigation and possible prosecution for that deliberate conduct. This emphasises the importance of the outline disclosure.

HMRC will expect cooperation throughout the process and reserve the right to withdraw the agreement and commence a criminal investigation if, in HMRC’s opinion, cooperation has been withdrawn.

HMRC will issue an Outline Disclosure form with their initial letter. The Outline disclosure must also be submitted to HMRC within the 60 day time limit. The disclosure is not expected to contain precise details if they cannot reasonably be obtained within those 60 days. The contents will vary from case to case but generally it will be expected to include:

  • a brief personal and business history;
  • description of each fraud;
  • entities involved;
  • period of fraud; 
  • details of amounts involved – estimates may be appropriate at this stage;
  • description of records available; and
  • details of any further work required to quantify the fraud.

HMRC will expect a payment on account to be made. This will demonstrate co-operation to HMRC, and may assist in penalty negotiations.

If HMRC are satisfied with the Outline Disclosure, they will look to conclude the disclosure without unnecessary delay. In complicated cases further work will be required to produce a detailed disclosure report to fully describe and quantify the tax irregularities. HMRC may invite the taxpayer to a meeting to agree the content of that report, or it may be sufficient for the adviser to meet HMRC.

HMRC may also request an initial meeting early in the CDF process during which the taxpayer will be expected to make an outline disclosure of the tax irregularities.

HMRC may request a progress meeting to check if matters are moving forward.

On conclusion of the investigation, the taxpayer will need to certify that a full and complete disclosure has been made. The taxpayer will also need to provide:

  • a certified statement of worldwide personal assets and liabilities;
  • certificates of bank accounts and credit cards operated; and
  • a Certificate of Full Disclosure.

"The rejection route”

Under this option HMRC will consider all of the information available to them and decide whether to begin a civil or criminal investigation. The taxpayer’s rejection letter can be used as evidence in criminal proceedings.

If HMRC has not received a response within the 60 day time limit, it will be assumed that the taxpayer has issued a rejection.

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