HMRC to withdraw ‘denial co-operation’ fraud dispute option

by Calum Fuller

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30 Jun 2014

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HMRC building

A SIGNIFICANT CHANGE to the way tax fraud is addressed will be intorduced by HM Revenue & Customs when it withdraws the option to co-operatively deny allegations of tax fraud.

Since 2012, HMRC has offered three options to taxpayers who they believe have committed tax fraud and they wish to investigate under Code of Practice 9 (COP9): acceptance of a contractual disclosure facility (CDF) offer; denial with cooperation and; denial without cooperation. By accepting the CDF, admitting fraud and making a full disclosure, taxpayers are given immunity from criminal investigation and prosecution.

HMRC are withdrawing the denial with cooperation option, effective from 1 July 2014.

COP9 has long been used by HMRC in relation to obvious tax fraud, such as undeclared taxable income and gains in offshore accounts or extracting profit from a business that has not been declared. However, HMRC has recently been using COP9 and CDF in relation to what they perceive to be undisclosed tax avoidance arrangements.

As a result, there can be a clash over whether a taxpayer has deliberately intended to mislead HMRC or not, if they have engaged the services of professional tax advisers. Taxpayers have 60 days to decide whether to accept the CDF or deny fraud.

HMRC will not tell the taxpayer in advance of them making their decision what the investigation relates to or what evidence they have. Some taxpayers will feel forced into admitting fraud in order to take advantage of the immunity from prosecution, even if they genuinely feel they have not committed fraud.

Watt Busfield founding partner Rebecca Busfield said the situation forces taxpayers to review their returns for errors, and more carefully consider their position.

Busfield said: "HMRC should not send a CDF letter unless they have strong evidence of tax fraud. However, we have had several clients who have received these letters and have not committed tax fraud. HMRC are charging larger penalties where taxpayers have accepted the CDF route.

"For taxpayers who accept they have committed tax fraud the CDF route is a lucky escape, although the investigation will be in depth and the unpaid taxes, late payment interest and penalties will be due."

An HMRC spokeswoman said: "Removal of the denial option does not adversely impact anyone who believes they have nothing to disclose to HMRC.

"This is about streamlining our approach to evasion and making the tax system more transparent. It makes things simpler for those who want to bring their affairs up to date while making things harder for committed tax cheats."

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