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CDF timeframe is ‘recipe for mistakes’

22 July 2011
Issue: 4314 / Categories: News , CDF , fraud , John Cassidy , Phil Berwick , VAT amnesty , Admin
Law firm warns of legal uncertainty posed by 60-day deadline

The Revenue’s latest stratagem in its increasingly dogged fight against tax dodging has been criticised by legal experts for threatening to create uncertainty.

A discussion document published on Wednesday (20 July) proposes the introduction of a contractual disclosure facility (CDF), which would allow taxpayers suspected of defrauding HMRC to come forward with details of their offence without fear of criminal prosecution. They would face only civil procedings.

Those who are invited by the taxman to enter into such an agreement would 60 days in which to do so. But law firm McGrigors, which specialises in tax investigations, says the timeframe isn’t long enough and could lead to ‘unattractive’ legal risks for the taxpayers who submit to the CDF

Director Phil Berwick said that, for the scheme to work properly and draw in the maximum tax revenue, the disclosure facility has to be appealing to the tax evader by offering legal certainty.

He remarked, ‘Sixty days is too short a timeframe in which to ask somebody to make such an important disclosure, even in outline form. They have to be given time to get the disclosure right because they face criminal prosecution and possible jail if they get it wrong.

‘If taxpayers are going to use this scheme, they need to seek professional advice. Advisers are going to want to do proper due diligence. Setting such a stringent deadline is a recipe for mistakes.’

The CDF was better received by accountancy group PKF, whose tax investigations partner John Cassidy said it was wholly reasonable that HMRC should seek to broaden the remit of their civil investigation of fraud (CIF) procedures, also known as COP9, which are currently undertaken only when a suspected fraudster owes more than £75,000 in back taxes.

‘This is only fair and may encourage more petty tax fraudsters to come clean. It also opens the way for HMRC to use the CIF route to follow up on individuals who do not take up the current VAT registration amnesty,’ he said, going on to point out that the mooted upgrade of the COP9 regime seeks to ensuring that taxpayers who do not cooperate can be prosecuted. The Gill and Gill case of 2003 set a legal precedent that the Revenue cannot switch from an active civil prosecution to the criminal equivalent for the same offences.

Mr Cassidy said, ‘Gill and Gill really undermined the effectiveness of civil investigations for HMRC. Currently, once a CIF letter is issued, there is no legal threat hanging over the individual.

‘There is no doubt that the threat of going to jail does encourage people to cooperate. Without that leverage on the taxpayer, HMRC seem to have been reluctant to start enquiries in recent years and are missing out on a lot of unpaid tax as a result.’

Issue: 4314 / Categories: News , CDF , fraud , John Cassidy , Phil Berwick , VAT amnesty , Admin
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