Rather than criminally investigate everyone it suspects of tax evasion, HMRC often offers taxpayers the Contractual Disclosure Facility (CDF) which provides an opportunity to come clean and admit to all tax irregularities in return for a guarantee of criminal immunity. But a recent Tribunal case – Gold Nuts and Others v. HMRC - in which an appellant unequivocally denied involvement in tax fraud has raised some interesting issues around the interaction between HMRC’s civil and criminal investigations.
For almost a century, HMRC has used a special process to investigate what suspects to be serious tax fraud. Rather than seek to criminally investigate and where appropriate prosecute everyone it believes to be guilty of tax evasion, a civil approach involving financial penalties is typically adopted for all but the most heinous of offences.
The process has evolved into what is now known as the Contractual Disclosure Facility (CDF), details of which are set out in a booklet known as Code of Practice 9 (COP9).
Taxpayers offered COP9 by HMRC are thus provided with an opportunity to come clean and admit to all tax irregularities. If they do so, criminal immunity is guaranteed.
CDF works well for those who accept they have deliberately evaded tax and readily embrace the process. But complications arise where taxpayers are adamant they have not acted fraudulently and go on to refuse the offer of the CDF.
One such case – Gold Nuts Ltd and Others v. HMRC - has recently been the subject of a preliminary hearing before the Tax Tribunal. In this, the taxpayer 'unequivocally and resolutely' denied that he had committed tax fraud and asked the Tribunal to direct that HMRC should close the investigation.
The judge decided that it was not within the Tribunal’s jurisdiction to do this and went on to consider whether (as the taxpayer claimed) HMRC’s use of its formal powers to obtain information from him might allow them to decide whether to prosecute him. Whilst finding that the taxpayer had a personal right not to self-incriminate, the Tribunal ruled that he was not allowed to refuse to provide the information and documents sought by HMRC.
It further found that HMRC did not have to disclose the information it held which underpinned the decision to offer the CDF.
Despite the unequivocal denial from the appellant, HMRC confirmed to the Tribunal that the investigation was ongoing and it was still continuing to consider whether to prosecute. However it accepted that if its dominant purpose in issuing the Schedule 36 information gathering notices and conducting the corporation tax and self-assessment enquiries had been to obtain information to decide whether to prosecute, then it would have been acting illegally. Counsel acting for HMRC submitted that this wasn’t the dominant purpose but the issue will be decided at further substantive hearing when HMRC will present its evidence.
For more information please get in touch with Mike Down or your usual RSM contact.