Civil fraud investigations will no longer guarantee immunity

by Jaimie Kaffash

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11 Jan 2012

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INDIVIDUALS who are the subject of a civil tax fraud investigation will lose their immunity to prosecution under new proposals published yesterday.

Under the new approach, beginning on 31 January, individuals would retain their immunity if they own up to the fraud through the contractual disclosure facility.

But if they deny the fraud or fail to reply to a Code of Practice 9 query, the individual will be open to criminal prosecution if they are found to have been guilty. Currently, taxpayers that are subject to a COP9 query are immune to criminal prosecution.

Evaders who choose to tell HMRC about fraud through the CDF will have to divulge details of all fraud, sign a statement to say that all details have been provided, and pay all taxes, interest and penalties due. This could be as much as 200% of the tax due.

Derek Scott, tax investigations partner at KPMG, said: "Under the previous Code of Practice 9 procedure, there was only a risk of prosecution in certain circumstances during the course of the investigation regardless of whether or not people co-operated with the authorities. There was plenty of 'carrot' but not much 'stick'. The new CDF addresses the balance by introducing the threat of criminal proceedings in the event of non-co-operation"

Phil Berwick, director at McGrigors, said: "HMRC is hamstrung under the current rules because it has to weigh up the probability of securing a criminal conviction against a civil settlement. It's much easier to secure a civil settlement, which means HMRC is often reluctant to take a gamble on criminal proceedings, where the burden of proof is higher. In effect, HMRC now gets two bites of the cherry."

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