What is Code of Practice 9 (COP9)?
Code of Practice 9 (COP9) tax investigations are only opened where HMRC suspects a serious loss of tax, VAT and/or duty through the fraudulent activity of a taxpayer. The initial letter HMRC issues opens with “HMRC have information that gives us reason to suspect that you have committed tax fraud.”.
COP9 tax investigations are the most serious type of civil investigation undertaken by HMRC and are conducted by its elite investigation offices. All HMRC officers who undertake COP9 tax investigations are specialist fraud-trained investigators and should not be under-estimated.
What is the Contractual Disclosure Facility (CDF)?
At the opening of a COP9 tax investigation, you are issued with the Contractual Disclosure Facility (CDF) offer and given 60 days to accept or reject the offer. Should you accept you will receive immunity from criminal investigation and/or prosecution in return for: -
- An admission of your deliberate behaviour; and
- A full disclosure of all omissions, errors or irregularities.
What happens if I accept the CDF offer?
Accepting the CDF offer and, consequently, admitting deliberate or deliberate and concealed behaviour will lead to much higher financial penalties than in non-fraud inaccuracy cases. Should the COP9 tax investigation not be properly managed it can still lead to a criminal investigation and/or prosecution, as HMRC has the right to withdraw the CDF offer under certain circumstances.
What happens if I reject the CDF offer
You should only choose to reject the CDF offer, thus denying tax fraud and any deliberate behaviour, if you genuinely believe that you have not committed any tax fraud. It is essential to obtain specialist advice to assist you making this decision. Where HMRC subsequently verifies and accepts the rejection, it will issue confirmation that it no longer suspects the taxpayer of tax fraud.
HMRC will investigate your tax affairs, which could include a criminal investigation with a view to prosecution where:
- The CDF offer has been rejected;
- HMRC does not receive either the acceptance or rejection forms sent with its initial letter and/or
- HMRC believes a disclosure to be significantly incomplete admission of your deliberate behaviour.
HMRC are not obliged to advise if it has commenced a criminal tax investigation and you need to be aware that your rejection form or significantly incomplete disclosure may be used in court or tribunal proceedings as evidence.
Do I need specialist professional representation?
At the outset of a COP9 tax investigation, HMRC will not share or divulge the evidence it holds that supports its suspicion of fraud. This makes it difficult for non-specialist agents to advise their clients as to whether they should accept or reject the CDF offer. Therefore, specialist advice about the potential consequences of accepting or rejecting the CDF offer is imperative. Should you be placed under COP9 tax investigation, HMRC’s published view is as follows: -
“You are strongly recommended to seek specialist independent professional advice … many people find it helpful to appoint a specialist adviser who is familiar with this Code of Practice, in addition to their regular advisor.”
A specialist advisor can help and guide you around the potential pitfalls to ensure you are best protected. HMRC will typically seek a meeting with you, prior to the preparation and delivery of a Disclosure Report, which can be extremely stressful.
Can I go to prison?
HMRC is under pressure to increase the number of criminal prosecutions it undertakes every year and to use its new powers such as the option to 'name and shame' tax cheats. In serious tax investigation cases involving suspected tax evasion HMRC can launch a criminal investigation, however, criminal prosecution is unlikely to happen if you are upfront and honest about any tax irregularities you may have committed. This is clearly a serious matter and expert advice is required in order to manage your affairs correctly.
What penalties are involved?
HMRC says people who take reasonable care when completing their returns will not be penalised but that errors, whether deliberate or due to carelessness, will attract penalties. These will be levied as a percentage of the extra tax due and vary according to the degree of the error.
There is no penalty for someone taking reasonable care but who submits an incorrect return. However, if they later discover an error but fail to tell HMRC, it will be treated as careless;
- There will be a maximum penalty of 30% of the tax due if the error is careless.
- The penalty will be between 20% and 70% of the tax due if the error is deliberate;
- If the error is deliberate and has been concealed, the penalty will be between 30% and 100% of the tax; and
- Where offshore tax matters are involved, the maximum penalty is 200% of the tax due.
Our expertise ensures that any penalties charged are the lowest that can realistically be expected.
Can I make a voluntary disclosure through CDF?
The CDF process can also be used in cases where a taxpayer wishes to disclose a tax fraud voluntarily. We regularly adopt this approach for any client who accepts they deliberately and falsely understated their taxable income. By doing so, we secure the client immunity from prosecution in return for them making a full disclosure of all irregularities. However, we strongly advocate expert advice to anyone considering this approach.
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