Tax evasion: 25% increase in amount collected in UK deals

If HMRC suspects a taxpayer of tax evasion they can offer the opportunity to enter into a contract under the Contractual Disclosure Facility (CDF). Alternatively, a taxpayer who wants to admit tax evasion that HMRC has not discovered can apply to HMRC to make a voluntary disclosure using the CDF.

The CDF gives the taxpayer immunity from criminal investigation in return for making a full, complete and accurate admission of tax evasion and paying back any money that is owed.

A wide range of taxpayers can use these agreements, from ultra-high net worth individuals with complex offshore tax affairs through to people on average incomes who only owe small amounts of tax.

"Using the CDF has benefits to both sides – taxpayers avoid prosecution and HMRC saves time and money," said Steven Porter, a tax expert at Pinsent Masons.

"If a taxpayer meets their side of the deal under the CDF and makes a full disclosure, then they will also face significantly lower penalties than if they waited to get caught. Taxpayers may also avoid being publicly 'named and shamed' as a tax evader," he said.

HMRC investigations are expected to pick up as the UK government seeks more tax revenue to pay for the cost of coronavirus-related economic assistance.

HMRC receives information automatically under the Common Reporting Standard about financial accounts held by UK residents in more than 100 jurisdictions.

"As HMRC gathers more UK and overseas data on suspected tax evaders the net is being tightened," Porter said. "The CDF is a route out that can avoid a possible prison sentence."

"HMRC requires a huge amount of information from a taxpayer when entering into a Contractual Disclosure Facility; for example, detailed descriptions of what you did, how you did it and who else may have facilitated that tax evasion. It is important taxpayers seek advice before answering any questions," he said.