If HMRC decides to carry out an investigation into a company’s tax returns, it is important...
Any tax investigation that HMRC carries out can be regarded as serious. However, if you become the subject of an HMRC COP9 (Code of Practice 9) investigation, this is the most serious HMRC civil investigation at all. Carried out by the elite FIS (Fraud Investigation Service) this kind of investigation must be taken extremely seriously and its investigators must never be under-estimated.
A COP9 investigation will only ever be opened if HMRC suspects that it has lost duty or tax through fraudulent, deliberate taxpayer activity. The letter you initially receive from HMRC to inform you of the opening of a COP9 investigation into your affairs will open with a statement that says that you are a suspect of tax fraud.
If a COP9 investigation is issued by HMRC you will be provided with an offer called the CDF or Contractual Disclosure Facility. This is a one-time offer, giving you immunity from any criminal investigation or prosecution. In return, you must:
- Admit that you have taken deliberate actions to fail to declare your gains, income or duties.
- Agree that you will disclose in full all irregularities and omissions that have taken place over the past 20 years.
If you accept the CDF offer that HMRC have given you, you will also agree to the payment of the minimum penalty which amounts to 35% of your unpaid tax. If your liability involves any offshore activities, a higher percentage will apply. You are also agreeing to the payment of all interest that will have accrued during those twenty years.
Options Under The COP9 Procedure
Under the Code of Practice 9 procedure, taxpayers can take one of two options. Either they can admit that they have committed tax fraud, alternatively, deny that any tax fraud has occurred.
If the taxpayer decides to go down the route of using the CDF procedure, they will have the chance to fully disclose to HMRC all tax fraud that has taken place. This option will end with the taxpayer and HMRC reaching a financial settlement agreement.
If a taxpayer follows this procedure, they must give HMRC an outline disclosure that sets out in full all areas in which tax fraud has been committed from the outset. Taxpayers have a 60-day period within which to prepare this outline disclosure, starting on the date when they were given the chance to take part in this procedure. It is important to note that immunity from prosecution will only be extended to any areas that are covered within this outline disclosure. Should anything be omitted from it, HMRC will still be able to prosecute if they decide to do so.
What Is the COP9 Procedure?
The initial stage of a COP9 tax investigation often involves a formal meeting being held with HMRC. At this meeting, HMRC seeks more detail about the outline disclosure that the taxpayer provided together with more information about their business and personal affairs. Generally, the taxpayer must attend the meeting.
Following the meeting, the taxpayer will need to commission a tax adviser to prepare a report that sets out detailed information about all underpaid taxes, providing the maximum amount of evidence to demonstrate that the disclosed figures are as accurate as possible. Since there may be insufficient documentation to provide evidence of precise figures, estimations and assumptions underlie some figures within the report. All of the evidence in this report will then be thoroughly reviewed and tested by HMRC before the final settlement amount is negotiated.
If a taxpayer makes a complete disclosure under the CDF, they can reduce the amount of financial penalties they need to pay to HMRC when the final settlement figure is negotiated. If the disclosure is inadequate, the consequences are serious. Should HMRC discover any material irregularities undisclosed within the report, they may decide to opt for criminal prosecution.
Using The Services Of A Specialist
As of the date you receive the COP9 CDF offer from HMRC, you will only have a period of 60 days within which to reject or accept the offer. The decision you make is crucial to your case’s outcome as well as the impact on your finances.
It is not required to accept the COP9 CDF offer. If you believe that you have not knowingly acted fraudulently with regard to your taxation, you should reject the offer. However, any rejection must be handled skillfully, since HMRC already suspects that you are committing tax fraud.
You cannot do nothing in the event that you receive a CDF offer since failing to act will result in HMRC deeming that you have rejected the offer. They will then begin an investigation. Furthermore, you will also be deemed to be uncooperative, which could lead to higher penalties being levied. Worse than that, you will no longer have any control over the process.
Often, a non-specialist tax adviser will panic if you present them with a COP9 letter that you have received. They may then advise that you accept the offer without having considered it thoroughly. That is why it is so important to seek out tax investigation specialists who have the necessary expertise to review your unique circumstances and ensure that you do not admit to any kind of tax fraud if that was not the case and you made a mistake.
It may not be straight forward to distinguish between acting deliberately and making an error when it comes to tax fraud. Therefore, you need guidance from a specialist who can best establish how the way that you have behaved should be classified in terms of a COP9 investigation.
Since most tax advisers who only handle general matters will not have the necessary skill, knowledge, or experience to handle this type of investigation, going to a specialist team of tax advisers is vital. Since the COP9 investigation is the most serious civil tax investigation you could be subjected to, you should certainly take action as quickly as possible to manage the matter effectively.
