• Steve Tetley

Contractual Disclosure Facility (Code of Practice 9) What you need to know.

Nobody likes receiving a letter from the taxman, but some letters are less welcome than others. If you have received a letter from HMRC informing you that they are commencing an investigation under the Contractual Disclosure Facility (CDF) - more commonly known as Code of Practice 9 - you need to take this extremely seriously and seek urgent specialist advice as soon as possible.

What is the Contractual Disclosure Facility?

HMRC use this facility for cases where they suspect tax fraud has been committed. Tax fraud is where a person has deliberately evaded tax.

The CDF is conducted under Code of Practice 9 and is commonly referred to as COP9. It is usually targeted at what HMRC consider to be their high-risk customers.

In return for a taxpayer making a full disclosure of all tax irregularities, HMRC provide an assurance that they will not start a criminal investigation into any tax loss brought about by the deliberate conduct. HMRC define ‘deliberate conduct’ as a person knowing they had a liability to tax but choosing not to inform HMRC at the right time. This can include entries on tax returns and/or accounts.

CDF only applies to individuals and is therefore not suitable for companies. It is generally instigated by HMRC, but a voluntary disclosure can be made with a request that the matter be brought within the CDF. In voluntary disclosure cases, HMRC will review the disclosure and consider whether the CDF is appropriate.

It’s important to be aware that the CDF investigation can go as far back as 20 years.

What taxes are included?

The CDF covers all taxes and duties for which HMRC have administrative responsibility. The main ones are:

  • Income tax

  • Corporation tax

  • VAT

  • Capital Gains Tax

  • National Insurance contributions

  • Customs duties

  • Inheritance tax

  • Insurance premium tax

  • Excise Duties

  • Environmental taxes

The CDF process

In cases instigated by HMRC, they will write to individuals advising that they suspect tax fraud has been committed. A copy of Code of Practice 9 (COP9) will be enclosed with the letter. The letter will also provide confirmation that HMRC will not start a criminal investigation if a full disclosure is made.

The COP9 letter will allow the individual 60 days to either accept the CDF offer or reject it. If an offer is accepted, HMRC expect an outline disclosure report to be completed. This will include a signed declaration that the individual admits deliberate conduct.

The outline disclosure asks the taxpayer to consider what has not been disclosed, for example:

  • Transactions omitted from business records

  • Failure to submit complete returns, such as self-assessment returns and employer returns

  • Failure to register for VAT

  • Whether any fraudulent declarations have been made

HMRC’s disclosure insists that the following must be included (but not limited to):

  • What was done

  • When was it done

  • How it was done

  • The involvement of other people or entities

  • How it was benefited from

The period of time over which the deliberate conduct took place also needs to be clearly stated as does the approximate amount of tax, duty etc. which is believed to be owed as part of the disclosure.

The disclosure also provides an opportunity to give details of any other non-deliberate irregularities.

Following the submission of an outline disclosure, HMRC will then seek a full certified statement of the irregularities together with details of all assets and liabilities. HMRC will also want details of all bank account and credit card details operated during the period.

They will then review the disclosure reports and accept or challenge as appropriate.

How can rradar help?

Failure to make a full disclosure could result in HMRC instigating criminal proceedings so it is essential that the right professional advice is sought as early as possible.

rradar can provide you with professional support via our tax expert, Steve Tetley, and our team of Business, Criminal and Regulatory lawyers.

Steve is very experienced in dealing with HMRC investigations from his many years working for the department, and from experience advising clients in the private sector. rradar can work with you to ensure the best possible outcome.

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