Agreement Disclosure Mechanism

In the UK, Her Majesty's Revenue and Customs (HMRC) has implemented a mechanism known as the Contractual Disclosure Facility (CDF) to address cases of tax fraud. This facility, aimed at reaching civil settlements, offers taxpayers an opportunity to come clean about their deliberate under-declaration of tax liabilities.

When a taxpayer receives a letter from HMRC regarding a suspected tax fraud, they are required to submit an outline disclosure detailing the fraud, the period it occurred, and an estimate of the amounts involved, along with relevant pages of the CDF contract within 60 days. This disclosure is compared with HMRC's own records to ensure its completeness.

If the taxpayer decides to participate in the CDF, they must agree to pay the tax, interest, and penalty due by signing a contract settlement with HMRC, called a Certificate of Full Disclosure. However, it's important to note that a false Certificate of Full Disclosure may result in a criminal investigation for submitting a false document.

The investigation may involve demands for information from third parties connected to the taxpayer or their business. By giving full cooperation from the start of the investigation, the taxpayer improves the likelihood of avoiding publication.

Upon accepting the CDF offer, the taxpayer makes an admission of all losses of tax and duty brought about by their deliberate conduct. The CDF process continues with the preparation of a detailed report, called a disclosure report, by an experienced adviser. Interest in relation to the tax due is computed, and there are negotiations over the level of penalty to be imposed.

If HMRC is satisfied with the disclosure, the taxpayer is monitored for compliance in the years following the completion of the investigation to prevent deliberate behavior. In certain circumstances, HMRC can publish information about a taxpayer who deliberately evades tax or duty.

It's worth noting that the undertaking not to criminally investigate the disclosed frauds does not bind other law enforcement agencies or regulatory bodies. Also, the undertaking does not extend to other frauds or criminal offenses not committed against HMRC.

For taxpayers who wish to voluntarily disclose, they can request permission to enter the CDF by completing form CDF1. If they are deemed appropriate for the CDF, their tax affairs will be reviewed, and if deemed inappropriate for criminal investigation, they will be offered the chance to participate in the CDF.

HMRC's Managing Serious Defaulters (MSD) program is responsible for overseeing the tax affairs of a serious tax defaulter after the investigation. The individual or office holder will be notified if they have been put on the MSD program and will be told how they will be monitored and the timeframe for monitoring.

The CDF is part of HMRC's efforts to "crack down" on tax evaders and "close the tax gap". If a taxpayer denies fraud or fails to respond to the CDF offer, HMRC may initiate its own investigation, which could be criminal. Only the items included in the outline disclosure provide immunity from prosecution in relation to the disclosed frauds.

Extensions to the timetable may be possible but could impact penalties if deadlines are not met. It's crucial for taxpayers to provide accurate and complete information to avoid any potential complications.