Press Room

16 Jun 2022

Into the Lion’s Mouth – Andrew Park


Tax Investigations Partner, Andrew Park, evaluates HMRC’s guidance for individuals making disclosures of any omissions in their taxes, and explains the implications of these guidelines, in Taxation.

Andrew’s article was published in Taxation, 14 June 2022, and can be found here.

Largely unnoticed in March, HMRC issued revised guidance to taxpayers on how to make voluntary disclosures of anything they might have omitted. Somewhat surprisingly, HMRC are now signposting the means whereby the public can contact HMRC directly – rather than necessarily through professional advisors – to self-report themselves for “deliberate behaviour” i.e. for tax fraud.

The guidance is found at:

www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure

HMRC have actively sought to make it easier for taxpayers to directly contact them to put general matters right for several years now, and for over five years have offered the facility to do it online through its Digital Disclosure Service portal. Many taxpayers have taken that opportunity, albeit on the whole they have wisely instructed tax advisers to do so on their behalf.

Taxpayers should always seek professional advice, even on a minor disclosure, except perhaps where they have limited means, the amounts involved are very small, the matters relate to simple, obvious errors or omissions and they have a certain degree of personal financial competence.

Surely HMRC has now taken a step too far in Section 1.4 of the new guidance in providing taxpayers with the easy means to deal with them directly to disclose tax fraud i.e. rather than through professional representation.

HMRC has two longstanding formal processes for dealing with tax fraud / deliberate wrongdoing / deliberate behaviour:

• its Code of Practice 9 (“COP 9”) process for the civil investigation of serious suspected fraud – which in its latest evolution is called the Contractual Disclosure Facility (“CDF”);

• criminal investigation with a view to prosecution.

In most cases HMRC deals with tax fraud as a civil matter, focused on the recovery of any unpaid tax together with tax geared penalties and late payment interest. However, in a minority of cases – which HMRC regards as particularly serious or where it wishes to make a public example for deterrence purposes – HMRC instead opts to embark on a criminal investigation with a view to the criminal prosecution and the imprisonment of the people concerned.

Mishandled or incomplete disclosure during a civil investigation can place the taxpayer in real peril. Sometimes, HMRC initially embarks on a civil investigation but switches to a criminal prosecution because they have come to believe that the person concerned is not fully cooperating and not fully disclosing what they have done. Famously, the late champion jockey Lester Piggott – who it ultimately transpired had diverted undeclared earnings into offshore bank accounts – was initially subject to a series of civil investigations by HMRC. What led to his eventual prosecution and imprisonment was when he wrote a cheque to HMRC for a private civil settlement from a bank account holding untaxed earnings he had still failed to disclose.

The latest CDF version of COP 9 emerged in the aftermath of controversy over the traditional interviews to which taxpayers were subjected by HMRC at the start of the civil investigation process. They were interviewing taxpayers about serious suspected fraud without the protections required of other law enforcement agencies under the Police and Criminal Evidence Act 1984 (“PACE”), and this failed to bear judicial scrutiny in R. v Gill and Gill CACD 31 July 2003. The current protocol therefore requires that no interview can take place until HMRC have formally offered the taxpayer the contractual terms of the COP 9 CDF – which include an explicit guarantee they will not be prosecuted subject to them making a full disclosure of all deliberate wrongdoing.

In these situations – where deliberate behaviour is involved – HMRC’s statutory assessment powers under the Taxes Management Act 1970 enable them to go back up to 20 years to assess any tax found to be unpaid and to levy penalties and late payment interest thereon. Going that far back can raise major challenges in remembering, establishing and evidencing what truly happened and why, and giving HMRC a sense that they are truly receiving a full disclosure. Without careful professional steering to help protect them from themselves, it can also tempt the taxpayer to hold things back if they think HMRC could no longer discover them.

In overview, the CDF process involves:

• either HMRC opening an investigation based on its own suspicions OR a taxpayer or their advisors contacting HMRC to make a full voluntary disclosure of deliberate wrongdoing;

• HMRC running the investigation or prospective disclosure through their criminal investigations team for confirmation they have no interest in pursuing it as a criminal matter instead, at that time;

• HMRC issuing a formal letter to the person concerned, setting out and offering the terms of the CDF;

• a requirement for the taxpayer to respond within 60 days of the formal letter accepting the terms of the CDF and submitting an Outline Disclosure of every and all matters involving tax fraud – prior to which, HMRC will engage in no dialogue with the taxpayers or their advisors about the nature of their suspicions;

• HMRC then ordinarily require an interview with the taxpayer to discuss the background to the Outline Disclosure and to scope the further information required in a detailed disclosure for them to fully assess the position;

• the preparation of a detailed disclosure report and its submission to HMRC alongside a Certificate of Full Disclosure, a personal Statement of Assets and Liabilities and a certificate of all bank and financial accounts held;

• dialogue and negotiation with HMRC to agree the interpretation of the relevant facts, the tax technical treatments where not clear cut and the reasonableness of any assumptions made to deal with areas where, for instance, documentation no longer exists;

• discussion and agreement of the relevant penalty levels – for tax fraud with no offshore element these can be as high as 100% of the tax to be repaid for a prompted disclosure where there was concealment to as low as 20% for an unprompted disclosure where there was no concealment – offshore matters can involve much higher penalties still;

• a formal contract settlement agreeing the final level of tax, interest and penalties and the payment terms.

To highlight how the CDF works – even in an overview like this – is to highlight the sheer absurdity that any taxpayer should ever contemplate or be given easy direct access to represent themselves in making a CDF disclosure. Even at the initial moment of contacting HMRC through the electronic form they face the risk – however unlikely, that HMRC might opt to criminally investigate them rather than offer them the terms of the CDF.

Indeed, professional tax advisers should not engage in assisting taxpayers with COP 9 CDF either, without all the relevant experience and training. It is no surprise that some firm’s professional indemnity insurance does not cover COP 9 CDF work and that the insurance held by many larger firms requires that only specialist advisers holding appropriate licences within their firms can undertake such work.

Where then does HMRC’s latest disclosure guidance suggest that people should seek professional advice? Twice, fleetingly:

• in a general section called “How to calculate what you owe” it says “You may want to get professional advice”;

• and once, in a general section on “Your rights when seeking penalties” it says “you have the right: to seek help from a professional advisor . . . [and] not to incriminate yourself.”

The half page section on the CDF contains no warnings or recommendations to seek professional advice at all but does include a direct link to the “CDF1” electronic form taxpayers can use to immediately self-report themselves. To be fair, if one scrolls down the HMRC publication page holding the CDF1 under “Details” it states: “You should get independent advice before you do this”. However, at that stage will all taxpayers even scroll down?

Surely if professional advice is truly required to complete the application form to ask HMRC to consider offering CDF – as it is – the application portal should not be directly available to the public? To have direct access at all is an invitation for the unwary to stick their heads in the proverbial lion’s mouth. Any good lion enclosure is designed to keep the general public out as well the lions in.

To what extent does HMRC have a worrying current direction of travel in encouraging the general public through its direct access initiatives to bypass the professional community who are there to help, represent them and best protect their interests in their interactions with HMRC, and to ensure the treatment they receive is fair, proportionate and consistent within complex legal and procedural frameworks?

We should all be generally respectful and supportive of HMRC and its vital role. However, is HMRC’s respect for the professional community and the vital role we play – as implied by its online systems – now all it could be? It is easy to understand how an HMRC that is increasingly focused on data trawling and nudging people towards compliance rather than using its limited human resources to actively investigate, might want to limit the use of those same limited human resources to enter into extended correspondence and negotiation with professional advisors. However, we are a vital part of the process – all the more so, where actual or possible contended tax fraud is involved. HMRC’s electronic architecture needs to recognise that.


Andrew Park

Andrew is the Tax Investigations Partner at Andersen in the United Kingdom. He specialises in providing solutions to tax problems and resolving investigations and voluntary disclosures with HMRC.

Email: Andrew Park