HMRC COP9 Investigation (Code of Practice 9)

HMRC Fraud Investigation Service (FIS) uses Code of Practice 9 as part of the Contractual Disclosure Facility. Code of Practice 9 outlines HMRC’s approach to suspicious, planned tax evasion and illustrates how to use a contractual disclosure facility. It explains the repercussions of admitting deliberate tax fraud, the procedure after admission, and the benefits of full disclosure to HMRC. HMRC only offers a Contractual Disclosure Facility (CDF) and issues Code of Practice 9 when significant tax fraud is suspected. You should get specialist advice before entering into CFD with HMRC. There may be reasons why HMRC have issued a COP9 letter without any due diligence, and it may be a matter of simple compliance.

When you receive the COP9 Investigation Letter, you should know that this is your one-time chance to disclose all tax irregularities — to “come clean.” A Code of Practice 9 Tax Investigation is not an ordinary investigation commenced just after an initial inquiry or HMRC suspects tax evasion. HMRC may have done their primary research, or there can be too many discrepancies that may result in additional tax.

As part of the COP 9 and CDF process, you are also required to identify any mistakes or unintentional and deliberate inaccuracies. Disclosure of false information can lead to a criminal investigation and possible prosecution.

Irregularities or mistakes include false or excess claims for tax relief, costs, VAT etc. – never lose focus of the phrase “deliberate” when investigated by HMRC under COP9. When you accept the terms under CDF, you admit to deliberate conduct where tax has been avoided, and you know of it.

Your admission to tax evasion will influence the nature, scope, and determination of penalties under COP9. Any inaccuracies you do not have a part to play can be identified and treated separately while deciding the outcome of the investigation. Please beware that any disclosure of materially false information or making false representation can lead to a criminal investigation and possible prosecution. You have 60 days from the date you receive COP 9 to decide whether to use the CDF and detail the nature of deliberate fraud and expected tax avoided, including PAYE, Self Assessment, VAT, Corporation Tax, Capital Gains Tax and Inheritance Tax for the last 20 years to HMRC in writing.

HMRC will take your failure to return COP 9 forms within 60 days as a denial route. As a result, HMRC will begin their investigation into your tax returns. You would co-operate with HMRC and provide them with the documents they ask for.

This is an interesting question, and the answer to this is, HMRC will never ever tell what proof they have against the taxpayer. Challenging COP9 Tax Investigation letter on the wrong issuance has not been successful in tax tribunals, and taxpayers must fill in the forms and tell HMRC about any discrepancies or untaxed income and gains. Most of the time, COP9 Tax investigation responds to the taxpayer or their representative’s noncompliance and non-cooperation attitude. And this type of conduct leads HMRC to think about suspected tax evasion. In some of the cases, HMRC had been informed of tax evasion by third parties. HMRC have a dedicated page to report tax fraud and tax evasion anonymously. The last source is ‘Connect’ – a state of the art software which can make a profile of taxpayer by scanning their banks, credit cards, DVLA records, Land Registry Records and requesting any details world wide from The Organisation for Economic Co-operation and Development (OECD) by using their automatic exchange portal.

HMRC have got access to the automatic exchange portal of OECD. This portal is specially designed to exchange taxpayers’ details in different tax jurisdictions. Anyone who is a British national or domiciled in the UK is subject to British Tax. HMRC can access details of their moveable and immovable assets, including bank accounts and properties. Not all taxpayers get a letter of Code of Practice 9 when HMRC have received information through this portal. Most of the times, they will be asked to file disclosure and disclosed any undisclosed income and assets without opening an inquiry or investigation. Read more about Common Reporting Standards – guidelines for exchanging taxpayer data between world tax jurisdictions.

It is not a formal investigation, and the next 12 – 18 months will be incredibly stressful. HMRC has asked you to file a disclosure within 60 days or deny that you have committed any tax evasion or tax fraud. You would need an accountant to calculate the amount of tax you owe in actuality to HMRC. You must give estimated figures and write down how this happened in the disclosure. You are the best judge to estimate the income you have failed to disclose over several years. An accountant can calculate tax and consider other factors. Accountants who do not have experience in such investigations will fail to recognise untaxed income and may rely on the documents already submitted to HMRC by previous accountants. We would advise you to talk to specialist accountants and see if they can identify the untaxed income by going through documents and interviewing you about your business and events. On the other hand, a lawyer can only advise you on the law; he would still need an accountant to analyse income and calculate tax.

HMRC can go back up to 21 years of trading history. But if you have had a different business in the last 20 years, your advisor or accountant can communicate with HMRC about a starting point. It’s the job of your tax accountant to bring down the tax investigation to specific years, so he can concentrate on the actual period when income has not been disclosed in accounts and tax returns. As a rule of thumb, HMRC will ask the last year when all tax affairs were in order. To determine this, our tax accountants look for the earlier year. If they see any discrepancy, they will go further until they reach a point where tax affairs are in order and agree on the tax years to be investigated with HMRC. If you have been insolvent or bankrupt in the past, the start date will be from the date you started the business after bankruptcy.

Under COP9 Tax Investigation guidelines, you must send CDF back either accepting the offer or denying the offer. If you do not send the form back, HMRC will take it as a denial from you. Fraud investigation service can only close the investigation if they accept your explanation along with the CDF form. Not submitting CDF is not an option. Accepting tax evasion and submitting the CDF offer form will give you immunity from prosecution. If you do not send the CDF form, HMRC will start investigating further and may commence a criminal investigation with a view to prosecution.

Code of practice 9 Tax Investigation is all about cooperation with HMRC. From the very first interview to the point where outstanding tax is paid to HMRC, you are expected to cooperate with your accountant, representatives and HMRC officers fully. Your cooperation will determine the penalty. The minimum penalty which HMRC can charge is 35% and can go up to 150%. If there are other matters which you would need to disclose, this is the opportunity to come clean. We always interview our clients who have received COP9 letter to see the quantum of work involved. It is not a typical investigation, and it will not be standard analysis and accounting. For further details call our office.

You should let HMRC know about your partner and tell them how it happened. Usually, if any of our clients are in such a situation, we will advise you to let HMRC know beforehand to save time. HMRC may allow your partner to agree with the tax figures instead of opening a new investigation. Every case has its characteristics and will be judged on its own merits. If you are in a situation where you are unable to draw a line where to start, call our office for a free evaluation of your case.