Tax Avoidance Schemes & Code of Practice 8 Investigations

HM Revenue and Customs (HMRC) may open a Code Of Practice 8 (COP 8) investigation against you if they believe that you are underpaying tax or have opened a tax avoidance scheme to reduce a tax liability. The Fraud Investigation Service (FIS) at HMRC can carry out a COP 8 investigation against any individual or business. The investigation can include any type of taxation (both direct and indirect). The COP 8 investigation is normally a civil tax investigation if carefully managed by expert legal Tax Solicitors. If HMRC’s case against you is successful, then you will be liable to pay back all the tax owed, interest accrued and penalties due. However even if HMRC’s position is established, liability for penalties can be challenged.  

Specialist City of London Code Of Practice 8 Investigations Lawyers

HMRC recommend that anyone under a COP 8 investigation instruct a professional adviser. Our expert team of established London Tax Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by Her Majesty’s Revenue and Customs (HMRC). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. If you are subject to an investigation by HMRC for tax avoidance, our team of specialist London Tax Solicitors and Barristers can assist you by:

  • Reviewing your entire matter;
  • Providing expert advice throughout the entire investigative process;  
  • Representing you in correspondence, interviews and meetings with HMRC;
  • Collating and preparing all documentation required by HMRC;
  • Contesting disputed tax assessments and penalties ;
  • Managing the entire Litigation process; and
  • Representing you in HMRC’s internal review, Court or First Tier Tax Tribunal if necessary.

Tax Avoidance Schemes Advice

Code of Practice 8 investigations generally arise where HMRC suspect that artificial tax avoidance schemes have been used to underpay tax. HMRC defines tax avoidance as:

“[B]ending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.”

HM Revenue and Customs (HMRC)

Tax avoidance structures are used to minimise tax exposure and can be considered perfectly legal if a particular interpretation of tax legislation is applied. If the planning of a scheme has been challenged by HMRC, it is essential to consult legal tax specialists, because the adviser who promoted the scheme may lack the objective clarity to honestly review and defend the arrangement.

How to identify a Tax Avoidance scheme

HMRC offers the following guidance on the warning signs that you might be in a tax avoidance scheme:

  • It sounds too good to be true: Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers.
  • Pay in the form of loans: Some schemes designed for contractors involve giving you some or all of your payment in the form of a loan that you’re not expected to pay back. It is diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax.
  • Huge benefits: The benefits of the scheme seem out of proportion to the money being generated or the cost of the scheme to you. The scheme promoter will claim there’s very little risk to your investment.
  • Round in circles: The scheme involves money going around in a circle back to where it started, or some similar artificial arrangement.
  • HMRC has given it a Scheme Reference Number (SRN): This is where HMRC has identified the arrangement as having the hallmarks of tax avoidance and are investigating it. You will have been given an SRN by your promoter and will have included it on your tax return. Having an SRN does not mean that HMRC has ‘approved’ the scheme. HMRC does not approve any tax avoidance schemes.
  • Schemes HMRC has concerns about: You can find examples of tax avoidance schemes HMRC is looking at closely. Even if a scheme is not mentioned, it may still be challenged by HMRC.

What will HMRC do if they discover you are part of a Tax Avoidance scheme?

HMRC will investigate fully your tax affairs if it is discovered that you are part of a tax avoidance scheme. In addition, HMRC may also:

  • Require upfront payment of the tax avoided: You may receive a tax bill called an accelerated payment notice. This is a requirement to pay the full amount of tax HMRC calculates as being due, upfront and within 90 days.
  • Take legal action
  • Treat you as a high-risk taxpayer: HMRC will closely scrutinise all your tax affairs in future, not just your use of the avoidance scheme.

If you are implicated in a tax avoidance scheme, it is imperative to seek legal advice early. The implications for tax avoidance are serious, potentially leading to a prison sentence. Contact our dedicated team of London Tax Solicitors and Barristers today for urgent and confidential advice.

Examples of Tax Avoidance Schemes

Specialist Tax Solicitors should be consulted as soon as you enter into or suspect that you are part of tax avoidance scheme or are being investigated by HMRC. Examples of schemes that have formed part of a COP 8 notice include:

  • Pension Schemes:

Artificial Surplus: Some pension schemes create an artificial surplus. The scheme purports to enable a member of a registered pension scheme to remove funds from the pension scheme tax free. This can be by artificially creating a funding surplus through the surrender of rights by a member.

Employer Financed Retirement Benefits Scheme (EFRBS): this unapproved pensions scheme involves the establishment of an offshore trust whereby an employer transfers funds and trustees apply funds via sub-trusts to the benefit of the employees.  This ensures that retirement benefits in the form of tax exempt or low tax amounts in the form of a loan.

  • Employee Benefit Trusts (EBT): These enable a person (trustee) to own an asset on behalf of another person (beneficiary) which minimises liability to pay National Insurance contributions and Income Tax. Employers pay into the trust which would then be distributed to employees in the form of tax free loans. Previously, those in EBT schemes could utilise the Liechtenstein Disclosure Facility which allowed taxpayers to disclose hidden assets to HMRC. However, this voluntary disclosure facility has been closed for new registrations since December 2015. Instead, HMRC recommends using the EBT settlement opportunity.
  • Share Loss Relief Schemes: these schemes reduce the amount of tax payable on earnings by creating capital losses.
  • Inheritance Tax Schemes (IHT): to avoid inheritance tax some schemes exist to allow the homeowner to sell a property to a trust and leave the proceeds of the sale outstanding as a loan which would then be gifted to a second trust.

The Code Of Practice 8 Investigation Procedure

Unlike for a COP 9 investigation, there is no standardised procedure for a COP 8 investigation. COP 8s primarily focus on gathering large amounts of information therefore it is essential to understand which documents are protected by privilege and what the limitations of HMRC’s powers are.

An approach utilised by HMRC in COP 8 cases is to challenge the interpretation of the tax legislation upon which the tax avoidance scheme relies upon. We are highly experienced in formulating argument s to persuade HMRC that their own interpretation of the tax legislation is incorrect and that the particular facts of our clients case do not warrant a COP 8 investigation. We have experience and are well prepared to argue your tax disputes cases in front of the independent First Tier Tax Tribunal.

Anyone subject to a COP 8 investigation should instruct us as expert Tax Solicitors to handle the COP 8 investigation procedure. We ensure that an active approach is taken to all Code of Practice investigations. We will attend any meetings with HMRC and ensure to identify and address HMRC’s main concerns early in the investigative process.

Our tax experts are highly experienced in collating and presenting the information requested by HMRC into a report which puts your case in context and presents technical tax arguments which may benefit your case. In addition, we will challenge HMRC if they request information which is outside the purview of the COP 8 investigation and we can apply to the Tax Tribunal for a Closure Notice if HMRC’s investigation is unjustified or unwarrantedly lengthy.

Can Tax Avoidance lead to criminal prosecution?

HMRC do not undertake a Code Of Practice 8 investigation with a view to criminal prosecution. However, they may take a different view if the suspicion of or evidence of fraud is discovered during the investigation. If serious tax fraud is suspected, then HMRC may open an investigation under Code of Practice 9.

Alternatively, if HMRC wish to conduct an investigation with a view to criminal prosecution, then they will investigate under the Police and Criminal Evidence Act (1984) (PACE 1984), the Criminal Procedure and Investigation Act (1996) and their respective Codes of Practice.

Do you have a Professional Negligence claim?

Our Expert Tax Lawyers will assist clients in negotiating settlements with HMRC if a penalty is levied against them following a Code Of Practice 8 investigation. Our team of Specialist Professional Negligence Lawyers can assist in securing compensation for the penalties from any advisor who mis-sold or recommended the Tax Avoidance scheme to them in the first place. The following advisors owe a duty of care to provide honest advice about the risks and consequences of entering into a tax avoidance scheme:

  • Conveyancing solicitors;
  • Accountants;
  • Tax advisors; and/or
  • Financial advisors.

A professional negligence claim may exist where any of the above advisors have breached their duty of care owed to you and you have suffered loss as a result of HMRC investigating a Tax avoidance scheme.

Our Specialist Professional Negligence Lawyers have years of experience in handling and resolving negligence claims. Our lawyers have market-leading experience of providing bespoke legal advice and bringing complex claims to settlement.  We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before advising on the appropriate course of action in order to reduce time and expense. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our negotiation skills are first-class. If required, we are extremely experienced and capable at navigating our clients through the litigation process.

Just call our Professional Negligence Lawyers on 02071830529 or email [email protected].

Expert London HMRC Tax Investigations & Tax Avoidance Lawyers

If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, Code of Practice 8 (COP 8) investigations, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.

Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].

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