Code of Practice (COP) 9 is HMRC’s most serious civil investigation type, which carries an allegation by HMRC of fraud or deliberate behaviour leading to a tax loss. COP9 is one step away from criminal prosecution and is seen as the ‘last chance’ by HMRC. This involves making a full disclosure and paying the tax in exchange for avoiding criminal prosecution.
The COP9 and Contractual Disclosure Facility Process
If HMRC suspects tax fraud, it usually issues a COP9 letter together with an offer to use the Contractual Disclosure Facility (CDF) in writing based on information it holds or discoveries made during an enquiry. The CDF is a disclosure process for tax fraud and deliberate behaviour, which grants immunity from criminal prosecution for an individual in relation to tax irregularities disclosed.
On receipt of the offer to use the CDF, the recipient has 60 days to either reject or accept the offer and submit an outline disclosure report (ODR) to HMRC. The 60-day deadline cannot be extended – if HMRC does not receive an ODR within 60 days, this will be treated as a refusal of the CDF. HMRC will then carry out a civil investigation under COP9 or will commence a criminal investigation.
The ODR should provide a descriptive summary of all tax irregularities. It is of paramount importance to seek specialist advice at this point, as only those irregularities disclosed in the ODR will benefit from immunity from criminal prosecution. HMRC reserves the right to commence a criminal prosecution into any irregularities not initially disclosed or misrepresented in the ODR.
HMRC will review the ODR and organise a meeting with the taxpayer and their advisers. This is an in-depth meeting and lasts for several hours, covering the ODR but also probes into all aspects of the individual’s affairs.
Following the meeting, a CDF report will be commissioned by HMRC, due for submission to HMRC within an agreed period of time. A scoping meeting will usually take place between HMRC and the taxpayer’s advisers, during which the scope of the CDF report will be agreed. The CDF report should provide a comprehensive disclosure including calculations of underpaid tax and all supporting evidence. Certain formal documents also need to be provided to HMRC, including a full statement of all assets held and personal liabilities, a certificate of bank accounts and credit cards, together with a certificate of full disclosure.
Upon receipt, HMRC will undertake a thorough review of the report and will then make challenges and raise questions as it sees fit.
Once HMRC is satisfied that a disclosure is complete and correct, settlement will be agreed in order to conclude the disclosure process. This will include applying late-payment interest and negotiating the appropriate level of penalties. The total settlement amount will then be subject to a contractual settlement signed by both parties. At this point, an individual can request a ‘Time to Pay’ arrangement if they do not have the means to fund the settlement immediately.
Tax investigation support and advice
HMRC has an increased appetite for criminally prosecuting those who have deliberately underpaid tax in recent years and regularly publish details of successful prosecutions as a warning to others. It is crucial to seek specialist advice throughout the process and minimise the risk of a criminal prosecution.
The process outlined above demonstrates that inadequate or inexperienced professional advice could trip you up at various stages during a COP9 investigation, whether this is the outline disclosure being rejected, prolonged questioning following submission of the CDF report, sub-optimal penalties or at worst removal from the CDF altogether and criminal prosecution.
At haysmacintyre, Danielle Ford, Head of Tax Disputes & Resolutions, has over 20 years’ experience in getting the best results for her clients, including resolving COP9 enquiries. Riocard Hoye, Senior Manager, is a former HMRC inspector who worked in HMRC’s Fraud Investigation Service for over three years, issuing and working a number of COP9 enquiries before bringing his experience to the private sector, to assist clients. With experience of both sides of COP9 investigations, our team is best placed to deliver successful outcomes for clients. For more on how we can help you with a COP9 investigation, get in touch with Danielle or Riocard today.
