The offer of the CDF is therefore to be considered as a lifeline and the investigation being as a civil matter. However, the CDF can only be used if your client is prepared to admit to having committed tax fraud.
For many taxpayers, it is not easy admitting to tax fraud. The CDF does offer immunity from prosecution for any matter properly disclosed to HMRC in the Outline Disclosure.
Clients must understand how HMRC defines tax fraud and what HMRC considers to be deliberate behaviour. It follows that tax fraud cannot be committed by accident or unknowingly.
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 HMRC offering your client the CDF (not the other way around) or your client seeking the CDF. The CDF is not granted automatically. Once offered, a taxpayer is then required to make an Outline Disclosure – a written summary of what has happened, who by, and over what period of time.
Initial calculations of all the different taxes due (income tax, corporation tax, VAT etc.) are to be included in the Outline Disclosure. Such calculations are to be revisited and updated throughout the CDF process. 60 calendar days are given for this to be done from the date HMRC offers your client the CDF.
Since June 2023, HMRC has tightened up the CDF process to ensure that the Outline Disclosure is now accompanied by a payment on account of the tax(es) due. This follows a number of cases where taxpayers have tried to use the CDF as a way of delaying the outcome of a tax investigation – the outcome being the payment of tax.
On the basis HMRC accepts the Outline Disclosure is valid, HMRC will seek an initial meeting with your client. Such a meeting normally occurs within 2 months of HMRC’s receipt of an Outline Disclosure.
A more detailed account will then need to be provided in a subsequent Disclosure Report that by contrast, may take months to produce. At the initial meeting, HMRC will ask pre-scripted questions based on what has (or has not) been included in the Outline
Disclosure: Preparation for such a meeting is key – forewarned is forearmed.
There are specific “dos 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. HMRC will also go through the Outline Disclosure line by line in order to make sure it is understood by HMRC, particularly where any estimates have been made. Your client will be expected to recount what took place in some detail. Part 2 will focus on the taxpayer – their business, the bank accounts operated, lifestyle and profiling the family unit. Part 3 is the conclusion that sets out what HMRC expects to happen, in what depth and within what timescale. Typically, HMRC will seek your client to commission a Disclosure Report to be written and submitted within 6 months of the initial meeting.
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 CDF 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, you can contact Paul Malin at:
- 07979 313 010
- [email protected]
