Civil Investigation Of Fraud (CIF)

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Civil Investigation Of Fraud (CIF)

Most tax agents lack the experience to act on behalf of clients investigated by HMRC under its Civil Investigation of Fraud (CIF) procedure.

HMRC is offering a new Contractual Disclosure Facility (CDF) at the end of January 2012. This extends the existing Code of Practice 9 (COP9) and is designed to make it easier for taxpayers who HMRC suspect of committing tax fraud to co-operate with HMRC.

The CDF is not to be used for error or mistake claims.

From responses given to this summer's consultation on this measure, HMRC now recognises that there are some legitimate concerns regarding the suitability of taxpayers’ representatives for the handling of COP9 cases given the specialised nature of this work. HMRC therefore proposes to include reference within the CDF opening letter to the need to seek independent advice urgently from a suitable representative.

HMRC operates a selective approach towards the cases of suspected tax fraud that are investigated to a criminal standard. The selective nature of the criminal investigation policy allows HMRC to pursue a civil investigation route where this is deemed more appropriate or effective. One such process is the CIF procedure.

The CDF proposal provides:

  • A formal contract for the COP9 procedure, offered by HMRC to a taxpayer suspected of tax fraud. This aims to provide certainty for those who want to work with HMRC to make a full disclosure of tax irregularities.
  • A formalisation of the current process should make it easier for HMRC to identify a taxpayer who does not wish to co-operate, and to quickly commence an appropriate and proportionate investigation.
  • A facility that enables the taxpayer to make a spontaneous request to HMRC, by formally expressing his willingness to enter into the CDF to disclose tax fraud.

CIF investigations are carried out by the top investigators within HMRC.These officers are hardened investigators and can be quite intimidating in their approach. Whilst most accountants are able to handle an investigation with the local office, CIF investigations require expert defence. The professional fees incurred in engaging such assistance will usually be more than covered by concessions gained during the course of the enquiry.

HMRC will project the CDF as an almost helpful facility but taxpayers should be under no illusions – any disclosure will be examined very closely. HMRC is under extreme pressure to generate very significant tax revenues to meet monetary targets set by the government. The existing COP9 procedure has been perceived by hard-liners within HMRC as too lenient; the likelihood is that the CDF will give rise to more prosecutions where taxpayers do not make a full disclosure when given the opportunity to do so. Penalty levels are also likely to increase with HMRC taking a more severe line with those who do not make full disclosure of their income.

HMRC will take a much more lenient approach where taxpayers come forward and voluntarily disclose a previously undeclared source/amount of income and levels of penalty can be considerably reduced under these circumstances.The worst outcome of an investigation would be prosecution and a custodial sentence and expert advice from the outset is clearly vital.