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23 August 2016

The taxman and serious tax investigations


I have received a Code of Practice 9 Enquiry letter from HM Revenue & Customs (“HMRC”). Can you please advise what I need to do?


A Code of Practice 9 (“COP 9”) enquiry is issued by HMRC in cases where they suspect tax fraud has been committed.

Once a COP 9 enquiry letter is issued, HMRC will invite the tax payer into the Contractual Disclosure Facility (“CDF”). The main benefit of the CDF relates to HMRC treating the tax investigation into tax fraud as a civil investigation rather than a criminal investigation.

The invite to enter into the CDF and whether to accept or reject it is a decision that is usually obvious for the taxpayer. If there has been deliberate concealment and tax irregularities have arisen as a result the CDF offers a more pragmatic route to putting things right. There may be instances however where things are not so clear-cut and the taxpayer views any irregularities as not deliberate. It is vital at this point that the person engages with a COP 9 specialist to weigh up their options.

In order to comply with the CDF, the taxpayer must submit an outline disclosure to HMRC within 60 days of the date of issue of the COP 9 letter. Failure to meet this deadline would mean that the taxpayer has no protection for their case to be treated as a civil investigation.

If the taxpayer cannot meet the 60 day deadline, it is imperative that HMRC are contacted in advance of the deadline as they may extend the submission date in some extenuating circumstances.

The outline disclosure will detail the taxpayer’s tax irregularities. In the outline disclosure they do not need to be quantified. Once the outline disclosure is submitted work would commence on the formal disclosure to HMRC.

In most instances HMRC will ask the taxpayer to attend an interview prior to completion of a formal disclosure report. Care is needed with these steps in the process as HMRC have the power to start criminal proceedings if a taxpayer submits incorrect documents or makes false statements during the process. That said, if the disclosure and general engagement with the process from the taxpayer’s position is complete and accurate the enquiry will be conducted with the safeguard from HMRC that there will be no criminal proceedings. Behaviour during the enquiry is important as it should be borne in mind that lack of co-operation or placing unnecessary blockers in front of HMRC can have a detrimental effect on the level of penalties charged in the overall settlement.

The formal disclosure would take the form of a detailed report and would detail the tax irregularities and quantification of same. The taxpayer, within the report, would have to certify that they made a full, complete and accurate disclosure, provide a statement of all bank accounts, credit cards, safety deposit bank accounts and bank accounts of minor children and a statement of assets and liabilities. HMRC normally request for the report to be completed within 6 months, however, in some instances this may not be possible and a longer period required to complete the report.

At the conclusion of the enquiry, HMRC may consider that the behaviour of the taxpayer was deliberate and of a magnitude to merit future scrutiny of their tax affairs. Under the managing serious defaulters’ regime, HMRC monitor the person’s tax affairs for at least two years after the conclusion of an enquiry. This may involve increased compliance checks and requirements to supply comprehensive supporting information with future tax returns.

A COP 9 enquiry is a serious investigation and specialist advice is required immediately on receipt of the enquiry letter. FPM have a specialist COP 9 team who can assist in this matter.

The above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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