The Contractual Disclosure Facility (CDF) was introduced on 31 January 2012 and was updated in 2015. COP 9 was also revised on 31 January 2012.
The CDF was introduced to reduce the “tax gap” as a result of serious tax fraud. For many years, serious was determined as being anything where the amount due by a taxpayer was potentially in excess of £500,000 as estimated by HMRC. Whilst HMRC no longer use the term “serious” or such an amount, it is often still used as an unofficial guide.
The CDF is a process with a set sequence of events and its own timeline. As the CDF process follows a civil route (rather than criminal), Code of Practice 9 (COP 9) is followed.
Whilst a taxpayer can request the CDF, it is down to HMRC in the first instance to offer a taxpayer the CDF.
A taxpayer has 60 calendar days from the date of the offer letter from HMRC to either to either complete HMRC’s forms and thereby accept the CDF and make a full, written Outline Disclosure to HMRC or reject the offer of the CDF.
HMRC will consider the Outline Disclosure in the light of all the information they hold.
If the Outline Disclosure includes everything already held and therefore known by HMRC, the process will continue and the taxpayer may receive a meeting request from HMRC. At the meeting, HMRC will explain why the meeting has been called and proceed to ask questions in order to clarify and/or amplify the content of the Outline Disclosure.
Whilst the meeting will be scripted and handwritten notes taken by HMRC, it will not be recorded. A copy of the Notes of Meeting will be sent to the taxpayer for their agreement and signature. However there are pros and cons as to whether a taxpayer should sign these or not.
HMRC will want to build upon the content of the Outline Disclosure at a meeting and determine the parameters of what has transpired, perpetrated by which taxpayers and over what period of time.
It is necessary to reach an agreement with HMRC on all the facts affecting the tax payable for the whole of the period under review or the duration of the fraud, whichever is the shorter. This is normally done by the taxpayer commissioning a specialist adviser writing a Disclosure Report on the taxpayer’s behalf.
Once the amount of tax payable is established, interest is calculated from the date the tax was due up to the date the tax is eventually paid At this point in time, the amount of the tax geared penalty is negotiated and agreed.
When all these issues have been agreed, the taxpayer is asked to sign a Settlement with HMRC agreeing to pay the tax, interest and penalty due.
Other than payment, this brings the matter to a close.
If you would like to discuss this matter further, please contact me at paul@pmc.tax or on 07979 313 010.