What is the HMRC Fraud Investigation Service (FIS)?

The Fraud Investigation Service (“FIS”), an elite unit within HM Revenue and Customs (HMRC), was established in 2015 after the merger of the Special Investigations Unit and the Criminal Investigations Unit. It is responsible for looking into cases of suspected serious tax evasion, tax fraud, and aggressive tax avoidance.

Most tax payers pay what is due but some consciously strive to pay less than the exact amount or take advantage of a scheme or device to lower a tax bill. If HMRC believes this, they will investigate under Code of Practice 8 to determine the facts to recover any tax, interest and penalties due.

Fraud Investigation Service will not conduct investigation with the intention of filing a criminal complaint, but they reserve the right to change course if they suspect or discover proof of fraud at any point. After that, FIS may handle the inquiry in accordance with Code of Practice 9. Or, if a criminal investigation is being done, it will be done in accordance with the Criminal Procedure and Investigation Act of 1996, the Police and Criminal Evidence Act of 1984, and their associated Codes of Practice.

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What does the FIS do?

Any instance where FIS suspects there may be a large loss of tax will be looked into. This comprises all taxes, charges, levies, and contributions for which HMRC is responsible, as well as the tax affairs of individuals, partnerships, limited liability partnerships (LLPs), firms, and trusts.

FIS may take over control of compliance inspections initiated by other HMRC divisions as well as launch their own investigations.

Different departments within FIS

FIS Prosecutions team

The 600-agent tax investigations and prosecutions team of HMRC focuses on taxpayers who may be engaging in serious early-stage tax avoidance. Almost all of the prosecutions that this team pursues are civil, not criminal; in 2018, there were 1,000 people who were mostly charged with “cheating” under common law.

The investigators successfully prosecuted the offenders they found guilty, they were convicted and a Money Laundering Regulations confiscation order was obtained against them in the majority of cases.

The prosecutions division of the HMRC focuses on VAT fraud as well. Because it is a transaction-based tax and must be reported on each sale you make, this tax is really one of the most difficult to hide or avoid. HMRC can assess whether underreporting and underpayment may be occurring by comparing the financial records of the company they have suspicions about to the records other businesses in the same industry.

Bootle branch of FIS

Where there are no known overseas or offshore bank accounts or assets involved, taxpayers under investigation by the Bootle department of FIS are likely to be suspected of serious tax fraud. The personnel of this department, which is in charge of UK-based tax investigations, focus primarily on suspected cases of major domestic fraud. Contrary to popular assumption, the majority of tax fraud does not involve people or businesses with money, property, or assets located offshore.

FIS task force

The task force’s responsibility is to show up unexpectedly to business locations to look into whether various taxes, including VAT, National Minimum Wages, income tax, and corporation tax, have been correctly reported and paid. Their thorough investigations can take days or weeks to complete. If this happens to you, you should request that your accountant be there while the Task Force is at your company’s location.

Types of Investigations conducted by FIS

There are 3 types of investigations:

• Full: where HMRC considers there is a high risk of fraud, they will conduct a thorough examination into the directors’ and owners’ personal and business financial records to search for signs of wrongdoing;
• Aspect:  focuses on a specific areas of concern in a person’s or business’ financial and tax records
• Random: As the name implies, a random tax inquiry is conducted on a firm without regard to any particular cause, while anecdotal information shows that enterprises who operate on cash and those that send and receive overseas VAT invoices are more likely to be targeted than others.

What is the Code of Practice 8 (COPD8) and Code of Practice 9 (COPD9)?

The primary civil investigations for which FIS is best recognised are those under:

• Code of Conduct 9 (where fraud or dishonesty is suspected and may involve large amounts of tax)
• Code of Conduct 8 (which involves bespoke tax avoidance and or where COP9 is not considered appropriate).

Regardless of the Code of Practice that is issued, it is always a potentially very severe situation where FIS are involved, and it is strongly advised to seek the opinion of a qualified professional. In fact, the COP9 pamphlet from HMRC strongly suggests that a taxpayer seek out independent professional counsel.

Since the establishment of HMRC, the civil investigations division of FIS has grown both in terms of people and scope, adding the Labor Providers Unit, an insolvency division, VAT fraud work, and Inland Detection to its list of assignments (fuel duty, alcohol & tobacco duty).

Cases presented under COPD8 are those in which:

• It is suspected tax fraud or tax avoidance may have occurred
• They do not believe that the tax fraud or avoidance was done on purpose.
• They believe you owe them a sizable sum of tax, which they are attempting to recoup from you.

While tax fraud is still a concern in cases presented under Code of Practice 9 (COPD9), you will be given a choice known as a Contractual Disclosure Facility (CDF).

What is Contractual Disclosure Facility (CDF)?

If the officers handling the tax investigation/enquiry into your affairs give you the Contractual Disclosure Facility, you will be required to:

Make a full admission of purposeful tax evasion or avoidance; all anomalies, mistakes, and omissions must be fully and completely disclosed; and you must also promise to fully comply with HMRC’s enquiries.

The disclosure form must be returned within 60 days, failing which the offer is said to have been rejected. Depending on the outcome of the FIS investigation, you might be prosecuted in this situation.

Although this offer may seem alluring at first, we highly advise you to seek expert counsel since agreeing to comply under COPD9 at an officer’s invitation is an admission of guilt in and of itself. This admission of guilt typically entails harsher punishments for your activities once the investigation is over and a verdict has been rendered.

You are not required to accept a COPD8 or COPD9 offer made by FIS investigators.

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