Code Of Practice 9 (COP9) Tax Investigations

HMRC’s Code of Practice 9 (COP9) procedure comes into play when HMRC suspects or an individual voluntarily discloses that their deliberate action or inaction has led to an insufficient amount of tax being paid.

This procedure is designed to address cases of potential tax fraud or evasion.

HMRC conducts thorough investigations to uncover deliberate attempts to evade taxes and ensure that the appropriate penalties and corrective measures are applied.

The COP9 procedure allows individuals to make a voluntary disclosure, providing them with an opportunity to rectify their tax affairs and potentially mitigate the penalties they may face.

It is a serious and complex process that requires careful consideration and, in many cases, the involvement of specialist advisors to navigate the intricacies of the procedure and achieve the best possible outcome for the individual involved

What is Code of Practice 9?

Code of Practice 9, also known as COP9, is a comprehensive tax investigation process employed by HMRC in cases where there are strong suspicions of significant tax loss due to fraudulent activities by a taxpayer.

The initiation of a COP9 investigation is marked by an initial by a COP9 letter from HMRC, which explicitly states that they possess information giving them reason to suspect the individual of committing tax fraud. These investigations are undertaken exclusively by HMRC’s highly skilled and specialized Fraud Investigation Services (FIS) office.

The FIS officers responsible for COP9 tax investigations are rigorously trained experts in the field of fraud detection, making them formidable and thorough in their approach.

It is crucial not to underestimate the seriousness and gravity of COP9 investigations, as they represent the most severe form of civil investigation conducted by HMRC.

What is the Contractual Disclosure Facility?

Upon the commencement of a COP9 tax investigation, you will receive the Contractual Disclosure Facility offer, commonly referred to as CDF. This offer presents a valuable opportunity to voluntarily disclose any tax discrepancies resulting from intentional actions. Within a timeframe of 60 days, you can carefully consider and respond to the CDF offer, deciding whether to accept or decline.

By accepting the offer, you gain the chance to come clean about any deliberate conduct that has led to a loss of tax, ensuring transparency and cooperation with HMRC.

Alternatively, rejecting the offer warrants thoughtful consideration as it involves navigating potential alternative avenues for addressing the investigation

Should I accept the CDF offer?

If you accept HMRC’s CDF offer, you will receive immunity from criminal investigation and/or prosecution, in return for:

• An admission of deliberate behaviour
• Full disclosure of all omissions, errors or irregularities
• Full cooperation with HMRC

It is crucial to note that immunity is only granted for the information disclosed during the CDF process. HMRC FIS is under no obligation to inform you about the specific risks they have identified, leading to the initiation of the COP9 investigation. Incomplete disclosure of tax irregularities leaves undisclosed matters unprotected, posing the risk of HMRC discovering false or incomplete information provided.

Accepting the CDF offer implies an acknowledgment of fraudulent activity, which entails higher financial penalties compared to cases involving non-deliberate inaccuracies. Therefore, it is of utmost importance to ensure that deliberate behavior, as per HMRC’s behavior guidelines, can be substantiated.

It is essential to understand that the commencement of a COP9 investigation and the subsequent issuance of a CDF offer do not obligate you to accept the offer. Regrettably, many non-specialist advisors may incorrectly persuade clients to accept the CDF offer and disclose all irregularities as deliberate, even when non-deliberate behavior is evident.

Distinguishing between deliberate and non-deliberate irregularities can be intricate. Each case is evaluated based on its unique circumstances and merits. To date, we have not encountered a situation where HMRC FIS has demonstrated our client’s rejection of the CDF offer to be incorrect.

Furthermore, we have not encountered instances where we have considered irregularities to arise from non-deliberate behavior, yet HMRC has deemed them deliberate, even in cases where our clients accepted the CDF offer for some, but not all, deliberate behavior.

Unfortunately, we have also come across individuals who were erroneously advised by their previous advisors to accept the CDF offer, despite the need for rejection.

We strongly recommend seeking professional advice before making a decision to accept or reject the CDF offer.

How do I accept the CDF offer?

To accept the CDF offer, you are required to submit the acceptance form provided by HMRC, along with a completed form CDF5 or ‘Outline Disclosure’.

The Outline Disclosure should comprehensively address all irregularities stemming from deliberate behavior within your tax affairs. It is crucial to note that any omissions in this document may not fall under the scope of immunity from prosecution.

The process of preparing the Outline Disclosure may take some time, and HMRC will subsequently review and confirm the validity of your disclosure. Therefore, it is advisable to engage professional representation promptly.

We have a proven track record of successfully preparing Outline Disclosures for our clients, all of which have been accepted by HMRC as valid.

What happens if I accept the CDF offer?

By accepting the CDF offer, you initiate the CDF process, which involves categorizing the case as either ‘simple’ or ‘complex.’ Complex cases require more extensive work and may involve multiple meetings with HMRC, particularly if you lack specialized representation. The process culminates in the submission of a comprehensive report on your tax affairs, spanning up to 20 years and focusing specifically on deliberate behavior. Subsequently, HMRC will review the report and either acknowledge it as a complete disclosure or raise queries for further clarification.

Once HMRC accepts the disclosure as complete, penalties will be imposed. The penalty range for cases involving deliberate behavior prompted by HMRC action varies from 35% to 100% of the outstanding tax amount. The final penalty amount depends on factors such as the level of cooperation and the quality of the disclosure. However, it is important to highlight that there is an opportunity to challenge the penalty level if it exceeds the minimum threshold.

It is crucial to manage the disclosure process effectively to avoid higher penalties and the potential for a criminal investigation or prosecution. HMRC retains the right to withdraw immunity under certain circumstances.

We meticulously assess whether our clients’ attendance at meetings with HMRC is necessary and in their best interests. Our exceptional track record demonstrates our ability to secure the most favorable financial penalties for our clients.

Should I reject the CDF offer?

It is imperative to carefully consider your decision to reject the CDF offer and refute allegations of tax fraud. Assessing whether an action was deliberate or a result of carelessness can be more complex than it initially appears. Given the gravity of this decision and the potential consequences it carries, seeking specialist advice becomes crucial.

If HMRC FIS holds the belief that you have engaged in significant fraudulent activities, it becomes essential to present a compelling case to persuade them otherwise. Having expert representation plays a vital role in navigating this process effectively

What happens if I reject the CDF offer?

Upon receiving your rejection of the CDF offer, HMRC FIS will proceed in one of two ways: initiating a more comprehensive investigation or acknowledging your denial and issuing a confirmation that it no longer suspects you of fraud.

However, it is important to note that in cases involving non-deliberate irregularities where a complete disclosure is not provided, HMRC FIS is highly likely to continue its investigation.

The definition of a comprehensive disclosure depends on the applicable time limits in each situation. Should HMRC FIS still maintain the belief that a disclosure encompassing deliberate irregularities should have been made along with the acceptance of the CDF offer, they may initiate a criminal investigation with the intention of pursuing prosecution.

What happens if I do nothing?

In the event that HMRC FIS does not receive a clear acceptance or rejection of the CDF offer, they will persist in investigating your tax affairs, potentially resulting in criminal prosecution.

Even if HMRC FIS decides not to proceed with criminal prosecution, it is important to note that any penalties imposed under the civil regime will be significantly higher due to the lack of cooperation demonstrated.

It is crucial to engage with HMRC FIS and provide a clear response to avoid such adverse consequences and ensure the best possible outcome.

Do I need specialist professional representation?

During the initiation of a COP9 tax investigation, HMRC FIS maintains confidentiality regarding the evidence supporting their suspicion of fraud. This lack of disclosure poses a challenge for non-specialist agents in providing informed advice on accepting or rejecting the CDF offer. Thus, it is essential to seek specialist advice to understand the potential consequences associated with these decisions. Additionally, HMRC FIS may request a meeting with you, and without proper representation, these encounters can become confrontational and highly stressful.

In the event that you become subject to a COP9 tax investigation, HMRC strongly recommends seeking specialized independent professional advice. Many individuals find it beneficial to engage a specialist adviser who possesses expertise in the Code of Practice, in addition to their regular advisor.

Experienced specialist advisers, such as our team, equipped with comprehensive information about your financial affairs, can help navigate potential pitfalls and ensure your optimal protection. They will enable you to proactively address any allegations made by HMRC and should help minimize the overall expenses associated with the investigation.

Can I go to prison?

Given the prevailing political environment, HMRC faces heightened expectations to intensify its pursuit of criminal prosecutions and utilize its powers of public exposure. It is crucial to acknowledge that tax fraud constitutes a grave offense and can lead to potential imprisonment.

However, accepting the CDF offer for deliberate irregularities offers a significant advantage: HMRC provides an assurance of immunity from prosecution as long as a comprehensive and precise disclosure is provided. Engaging the services of specialist advisers is essential in taking the initial and crucial step towards mitigating the risk of criminal prosecution and averting the potential consequences of imprisonment.

What penalties are involved?

HMRC emphasizes that individuals who exercise reasonable care in completing their tax returns will not face penalties. However, penalties are applicable for cases involving careless or deliberate irregularities. In instances where the disclosure of deliberate irregularities is prompted by HMRC action, penalties for onshore non-compliance and offshore non-compliance can range from a minimum of 35% to potentially as high as 150% of the unpaid tax. The specific penalty amount is determined based on the taxpayer’s culpability and level of cooperation.

Our expertise in this field enables us to proactively address penalty considerations from the outset, aiming to secure the lowest reasonable penalty. It is worth noting that penalties for careless irregularities may be eligible for suspension, further highlighting the importance of seeking professional guidance to navigate through the complexities of tax investigations and potential penalties.

Can I make a voluntary disclosure through CDF?

Yes, the COP9 CDF process provides an avenue for taxpayers to make a voluntary disclosure of tax fraud. This approach is frequently utilized for clients who acknowledge their deliberate and inaccurate reporting of tax liabilities. By engaging in this process and making a comprehensive disclosure, individuals can obtain immunity from prosecution.

If you find yourself in a situation where this may be applicable to your circumstances, we highly recommend seeking expert advice before initiating contact with HMRC. This ensures that you navigate the process effectively and receive the necessary guidance tailored to your specific situation.

Frequently asked questions

What is the HMRC Code of Practice 9 investigation?

HMRC Code of Practice 9 investigation requires an individual under investigation and HMRC will enter a contract whereby the individual commits to make a complete, accurate, open and honest disclosure of all deliberate behaviour and all other irregularities in their tax affairs. In return HMRC commits not to open a criminal investigation.

What is the difference between COP8 and COP9?

The difference between COP8 and COP9 is COP8 enquiries will usually involve larger transactions, tax avoidance schemes or offshore transactions. This is different to suspected deliberate inaccuracies in business records or undisclosed capital gains, where a COP9 notice would be served instead.

What is the Code of Practice 9 letter?

The Code of Practice 9 letter is giving an individual an opportunity by HMRC to fully disclose to them details of all their deliberate and non-deliberate conduct that has led to errors and/or irregularities in their tax affairs.

Conclusion

In conclusion, facing a COP9 tax investigation by HMRC demands a thorough understanding of the implications and potential consequences. Whether you are considering accepting or rejecting the CDF offer, seeking expert advice from specialist advisers is essential to protect your interests and make well-informed decisions throughout the process.

With the current political climate placing increased pressure on HMRC to pursue criminal prosecutions, securing immunity from prosecution through a full and accurate disclosure becomes crucial. If you have received a COP9 letter or suspect that you may be subject to such an investigation, take action now by completing our online enquiry form.

Our team of experienced professionals is ready to guide you through the complexities of the COP9 investigation, safeguard your rights, and work towards the best possible outcome for your case. Your proactive approach can make all the difference in resolving this matter effectively and with minimised risks.