Tax Investigations
& COP 9

Where tax fraud or tax evasion is suspected and a criminal investigation has not already been commenced, HMRC can initiate an investigation into an individual using the ‘Code of Practice 9 (COP9) investigation of fraud procedure’.

The subject of a COP9 investigation is afforded the opportunity to make complete and accurate disclosure of all deliberate and non-deliberate conduct that has led to irregularities in their tax affairs.

This is completed by way of a contractual arrangement called a Contractual Disclosure Facility (CDF).

However, HMRC may commence a criminal investigation if it considers that:

• A full and frank disclosure has not been made or
• False and/or misleading statements have been made

If HMRC concludes that full disclosure of all deliberate conduct has been made, a criminal investigation will not be pursued and the COP9 procedure will be followed.

HMRC will not normally disclose any specific suspicions but will seek voluntary disclosure and it is crucial that specialist advice is taken in order to protect yourself against incrimination.

If you decide to reject a COP9 offer then you will not be bound by the terms of a CDF but you may be at risk of HMRC pursuing a criminal investigation against you.

If you accept the offer of a COP9, you will be required to accurately complete and return an Outline Disclosure Form (ODF).

If the ODF is not fully completed, HMRC will not be bound to comply with the CDF and may initiate a criminal investigation.

When the ODF is being completed, for each separate tax loss that arises as a result of any deliberate conduct, you will need to explain:

• What you did
• How you did it
• The involvement of other people and entities
• How you benefited from the deliberate conduct

In some circumstances you may be asked to provide a Disclosure Report which will require:

• A brief business history
• A description of all tax irregularities (including any that were brought about by non-deliberate conduct)
• Quantification of all the irregularities
• Information to show how you quantified the irregularities
• Summaries of tax and/or duties, interest and penalties due
• A reconciliation of your irregularities figure with the summary of tax and/or duties
• A certified statement of worldwide assets and liabilities
• Certificates of bank accounts and credit cards you operated
• A certification confirming that the report is correct and complete

HMRC will initiate a ‘COP8’ investigation if it considers that a large amounts of tax has been underpaid as a result of complex tax arrangements or tax avoidance schemes which have been implemented by a large number of taxpayers.

Although HMRC will often confirm at the outset of a COP8 investigation that there is no intention to prosecute the matter on a criminal basis, it is imperative to seek proper and experienced legal advice to avoid incriminating yourself.

The investigation is normally conducted by the Fraud and Bespoke Avoidance section of the Special Directorate of HMRC, which, if there is suspicion of a serious tax loss to HMRC, will investigate the affairs of:

• Individuals
• Partnerships
• Companies
• Trusts

All available information will be closely examined including tax returns, accounts and bank statements.

During the course of the investigation you may be subjected to meetings with HMRC and/or visits from HMRC to your business premises to examine your business and private financial records.

Tax investigations are usually:

• Complex and technical in nature
• Requiring professional attention from a skilled team of solicitors, forensic accountants and barristers
• Protracted and lengthy often spanning a period of several years

Kangs has an experienced team of solicitors accustomed to dealing with serious tax investigations of all types.

HMRC investigations are expensive and time consuming for both business owners and HMRC.

It is impossible to completely eliminate the likelihood of a tax investigation and you may become subject to an investigation even where there has been no wrongdoing as HMRC occasionally conducts random audits and investigations.

However, limiting the possibility of an investigation may be achieved by avoiding the following circumstances which frequently attract the attention of HMRC:

• a ‘tip-off’ to HMRC by a third-party,
• mistakes appearing on declared returns,
• noticeably large fluctuations in margins,
• conspicuous lack of profitability for long periods,
• inconsistent trading figures when compared with industry standards,
• omission of standard items such as PAYE.

The period of time that may be considered depends on the circumstances of the investigation.

Where there is suspicion of an innocent error, the investigation period is four years.

In circumstances where mistakes/errors are considered careless or negligent, HMRC investigation period is six years.

In the event of suspicion of fraud and or tax evasion, an investigation period of twenty years is permitted.

However, at any stage of an investigation, HMRC may change its stance when the situation under review is more serious than originally anticipated, at which time the investigation period can be extended.

The period will range from a few months to many years depending on the scope and difficulty of the investigation, the volume of information and documents to be collated and examined and whether any foreign Jurisdictions are involved.

Investigations are regularly time consuming, technical in nature, worrying in the event of important missing vital documents and contentious where it appears that HMRC Officers are crossing the boundaries of their statutory powers.

Having the support and guidance of an experienced legal team will be essential to tackle these issues and may result in an earlier resolution than may otherwise have been the case.

Commonly used mechanisms by HMRC to recover tax money owed are issuing Tax Assessments, entering Payment Agreements and applying penalties and interest.

HMRC relies on various Statutes when conducting investigations, enforcing debt collection and punishing those defaulting in respect of tax liabilities including:

• Proceeds of Crime Act 2002
• Director’s Disqualification Act 1986
• VAT Act 1996
• Insolvency Act 1986
• Economic Crime Acts 2022 and 2023.

Possible outcomes of HMRC tax investigations, include pursuing:

• Penalties and interest
• Account Freezing Orders.
• Seizure of Goods
• Confiscation Orders
• Forfeiture Orders
• Director’s Disqualification
• Insolvency Proceedings
• Winding-up proceedings.