HMRC's contractual disclosure facility came into force on 1 February 2012. This new tax investigation arrangement (replacing Code of Practice 9) will have a big impact on those who come under the investigation regime.

The important changes are as follows.

  • HMRC will issue a formal invitation to persons to enter into the contractual disclosure facility (CDF) and make full disclosure.
  • The department will allow a 60-day period so that a detailed outline of the disclosure can be made.
  • An initial formal opening meeting will no longer always take place.
  • Unlike the previous regime, criminal proceedings may now be used by HMRC even though the CDF has been offered.

What underpins the new CDF is the fact that at the outset, in addition to making the initial disclosure, the individual under investigation will be required to sign a letter agreeing to co-operate with the investigation. This forms a binding contract.

The most significant change is that even though HMRC has offered a civil investigation there are now more opportunities for HMRC to refer cases for criminal investigation if the individual fails to make a valid disclosure, or denies any irregularity or if a disclosure is incomplete.

The initial letter from HMRC is possibly the most important part of the investigation as a full disclosure of all irregularities made within the time limit should avoid criminal proceedings and help to secure minimum penalty levies. If such letters are not dealt with quickly and efficiently, HMRC may implement criminal proceedings, which can result in imprisonment or, at best, a drawn out, intrusive and expensive investigation.

For the first time HMRC recommends that the individual under investigation obtains advice from a specialist in this area. It is vital that anyone subject to such a regime takes professional advice as failure to do so can now result in prosecution and potential imprisonment. There are also serious ramifications for advisers if they are found to be at fault as part of the investigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.