HMRC drafts formal contracts for tax dodgers

Taxpayers suspected of fraud can enter into a formal contract with HMRC, under fresh plans, so they can fess up but only within a written guarantee they will be immune from criminal prosecution.

Announcing it will use civil powers where prosecuting the fraud is neither cost effective nor in the public interest, HM Revenue & Customs said it would use a new Contractual Disclosure Facility.

Welcomed by advisors for offering people who have been involved in a tax fraud, or who deliberately got their own calculations wrong, a chance to regularise their affairs, the CDF affords taxpayers three options.

Take the CDF route – thereby owning up and telling HMRC about all the tax they deliberately evaded “with no exceptions”; deciding not to own up (“the denial route”), or not replying (“non-cooperation”).

HMRC said: “If you meet your side of the contract,” which includes providing “complete details” of the fraud within 60 days, “you will ensure that any penalties are closer to the lower penalty levels.”

In return for paying the tax, duties, interest and penalties, while of course putting a stop to the fraud, HMRC also agrees not to criminally prosecute, or investigate, the taxpayer.

Tax bodies, such as the Chartered Institute of Taxation, broadly support the CDF, due to open from January 31^st 2012, not least because investigations for fraud are normally “serious and heavyweight.”  

“This is a positive development,” said CIOT chairman Gary Ashford. “HMRC investigations in this area are not just routine tax enquiries… [But] we are [still] likely to see a flurry of big tax investigations starting then [January 31^st]. 

“Those pursued under the CDF can expect to have to pay the tax owed, interest and substantial penalties. HMRC’s ‘offer’ is that in return for full disclosure and no procrastination, the penalties will be civil rather than criminal.”

Under the CDF, taxpayers offered a contract will not be contacted by HMRC within the 60 days until they respond to the offer, but Revenue officials still have the power to take action within the period, by seizing taxpayer-owned goods or sending in debt collectors.

“With HMRC targeting a five-fold increase in criminal prosecutions for evasion, the consequences of not clearing up tax irregularities could be grave,” Mr Ashford said, adding: ““The new procedures also raise the bar for tax advisers. Those seeking to advise clients in this area really will have to be sure they have the necessary skills and experience. There will be risks for client and adviser alike if these procedures are not followed properly – we are, after all, working in an area where criminal offences are being alleged.”