HMRC’s Contractual Disclosure Facility (CDF) offers individuals immunity from criminal prosecution for tax offences in return for a full disclosure of tax fraud. The CDF is operated exclusively by HMRC’s Fraud Investigation Service under Code of Practice 9 (COP9 or Code 9). HMRC updated their guidance in June 2023.
HMRC may offer CDF to individuals who it suspects committed tax fraud. Taxpayers can proactively request CDF for voluntary disclosures, which is advantageous given there are lower penalties for unprompted disclosures. The process begins when HMRC issues a letter offering the CDF – this starts the clock on a 60-day deadline to either reject COP9 or accept the offer by admitting fraud and providing an Outline Disclosure.
COP9 is a serious, in-depth tax investigation, and not a routine enquiry. Expert tax advice is essential given its complexities and the potential downsides of missing deadlines or risking criminal action. BDO’s Tax Dispute Resolution team specialises in tax investigations and voluntary disclosure work. We offer a bespoke service with small teams to support you through the CDF process, including partner-led advice.
5 areas on which you should obtain specialist advice before using the CDF
1. Whether to use COP9
The CDF is only appropriate if you deliberately submitted incorrect tax returns or failed to comply with your tax obligations. If you admit this, it is difficult to persuade HMRC to the contrary later without compelling evidence. If you don’t admit fraud then you cannot use COP9. Admitting deliberate mistakes may result in your details being published as a deliberate defaulter and HMRC placing you in its Managing Serious Defaulters’ regime.
2. Cooperation
It’s important to read the COP9 booklet carefully so you understand the whole process. HMRC expects full cooperation once it accepts you into the CDF. This often includes personal attendance at meetings, as failing to do so is viewed as “a strong indication of a person’s engagement”. Lack of cooperation can result in the withdrawal of criminal immunity or larger tax-geared penalties.
3. Making a full disclosure
HMRC expects taxpayers to make full disclosures of all deliberate and non-deliberate mistakes, including how this behaviour caused the loss of tax for all periods. Failure to do so may result in HMRC withdrawing the CDF. All records (paper and electronic) should be kept to support your disclosure.
4. Making payments on account and considering payment arrangements
HMRC expects an upfront payment on account with further payments throughout the investigation. Failure to do so is viewed as poor cooperation. Making payments on account mitigates late payment interest (7% from 31 May 2023) charges. If time to pay by instalments is needed (for example, so assets can be sold) then telling HMRC early manages their expectations.
5. Do you need extra support?
You are encouraged to disclose circumstances that make it difficult to deal with the investigation. HMRC may adapt their process to support you, which may involve HMRC’s extra support unit.
Get in touch with our team for more information and advice: Claire McGuigan and Karen Doherty.