Civil Investigation of Fraud (Code 9): historical record: 'New Penalties': Disclosure Reduction where Disclosure Report not made
HMRC’ s policy in relation to the civil investigation of fraud is to allow a large reduction of penalties in return for full cooperation, which must usually involve the taxpayer taking on the expense of a comprehensive Disclosure Report. It therefore follows that if a Disclosure Report 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 Disclosure Report is not completed. In a case of serious fraud, it is not enough for the taxpayer to tell us in broad terms what he has done, and to make available his records to us. What is required is a detailed report with a high level of assurance, compiled using appropriate techniques of audit, accountancy and investigation, supported by explanations from the taxpayer, and adopted by him. Anything significantly short of this is a failure to reach the standard of cooperation envisaged by Code 9.
For ‘New Penalties’, failure to complete a Disclosure Report will clearly fail to earn full marks for ‘helping’. But it will also fall short of what is expected for ‘telling’ and ‘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 CIF cases if it is not accompanied by the sort of analysis of those records that is expected in a 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 in to account all the circumstances of the case. So for example, in a CIF case where an outline disclosure has been made and all records produced, but where no acceptable 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.