UK Taxman Continues To Tackle Tax Fraud


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The UK taxman has announced his latest initiative in his ongoing battle to prevent tax evasion and recoup lost taxes. HM Revenue & Customs is launching another disclosure facilit

The UK taxman has announced his latest initiative in his ongoing battle to prevent tax evasion and recoup lost taxes. HM Revenue & Customs is launching another disclosure facility, and this time it just offers protection from prosecution rather than reduced penalties.

The Contractual Disclosure Facility (CDF) starts on 31st January 2012 and is to be applied to taxpayers suspected of serious fraud. At the same time HMRC is warning that it will introduce tougher procedures for civil fraud investigations.

The CDF will be used for cases where HMRC believes that criminal investigation is not in the public interest, or where it is not considered the most cost effective way to tackle the fraud.

HMRC is writing to taxpayers to advise them that they are suspected of serious tax fraud and offer them the opportunity to enter into a contract to disclose the fraud within 60 days.

The taxpayer must then fully disclose his undeclared capital and income and pay the tax owed plus interest. He will also have to pay a financial penalty (and there is no mention this time of reduced rates), which could potentially be up to 200% of the tax owed.

In return HMRC will agree not to criminally investigate the taxpayer, removing the risk of prosecution. The investigation will then be carried out using civil powers, with a view to a civil settlement for the tax, interest and penalty.

HMRC warns that anyone who does not reply to the letter within 60 days will be considered to have chosen not to cooperate. The authorities will then begin either a civil or criminal investigation into the suspected tax fraud.

HMRC warns: ?Remember that a criminal investigation and prosecution could result in a criminal record, confiscation of assets or even going to prison.?

Anyone who signs a contract but then does not fully disclose their past transgressions faces a full investigation which could lead to a criminal investigation and possible prosecution.

HMRC will also permit taxpayers who are not under investigation, but want to admit to tax fraud, to voluntarily request that HMRC consider their suitability for a CDF contractual arrangement. The tax authorities will retain the discretion to decide which cases are dealt with civilly and which are investigated with a view to criminal prosecution.

Gary Ashford of the Chartered Institute of Taxation (CIOT) predicts that there will be a ?flurry? of big tax investigations when the CDF starts.

The new procedure extends HMRC's powers far beyond the current Civil Investigation of Fraud rules, as governed by Code of Practice 9 (COP9). Phil Berwick, director at law firm McGrigors, says that the new rules will “help facilitate a very substantial increase in criminal prosecutions in the next few years” and put taxpayers “at greater risk of imprisonment and losing the family home”.

HMRC is committed to increasing its criminal investigations five times over, as part of the government?s Comprehensive Spending Review.

Last November it launched a new specialist unit targeting ?offshore tax cheats?. The statement released by HMRC at the time explains that:

?The Offshore Co-Ordination Unit (OCU) brings together a team of highly-skilled offshore analysts, technical tax experts and experienced investigators, who will oversee and co-ordinate HMRC?s compliance work to identify and pursue those who hide income and capital in offshore accounts to avoid UK tax and duties.?

The tax investigators have an increasing amount of offshore information at their disposal, including bank account data. They will use this data to establish who is cheating the Treasury of taxes and HMRC warns that the unit will ?use this intelligence to develop innovative new ways of tackling offshore tax evasion?.

The OCU will continue to build on the ?success? of the Liechtenstein Disclosure Facility (LDF), which allows those with unpaid tax linked to investments or assets in Liechtenstein to settle their tax liability with the UK. It will deal with the HSBC Geneva clients being investigated by HMRC and also implement the operational aspects of the tax agreement between Switzerland and the UK signed in 2011 and which is expected to raise billions of pounds for the Treasury.

Exchequer Secretary to the Treasury, David Gauke, said:

?The days when untaxed income or capital could be safely salted away offshore, beyond the reaches of the taxman, are long gone.

?The launch of this specialist unit, together with the other valuable work the department is driving forward in an effort to tackle offshore evasion, underlines the fact that offshore tax cheats are fast running out of places to hide.?

The OCU is the first instalment of 100 new offshore investigators, as announced by Chief Secretary to the Treasury, Danny Alexander, last September.

In October HMRC wrote to 6,000 HSBC Geneva bank account holders giving them one last opportunity to disclose their tax affairs or face investigation.

In July the Revenue had said that it had identified 500,000 offshore accounts held by UK residents.

The UK is not the only country to step up its crackdown on tax evasion and efforts to collect unpaid tax and penalties for the treasury. With taxes rising more people will want to look for ways to lower their tax bill, but using anything other than approved legitimate arrangements is very risky. Seek advice from an established tax advisory firm like Blevins Franks on compliant tax mitigation in your country of residence.

By Bill Blevins, Managing Director, Blevins Franks

19th January 2012

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.