If HMRC suspect fraud or tax evasion, they can either pursue matters via a criminal prosecution or via civil procedures. If it decides to pursue the civil route, an investigation will be conducted in accordance with HMRC’s Code of Practice 9 (COP9).
The system pre-COP9
COP9 was formerly referred to as the Hansard Procedure. Under the old system, once HMRC had issued COP9 to an individual, that person would automatically receive immunity from prosecution for the tax offence under the old Civil Investigation of Fraud process. What would happen where the suspect did not co-operate properly? HMRC could remove the immunity.
That system was not thought to be robust enough. Therefore, in 2012 a new COP9 was introduced that set out new conditions to secure immunity from prosecution, called the Contractual Disclosure Facility (CDF).
Contractual disclosure facility: a summary
This is an offer to disclose the nature of the tax fraud. When first introduced, there were the following options under the CDF:
- Admitted to tax fraud and then accepting the offer.
- Declining to admit culpability but offering to co-operate with HMRC (commonly referred to as the “denial route”).
- Refusing to reply to HMRC concerning the CDF or denying fraud and otherwise refusing to co-operate with HMRC (commonly referred to as the “non-co-operation route”).
The new more robust COP 9 regime in summary
HMRC have now removed the denial route. Consequently, it is now only open for an individual to either accept or reject the offer of CDF.
In circumstances where an individual accepts the terms of the CDF and admits fraudulent conduct, an Outline Disclosure setting out the full details of the tax fraud will need to be submitted to HMRC within 60 days of the CDF offer.
It is critical that expert tax litigation advice is obtained at this stage. Olliers Solicitors have decades of experience of contentious tax matters involving both criminal and civil matters. Contact us for further details about how we can assist you with your COP 9 procedure.
What is COP9 fraud?
In the context of the COP9 process, fraud is defined as “dishonest behaviour that led to, or was intended to lead to, the loss of tax”. A person therefore is taken to have commited an offence if they are knowingly concerned in the fraudulent evasion of tax or duty, by themselves or by another individual. This includes:
- withholding or concealing relevant facts;
- failing to disclose a tax or duty liability; or
- misrepresenting their tax affairs.
It is therefore not relevant there has been a gain from “deliberate conduct”. Deliberate conduct is defined as a taxpayer knowing that an entry in a tax return was wrong, but they submitted it regardless. Tax fraud cannot be committed accidentally. It is by its nature a deliberate act. The CDF is not appropriate for those wanting to disclose only careless errors or mistakes.
In order to discuss with experienced tax counsel what type of conduct could amount to “deliberate conduct” for the purposes of COP9 contact Olliers Solicitors.
The contractual disclosure facility offer
To begin with HMRC will send an opening letter notifying the subject of their suspicion that tax fraud has occurred. This letter will include a copy of COP9 and the offer of a contract through the CDF.
The 60 day period in which to reply to the Contractual Disclosure Facility Offer begins as soon as the letter is received. During this 60-day period, HMRC will not communicate with the subject or their lawyers.
Olliers Solicitors are specialist tax dispute lawyers and can advise you as soon as this letter is received. It is crucial that you reply within the 60 day window otherwise HMRC will withdraw their CDF offer. It is likely that the matter would then be picked up as a prosecution investigation.
The effect of entering into a CDF?
You firstly admit that tax has been withheld from HMRC as a consequence of deliberate conduct. As a result, HMRC will be able to recover tax, penalties and interest evaded from 20 years to the present.
You need to remember that you will have agreed to co-operate with HMRC. If you fail to co-operate you run the risk of the facility being withdrawn and/or not receiving full penalty reductions.
You ought to discuss this experienced tax solicitors accustomed to fighting disputes with HMRC. Contact Olliers Solicitors for further information.
Should I reject the COP 9 Offer?
The CDF Offer letter will contain a pre-purposed Rejection Letter for the subject of the enquiry to send back to HMRC.
If the recipient is of the view that they have not caused tax losses by fraudulent means, they can choose to reject the offer by signing and returning the Rejection Letter within 60 days of receipt.
HMRC will consider any explanations or supporting documents that explain a recipient’s rejection of the offer.
A warning: the subject should only choose the rejection route if it is genuinely believed that they have not brought about a loss of tax through their deliberate conduct. If the Rejection Letter is signed and returned HMRC will start its own investigation. This can and will likely be a criminal investigation. The Rejection Letter can also be used in court or tribunal proceedings as evidence.
HMRC have complete discretion about how they take matters forward. They could decide to proceed with a civil investigation in response to a rejection of their offer. However, HMRC maintain the right to move the case to their criminal department at a later date if they consider it is appropriate.
A failure to respond within 60 days is a deemed rejection and HMRC will then proceed as they see fit. It is crucial that you obtain specialist tax disputes advice at this stage. Contact Olliers Solicitors for further information about the ways in which we can assist.
What do you have to disclose if you accept COP9?
This is a process that requires careful management and advice from experienced tax counsel is strongly recommended. It is a two stage process as detailed below.
Stage 1: outline disclosure
There is a requirement for a valid Outline Disclosure within 60 days of the date you receive HMRC’s offer letter. An Outline Disclosure form will be sent with the CDF offer letter. Also, included within that pack would have been the Rejection Letter.
It is accepted by HMRC that you may not be able to get precise details within the 60 days allowed. However, there has to be an honest description of the deliberate conduct being disclosed; it had to be made in good faith and to the best of your recollection, with the assistance of any documents that are readily available.
The disclosure should contain a description of the deliberate conduct that has brought about the loss of tax. For each separate tax loss, the recipient should provide details of the following:
- What they did.
- How they did it.
- The involvement of other people and entities.
- How they benefited from the deliberate conduct.
Further disclosures required are the names, addresses and tax references of any other individuals or entities that were involved.
There is certainly an advantage in being the first in a connected group of people to make the disclosure. HMRC are not bound to provide the same undertaking of non-prosecution for any other individual named or implicated.
In order to ensure that your Outline Disclosure is compliant talk to us at Olliers Solicitors as specialist tax solicitors.
Stage 2: formal disclosure
Once HMRC receive the Outline Disclosure they will then decide how the investigation should proceed.
If there are ommissions in the Outline Disclosure then HMRC are entitled to start a criminal investigation.
In the event that an effective Outline Disclosure has been made and accepted by HMRC the matter will proceed in one of two ways.
Simple route following outline disclosure
In those relatively simple cases HMRC will usually not need or seek further information. At this stage your representatives ought to negotiate with HMRC and look to agree any potential additional taxes, interest and any penalties.
The subject will be required to make the Formal Disclosure by certifying that a complete disclosure has been provided. The following will need to be provided to HMRC:
- details of all relevant bank accounts;
- a certificate of credit cards operated;
- a Certificate of Full Disclosure; and
- a certified statement of worldwide assets and liabilities;
At this stage the matter is close to being finalised. Olliers Solicitors can assist you with the concluding negotiations with HMRC to secure an agreed position with HMRC.
Complex route following outline disclosure
In other more complex cases, HMRC may be of the view that additional information is required. In these circumstances a Disclosure Report is required.
HMRC have produced detailed guidance on what is required to make an effective disclosure in these circumstances (hyperlink to https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure#how-to-notify-and-disclose-to-hmrc)
According to HMRC, a Disclosure Report ought to contain the following:
- a history of the business;
- All tax irregularities described and the circumstances in which they arose;
- A summary of the deficiency;
- How did you or your advisor calculate the deficiencies?
- A summary of tax, interest and penalties due;
- a certified statement of worldwide assets and liabilities; and
- certificates of bank accounts and credit cards you operated.
Finally, you will also be required to provide a Certificate of Full Disclosure. This will require an affirmation of the accuracy of its contents.
Olliers Solicitors can assist in the preparation of this Formal Disclosure to HMRC.
How are penalties calculated?
These can amount to 200% of the tax lost, subject to a reduction for good behaviour during the disclosure process.