COP 9 and COP 8 tax investigations and HMRC tax investigations
Support and advice in dealing with HMRC
Why is specialist advice necessary?...
We are likely to see an increase in HMCR investigations in the coming months. HMRC’s funding to tackle what they see as wide spread and persistent tax avoidance (and tax evasion) is ever increasing.
HMRC are armed with more information than ever before whether through the automatic exchange of information agreements with foreign governments, their own surveillance software which connects information from a variety of sources – land registry, department of work and pensions, tax returns, banks, insurance companies, estate and letting agents, foreign governments, newspapers and the internet – and tip offs.
We look at 2 important HMRC codes of practice:
Code of Practice 9
Where HMRC suspect that tax fraud has occurred, they will investigate under Code of Practice 9. If accepted into this process, the taxpayer must admit that they deliberately evaded tax and will be interviewed by HMRC officers from HMRC’s Fraud Investigation Service.
These specialist investigators will offer the taxpayer a chance to correct all tax matters, not just the deliberate ones, by the submission of a disclosure report called the Contractual Disclosure Facility. The report should be prepared by a specialist in tax investigations and will be formally adopted by the taxpayer when it is submitted. In effect, the tax adviser will conduct the review and report all irregularities to HMRC in the report and calculate the tax, interest and penalties to offer HMRC in settlement.
Upon receiving the report and settlement offer, along with certain formal declarations by the taxpayer, HMRC will test the contents against their intelligence and if they believe that the report is not correct and complete, they can reject it, ask further questions or take over the review themselves.
The benefit for the taxpayer is that, if they are completely open and honest about all of their tax irregularities and submit the report on time and it is accepted by HMRC, they are guaranteed not to be prosecuted for any of the tax offences and irregularities admitted and disclosed in the disclosure report.
This gives the taxpayer a chance to have potentially criminal tax evasion dealt with under the civil procedure without fear of prosecution.
Code of Practice 8
Where COP 9 is not appropriate, for example where there is no discernible dishonesty, the Fraud Investigation Service at HMRC may instead choose to investigate under Code of Practice 8.
Where HMRC suspect targeted and bespoke tax avoidance, large scale tax avoidance through marketed tax schemes for example, they will investigate. Under COP 8, HMRC lead and undertake the investigation, there is no contractual disclosure facility.
During their investigation, if HMRC discover evidence of fraud and dishonesty, they can decide to prosecute – there is no guarantee of non-prosecution in COP 8 as there is in COP 9.
HMRC will usually request a meeting and the taxpayers response to that will be used as a measure of cooperation (important when considering penalties).
Ahead of HMRC opening a COP 8 investigation, the Fraud Investigation Service will have already been looking at the taxpayer in detail. They would have looked at returns, accounts, claims and elections submitted by the taxpayer together with the information from the large variety of sources and will usually conduct a targeted investigation.
As a COP 8 investigation can convert into a criminal prosecution, it is vitally important that taxpayers subject to a COP 8 investigation seek specialist help as soon as possible.
Where tax evasion has been committed by organised gangs, where the taxpayer holds a position of trust or responsibility, where materially false statements have been made or false documents submitted, where there has been deliberate concealment, deception, forgery especially by professional advisers, where the perpetrator has a history of tax offences HMRC will look to prosecute.
If a taxpayer has engaged in deliberate tax evasion, it is always better to approach HMRC with a view to seeking disclosure under COP 9, than hope that HMRC will not find out about it. If they find you first, they will prosecute whereas if you go to them before they begin an investigation they are more likely to allow a COP 9 process with its inherent immunity from prosecution.
If you decide to approach HMRC before they investigate you, it needs to be done in a managed way by a specialist who will manage your relationship with HMRC all the way until closure.
If your tax irregularity does not qualify for a current HMRC campaign or does not warrant seeking admission to COP 9, the best way to make the disclosure to HMRC is through the Digital Disclosure Service.
You will usually have 90 days to submit the full disclosure from when you notify HMRC that you intend to make a disclosure.
For more information about any of these issues or other HMRC investigation matters please contact us on 020 7330 0101 or email firstname.lastname@example.org.
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