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HMRC internal manual

Fraud Civil Investigation Manual

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HM Revenue & Customs
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Where CDF offer is made up to 29 June 2014: penalties and settlement of cases: reduction of penalties where a detailed disclosure report is not made

Unless a full disclosure of all irregularities is made at the first opportunity, once HMRC has opened any check or investigation into that person’s tax affairs, they cannot earn a full reduction. In situations involving deliberate behaviour, the taxpayer can only avoid inclusion in the PDDD programme (FCIM109050) by earning full reduction.

Our policy in relation to the investigation of fraud under COP9 is to allow a large reduction of penalties in return for full cooperation from the outset. In appropriate cases this will involve the taxpayer taking on the expense of a comprehensive detailed Disclosure Report. It therefore follows that in those cases where one is not completed, the abatement or disclosure reduction must be strictly curtailed.

For ‘Old Penalties’, the abatement for both disclosure and cooperation will rarely exceed one-quarter of the maximum available, if a detailed Disclosure Report is needed but not completed. In a case of fraud, it is not enough for the taxpayer to use the Outline Disclosure to tell us in broad terms what he has done, and to make available his records to us. In appropriate cases what is required is a detailed report with a high level of assurance, compiled using appropriate techniques of audit, accountancy and investigation, which should be supported by explanations etc from the taxpayer. Anything significantly short of this is a failure to reach the standard of full cooperation envisaged by Code 9.

For ‘New Penalties’, failure to complete a Detailed Disclosure Report will clearly fail to earn full marks for ‘helping’. But it will also fall short of what is expected for ‘telling’ and probably for ‘giving access’. Even if our own investigations do not uncover anything beyond what is disclosed in outline, the point is that the taxpayer should have undertaken the work to provide assurance about the scope of the Outline Disclosure. Merely giving full access to records is also less valuable in COP9 cases if it is not accompanied by the sort of analysis of those records that is expected in a detailed Disclosure Report.

CH82430 says that the 30:40:30 ratio is ‘a guide’ and CH82431 says that you should consider whether the disclosure reduction is reasonable, taking into account all the circumstances of the case. So for example, in a COP9 case where an Outline Disclosure has been made and all records produced, but where no acceptable detailed Disclosure Report has been made, and where HMRC has had to carry out a detailed and complex investigation as a consequence, it might be reasonable to allow total disclosure reduction of only 20 per cent in relation to penalties for deliberate conduct.