Tax Evasion & HMRC Code of Practice 9 Investigations

HM Revenue and Customs (HMRC) Specialist Investigations team commence Code Of Practice 9 investigations if they suspect “serious” tax fraud has been committed by deliberate action. COP9 is a civil investigative procedure utilised by HMRC where serious tax fraud is suspected but they do not want to bring a criminal investigation. Taxpayers are afforded the opportunity to make a full discourse under a contract called a Contractual Disclosure Facility (CDF) in exchange for immunity from criminal prosecution.

Specialist City of London Code Of Practice 9 Investigations Lawyers

HMRC strongly advise that you seek to appoint independent professional advice. Our specialist team of Tax Solicitors and Barristers are experts on all matters covered by the COP9. It is crucial that once under revenue investigation Specialist Tax Solicitors are instructed as COP9s can be poorly managed by non-specialist accountants.  Our team of Tax Lawyers have wide-ranging experience in assisting those facing a COP9 investigation whilst helping to navigate the rigid time-limits and strict rules. We 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;
  • Negotiating the scope of the Disclosure Report;
  • Collating and preparing all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and
  • Contesting disputed tax assessments and penalties.

What is a Code of Practice 9 investigation?

HMRC will instigate a COP9 investigation is they have evidence that you have or may have committed a serious tax fraud. There are two options for a taxpayer under a COP9 investigation:

  1. Accept the Contractual Disclosure Facility (CDF): in return for immunity from criminal prosecution, a taxpayer is given the opportunity to make an outline disclosure to HMRC setting out all the areas where tax fraud has been brought about by deliberate conduct at the outset. Penalties and interest apply. This offer expires after 60 days. The CDF can also be used when you wish to disclose a tax fraud voluntarily.
  2. Reject the Contractual Disclosure Facility (CDF): if you do not believe that you have brought about a loss of tax through deliberate conduct you can return a CDF Rejection Letter within 60 days. If HMRC carry on with the investigation and finds that you have committed fraud, you will receive higher penalties and you could receive a prison sentence.

NB: the Denial route for taxpayers has been withdrawn: previously, a taxpayer could deny fraud, but would fully co-operate with HMRC during the investigation. Removal of the Denial option means if you are subject to a COP9, you have 2 options: accept the CDF or reject the CDF.

What is serious tax fraud?

In the context of COP9 investigations, fraud is defined as “dishonest behaviour that led to, or was intended to lead to, the loss of tax”. A person commits an offence if they are knowingly concerned in the fraudulent evasion of tax or duty, by themselves or by another individual. This includes:

  • withholding or concealing relevant facts;
  • failing to disclose a tax or duty liability; or
  • misrepresenting your tax affairs.

It is irrelevant whether you have actually gained from “deliberate conduct”. Deliberate conduct is defined as a taxpayer knowing that an entry in a tax return was wrong, but they submitted it regardless. Tax fraud cannot be committed accidentally and the CDF is not appropriate for those wanting to disclose only careless errors or mistakes.

Code of Practice 9 includes tax losses brought about through Missing Trader Intra-Community (MTIC) fraud and the loss of excise duties through your deliberate conduct.

How will HMRC’s offer the Contractual Disclosure Facility?

HMRC will send an opening letter notifying you of their suspicion of tax fraud. This letter will include a copy of COP9 and the offer of a contract through the CDF. It is imperative to consult Specialist Tax Lawyers as soon as you receive this communication from HMRC because as soon as the letter is received, time starts to tick on the 60 day response window. If you do not respond in this time, HMRC will withdraw their CDF offer.

What is the effect of entering into a CDF?

By entering into the CDF you will admit that tax has been withheld from HMRC due to your deliberate conduct. As such, HMRC will be permitted to recover tax, penalties and interest that you evaded from 20 years to the present.

A CDF means that you will be required to fully co-operate with HMRC (with the assistance of Specialist Tax Lawyers), which ensures the greatest possible reductions on any penalties due.

What happens if you reject the Contractual Disclosure Facility?

If you sign the CDF Rejection Letter, HMRC will start its own investigation. A Rejection Letter can be used in court or Tax Tribunal proceedings, therefore legal advice should be taken prior to communicating with HMRC.

It is essential to consult Specialist Tax Lawyers because even if you intend to accept the CDF, if the Outline Disclosure is incorrectly filled in then HMRC will not be bound to observe their side of the contract.

HMRC will investigate their suspicions either with or without your co-operation. If the CDF is rejected then HMRC may:

  • start their own investigation which may become a criminal investigation;
  • find information about your financial and business affairs from third parties;
  • take formal action including raising assessments for the tax and interest due;
  • charge higher penalties;
  • start legal proceedings to secure some or all of your assets;
  • require a financial security from you against unpaid taxes and duties; and/or
  • publish your details as a deliberate defaulter.

What will you have to disclose in the Contractual Disclosure Facility?

There are 2 stages to the disclosure process. Our team Specialist Tax Lawyers are highly experienced in managing the entire disclosure process for our clients.

Outline disclosure

You will be required to make a valid Outline Disclosure within 60 days of the date you receive HMRC’s offer letter. An Outline Disclosure form will be sent with the CDF offer letter.

HMRC do not expect the form to contain precise details if you cannot reasonably get them within the 60 days allowed. However, it needs to be an honest description of the deliberate conduct you are disclosing, made in good faith and to the best of your recollection, with the help of any documents that are readily available. You must also clearly indicate the period of time during which you brought about a loss of tax through deliberate conduct.

The Outline Disclosure should contain a description of what the deliberate conduct was that has brought about the tax loss. Our team of Specialist Tax Lawyers will discuss all of the requirements with you and ask you for all the information that is required and prepare and submit the Outline Disclosure on your behalf. For each separate tax loss, you are required to provide the following details:

  • what you did;
  • how you did it;
  • the involvement of other people and entities; and
  • how you benefited from the deliberate conduct.

You are further required to include names, addresses and tax references of any other individuals or entities that were involved. It is important to note that HMRC are not bound to provide the same undertaking of non-prosecution for any other individual named or implicated. If you have utilised other entities such as companies, trusts, nominees, or partnerships, you must provide HMRC with their details and explain how they have been used.

Formal Disclosure

Following the Outline Disclosure, HMRC will decide how the investigation should proceed. If the Outline Disclosure does not disclose all of the details which HMRC suspect that you may have been involved in, then HMRC are entitled to commence a criminal investigation into deliberate conduct which has not been disclosed. However, if a valid disclosure is made then your case will proceed along either of 2 options:

  1. In straightforward cases, HMRC will usually not seek further information. We will negotiate with HMRC and look to agree on potential additional duties, the interest payable and any penalties due. You will be required to make your Formal Disclosure by certifying that a complete disclosure has been provided of all your tax irregularities by providing:
  • a certified statement of worldwide assets and liabilities;
  • a certificate of bank accounts operated;
  • a certificate of credit cards operated; and
  • a Certificate of Full Disclosure.

Finally, we will negotiate with HMRC on your behalf and make a financial offer to cover the tax, interest and penalties to settle the investigation.

  1. In complex cases, HMRC may decide that additional information is required to complete the investigation. In this case, we will prepare a Disclosure Report as well as negotiate in a meeting or through correspondence with HMRC on the scope of said report. We will also negotiate the timetable for the submission of the Disclosure report with HMRC- this will depend on the complexity of the work needed, the amount that needs to be done and how easy it is to access the details required. We will also keep HMRC informed of the progress of the report and will attend meetings on your behalf at the request of HMRC.

According to HMRC, a typical Disclosure Report contains:

  • a brief business history;
  • a description of all tax irregularities (including those brought about by unintentional conduct) and how they arose;
  • quantification of all the irregularities;
  • information to show how you quantified the irregularities and ensure that nothing has been missed;
  • summaries of tax and/or duties, interest and penalties due;
  • a reconciliation of your irregularities figure with the summary of tax and/or duties;
  • a certified statement of worldwide assets and liabilities; and
  • certificates of bank accounts and credit cards you operated.

You will also be required to provide a witnessed and signed Certificate of Full Disclosure. This simply affirms that you have made a full, accurate and complete disclosure of all irregularities, to the best of your knowledge and belief.

How do HMRC calculate penalties?

Penalties can be charged up to 200% of the tax lost, subject to a reduction for good behaviour during the disclosure process. It is vital to seek advice from our Specialist Tax Lawyers as soon as you receive a COP9 letter as we will act on your behalf and ensure all of HMRC’s rigorous steps and time limits, meetings are adhered to. We ensure that we represent your case in the best possible way and therefore limit the amount of penalties charged.

For more information on HMRC Penalties click here.

Expert London Tax Investigation Lawyers

If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate 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, 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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