The CDF is a civil matter and can only be used if your client is prepared to admit to having committed tax fraud. Moreover, their deliberate behaviour has brought about a loss of tax. For many taxpayers, it is not easy admitting to tax fraud. Without the offer of the CDF, HMRC will consider it a criminal matter.
The CDF is a process
As with all processes, there is a start, a middle and an end. HMRC will expect all aspects of the process to be followed. There are no shortcuts!
The start will consist of a taxpayer asking HMRC to consider offering them the CDF (not the other way around). The CDF granted automatically. Once offered, a taxpayer is then required to make an Outline Disclosure – a summary of what has happened. Just 60 calendar days is allowed for this to be done.
A more detailed account will then need to be provided in a subsequent Disclosure Report that by contrast, may take months to produce. Providing HMRC is happy that there are no other irregularities that have been withheld from the Outline Disclosure, taxpayers will then be invited to an opening meeting in which HMRC will ask yet more questions. Preparation is key – forewarned is forearmed.
There are specific “do’s and don’ts” of having such meetings, which is a subject in itself for another time.
An opening meeting consists of 3 parts . Part 1 consists of all the formalities to identify the taxpayer. Part 2 goes through the Outline Disclosure line by line in order to make sure it is understood by HMRC, particularly where any estimates have been made. The next part will consist of the taxpayer recounting what took place. Part 3 is the conclusion that sets out what HMRC expects to happen, in what depth and to within what timescale. Typically HMRC will seek your client to commission a Disclosure Report to be written and submitted within 6 months.
Having submitted a Disclosure Report, what happens next?
HMRC will not just accept what they are told and will seek to test the Disclosure Report.
It is likely that HMRC will have some questions to ask that may or may not seek to amend the findings of the Disclosure Report. These questions are asked of the author of the Disclosure Report. Once all the adjustments have been identified for all taxpayers for all years, HMRC will seek an agreement of the amount of tax, interest and penalties to be charged by way of a Settlement.
The tax, interest and penalties are agreed – then what?
HMRC will seek to collect all the amounts due. Any Payments on Account made are deducted and an agreement is reached as to how and when the balance is paid. Providing the taxpayer keeps to the agreement, no further action is taken. The investigation/the process is over.
However, if the taxpayer fails to keep to the agreement, HMRC will issue multiple assessments and leave the collection to HMRC’s Debt Management Unit (and potentially the courts).
Help is at hand
If you would like to discuss this matter further, please contact me on 07979 313 010.