When a taxpayer is suspected of fraud, HM Revenue and Customs (HMRC) may initiate a civil investigation under Code of Practice 9 (COP9). This process offers the taxpayer an opportunity for a civil settlement instead of facing criminal prosecution, provided they fully disclose their fraudulent activities.
In Update on Code of Practice 9 (COP9), Nick Davies explained that the COP9 procedure is a structured and rigorous process that unfolds in several stages.
The first step in a COP9 case is the receipt of an opening letter from HMRC, which bluntly informs the taxpayer of the suspicion of fraud and includes forms for acceptance or rejection of the Contractual Disclosure Facility (CDF). The taxpayer has a 60-day deadline to respond to this letter.
During this period, HMRC will not discuss any aspect of the case with the taxpayer, leaving them to decide on their course of action without insight into what information HMRC possesses.
If the taxpayer chooses to accept the CDF, they must provide an outline disclosure within the same 60-day window. This disclosure requires the taxpayer to admit to their deliberate conduct, describe the nature of the fraud, and estimate the amount of tax and duty lost due to their actions. It's crucial to include all relevant details, as immunity from criminal prosecution is only granted for the items explicitly included in the outline disclosure. Any omissions can lead to the withdrawal of the CDF offer and potential criminal prosecution.
Following the submission of the outline disclosure, HMRC will schedule an opening meeting. This formal meeting typically involves multiple HMRC representatives and lasts at least one day. The seriousness of tax fraud is underscored as the taxpayer is quizzed on various aspects of their financial affairs and lifestyle.
A scoping meeting comes next, where the extent of the investigation is defined. Here, the taxpayer and their advisor can negotiate with HMRC on the scope of the review, such as agreeing on a sample period for detailed analysis or setting a minimum limit for transactions to be considered. This meeting is critical for establishing the parameters of the disclosure report and the work required to complete it.
Throughout the investigation, regular progress meetings are held to ensure that both parties are aligned and to address any emerging issues. These meetings pave the way for the preparation and submission of a comprehensive disclosure report, which HMRC will review, possibly raising supplementary questions.
Finally, a settlement meeting is convened to finalise the terms of the settlement. This meeting must include the taxpayer and is the culmination of the COP9 process, determining the financial restitution required to resolve the case.
The COP9 process is a testament to HMRC's commitment to addressing tax fraud while offering a pathway for taxpayers to rectify their wrongdoing through a civil settlement. It is a complex and demanding process that requires transparency and cooperation from the taxpayer to achieve a resolution.
For the full session, please click here. Nick Davies covers the following topics during this course:
- COP9 – Background, overview and the recent changes.
- What does it mean when HMRC offer COP9?
- When to consider making a voluntary application for COP9
- Working the case – potential pitfalls
- What happens when the case is concluded?
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.
