If HMRC suspects a taxpayer of tax evasion, it may offer him the option of entering into a contract under the Contractual Disclosure Facility (CDF). Alternatively, a taxpayer who wishes to admit tax evasion that HMRC has not discovered can ask HMRC to make a voluntary disclosure using the CDF.
The CDF grants the taxpayer immunity from criminal investigation in exchange for a full, complete and accurate admission of tax evasion and reimbursement of any amount owed.
A wide range of taxpayers can use these agreements, from high net worth individuals with complex offshore tax matters to middle income individuals who owe only small amounts of tax.
“Using CDF has benefits for both parties – taxpayers avoid lawsuits and HMRC saves time and money,” said Steven Porter, a tax specialist at Pinsent Masons.
“If a taxpayer sticks to their part of the deal under the CDF and makes full disclosure, they will also face much lower penalties than if they waited to be caught.” ,” he said.
HMRC investigations are set to resume as the UK government seeks to increase tax revenue to pay the cost of economic aid linked to coronaviruses.
HMRC automatically receives information under the Common reporting standard on financial accounts held by UK residents in over 100 jurisdictions.
“As HMRC collects more data in the UK and abroad on suspected tax evaders, the net is tightening,” Porter said. “The CDF is a way out that can avoid a possible prison sentence.”
“HMRC needs a huge amount of information from a taxpayer when entering into a contractual disclosure mechanism; for example, detailed descriptions of what you did, how you did it, and who else may have facilitated this tax evasion. It is important that taxpayers seek advice before answering any questions, ”he said.