What is Contractual Disclosure Facility?

Contractual Disclosure Facility or CDF is an opportunity of disclosure – that is, it enables businesses to admit to any deliberate tax fraud or wrongdoing they committed, and also admit to all the irregularities which arose as a result, to HMRC.

In exchange, businesses get a ‘guarantee of immunity’ from prosecution, as long as they make a complete disclosure of the tax evasion and/or fraud which they committed.

More about CDF and how it will impact your business

According to HMRC, if businesses receive a CDF letter, it is highly recommended that they enter into a contract under the terms thereof (Code of Practice 9 or COP9), and see it as an olive branch, so to speak.

As you may know, CDF replaces the old HMRC procedures for Civil Investigation of Fraud.

A CDF letter typically includes:

• A formal document or ‘offer’ to enter into a contract under the Code of Practice 9 terms which will be attached
• An acceptance letter and a denial letter
• A disclosure form

At this point, you broadly have three options:

• Fully and unconditionally admit to the fraud through the disclosure process
• Deny the fraud (called the denial route)
• Not respond to HMRC at all (called the non-cooperation route)

What happens when you accept the contract?

If you decide to go ahead with entering into the contract via CDF, you must understand that it is a binding contract with HMRC, and only under the terms of those contract will HMRC not proceed with criminal prosecution.

Therefore, you need to:

• Fully disclose the taxes you evaded on purpose
• Mention all details of irregularities which stemmed indirectly as a result
• Make the disclosure within 60 days of the contract offer
• Sign a formal statement that everything has been disclosed by you
• Pay all the various taxes, interest and penalties due
• Seize all tax evasion indefinitely

What happens when you take the denial route?

If you feel that a CDF has been sent to you by mistake or that you have committed no tax wrongdoing or evasion, HMRC will sit down with you and your financial adviser to confirm that all taxes have been paid and are up to date.

However, if any irregularities surface, you may very well be subject to a criminal investigation by HMRC, followed by prosecution, citing your ‘denial’ as a diversionary tactic or intention to deceive or evade prosecution.

What happens when you take the non-cooperation route?

If you fail to or simply do not wish to respond to HMRC within 60 days, informing them whether you have accepted the contract or denied any tax wrongdoing, they will treat this as ‘non-cooperation’.

In this case, HMRC will launch a formal civil or criminal investigation into any tax fraud which you may have committed. If your conduct is found to be grievous, you may find yourself dealing with a prison term.

Final thoughts on contractual disclosure facility

You don’t have to be offered a contract by HMRC to be eligible for CDF. You can also approach a tax investigation expert or financial adviser to make a voluntary disclosure without delay. It will save you many headaches and especially business costs down the line, not to mention a potentially lengthy and embarrassing prison term.

contact us for a free, no obligation consultation on: 01753 373 505 or complete our Contact form and we will get back to you.

HMRC guidance on the subject on can be found here:  https://www.gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility-cdf