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The Code of Practice (CoP) 9 is driven by HM Revenue and Customs (HMRC) as one of the integral part in recent years, aiming to fence the tax frauds so as to bridge the tax gap. Recent incarnation of CoP9 has come into existence terming as the Contractual Disclosure Facility (CDF), a process used by HMRC to extent civil clearances in cases of tax swindles. The process is designed to ensure that HMRC can rightfully take the taxpayers to court in tax forgery, however they have supported the enquiry initially yet been ceased afterwards if found erroneous. Such investigations are particularly conceded out by HMRC’s elite Fraud Investigation service (FIS).

Once the fraud is evidenced, the culprit then gets a charge of Code of Practice 9. CoP9 covers all the tax issues in its enquiry like, Corporate Tax, Capital Gain Tax, NIC, PAYE and VAT. If all the income is not disclosed by the individual then HMRC rightfully proceeds the enquiry session against the suspect. If the tax is deliberately avoided by the person then enquiries are settled under CoP9, however in existence of similar situations. Initially HMRC conducts its own investigation finding detailed financial affairs unless got a proper and authentic support of the suspect. However, enquiries conducted under CoP9 provide exceptions from hearings to the taxpayer, providing a soothing investigation, if the details provided by the suspect are up to mark and satisfying the requirements needed by the committee. Above all HMRC’s CDF and CoP9 are though the formal process yet the crucial one in terms of level of misguidance and forgery made by the taxpayer.

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Contractual Disclosure Facility

The Prior Interrogation

Under the Code of Practice 9, HMRC has defined a set of 10 questions with 6 of them on Direct Taxation and rest 4 on Indirect Taxation or Value Added Tax, followed by the further investigation. These questions are related to the financial actions done by the taxpayer in the past defined period. These asked questions are set to fetch the information about:

  1. Number of transactions omitted from or incorrectly entered in the business book.
  2. Accounts submission to HMRC for each and every business, the suspect is concerned with
  3. Settlements of all the tax returns periodically of each and every business concerned to the suspect,
  4. Authenticity and correctness of all the personal tax return in the past years,
  5. Details of the tax returns and accounts sent to HMRC by the taxpayer being a trustee or administrator or executer of the concerned organization,
  6. Consent to examine all the business books, financial statements, private bank statements and business and personal monetary record by the panel.
  7. Rest four question are categorized for Indirect Tax in CoP9 summarizing about:

  8. The omission of any transaction in the tenure of being director, managing officer or sole trader.
  9. The agreement to keep all the books and records to HMRC for any business the taxpayer is concerned with as a partner, sole trader or director,
  10. Completion and regular VAT returns regarding to any business the taxpayer is concerned with.
  11. Awareness about the inaccuracy or incompletion of any of the VAT at the time they were submitted at HMRC.

The Investigation Process

There are certain choices existing for finding tax fraud and also to settle with HRMC, among which Contractual Disclosure Facility is the most used one. A trustworthy assistance to the investigation process may lead to a positive conclusion for the taxpayers; however misleading the process will cost much adversely on other hand.

  • Stepping the first, HMRC issues a notice in the name of the either suspect or the company against the questionable tax falsification done, mentioning to proceed an enquiry into the financial affairs of an individual or the company under Code of Practice 9. However, the acceptance or rejection forms along with the issued letter are also sent to the taxpayer, out of which to choose one is completely subjective to the receiver.
  • Rejecting the issued letter will make HMRC to consider all the available information against the taxpayer as the final evidences. Following this HMRC will then itself decide whether to begin a civil or a criminal investigation against the suspect. Additionally, the taxpayer’s rejection letter will also use as an important evidence in the further criminal proceedings.
  • Secondly. On accepting the CDF the taxpayer is expected to sign an agreement with HMRC; a full disclosure and assistance from the taxpayer throughout the process. However, HMRC has the right to cancel the contract and proceed with the criminal investigation any time if it finds relevant evidence against the taxpayer.
  • Furthermore, if the taxpayer do not want not to proceed the investigation lead by HMRC in a criminal prospect then a confirmation must be provided to HMRC within 60 days of the issuance of letter under CoP9, accepting the full disclosure under the CDF, then only an individual or a company can fully observe with that undertaking.
  • To comply with the prospected undertaking and to avoid the criminal investigation, one needs to complete the two disclosure steps:
    1. Providing a valid and authentic outline disclosure, detailing with all the tax frauds made in past under Outline Disclosure. If HMRC is satisfied with the Outline Disclosure, then an immediate concluding decision will be provided. Nevertheless, in complicated cases further formalities are then lined up before reaching to the final conclusion. In such condition, a detailed disclosure report is generated describing and computing the tax misleading.
    2. Presenting a certified and legal statement, mentioning the complete and accurate disclosure of all the tax irregularities along with the certified statements of assets, liabilities, banks account details, credit card details and other relevant documents supporting Formal Disclosure. In case of pointing out a taxpayer as a suspect, one must take this letter seriously as it is issued by HMRC headed Tax Fraud, hence a matter of settling down all the issues in an authentic and lawful manner.
  • On issuing a CoP9, HMRC also offers a Contractual Disclosure Facility (CDF), through which HMRC accepts not to pursue the investigation from a criminal prospect referencing the issued tax deception. In this lieu, the taxpayer needs to undertake making full confession of tax indiscretions under the CDF.
  • After receiving both the disclosure formats, HMRC first compares the Outline Disclosure with the available records and evidences determining the authenticity of the amount and history of the frauds. As long as HMRC is satisfied with the information provided in the disclosure, the CDF process continues along with CoP9, explaining the detailed sequences of the tax irregularities. However, along with the disclosure settlement additional details are also need to be provided to HMRC by the taxpayer, making the investigation process more smooth and favorable:
    1. Brief personal and business history, detailing with the involved entities
    2. Period of the fraud, along with the details of amount involved in the forgery.
    3. Details of any further work or processes required to compute the fraud.
  • On finding further need to compile the process, HMRC may also invite the taxpayer or the concerned advisor for a meeting to agree the content of the generated report referencing the investigation process. This meeting could also be called at initial level early in the CDF process by the HMRC, expecting the taxpayer to make an Outline Disclosure of the tax frauds. Thus it is essential for the taxpayer to be available all the time whenever required or requested by HMRC to cross verify the relevant matter via progress meetings.
  • At last, the tax negotiation and settlement takes place. Since tax is payable for a period of up to 20 years, hence it’s an essentiality here to process an agreement on the technical grounds, affecting the tax payable for the entire duration of the fraud. On computing the payable tax amount, the further tax penalty could be negotiated on disclosure basis. However, the penalties could be sum up to 100% of the tax case wise relating to UK subjects or could even be raised to 200% in case of offshore tax irregularities depending upon the involvement of the offshore government.
Code of Practice 9

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Finally, dealing with all investigating CoP9 proceedings done by the HMRC under CDF, on resolving and concluding all the tax issues the taxpayer is then asked to sign a settlement contract with HMRC, agreeing to pay the due tax, interest and the penalty due incurred through the final calculations.

Conclusion

Though being a crucial process the Code of Practice9 (CoP9) under the Contractual Disclosure Facility follows the set format prescribed by HMRC to make the investigation process more accurate and justified. However, this facility is only issued with HMRC’s Code of Practice 9. Hence, if any one receives a letter from HMRC with an offer to participate in the Contractual Disclosure Facility (CDF), one must see the professional financial and tax adviser first to make sure that they are following a certain process keeping all the evidences, documents and statements alongside to clear all the enquiries taken place in the process.

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