Is a COP9 tax fraud investigation serious? (Code of Practice 9)
Yes, a Code of Practice 9 (COP9) investigation is undertaken by HMRC’s Fraud Investigation Service, where they suspect from the outset serious tax fraud has occurred. Through this process HMRC want a financial recovery, i.e. taxes, interest and penalties, on a civil basis rather than pursuing a criminal tax investigation with a view to prosecuting the person.
HMRC could commence a criminal investigation at any time if they believe they have been misled about any frauds. HMRC want the person to admit tax fraud and commission a detailed disclosure report at their own cost, in return for not investigating but instead allowing the person to make a full disclosure about what happened, when, how and why, and calculating all taxes, interest and penalties payable.
What happens in a business / corporate Cross Taxes Enquiry?
A Cross Taxes Enquiry (CTE) is reserved for medium to large businesses, who are expected to co-operate with HMRC’s investigating team; so resourcing is very important. HMRC look at Corporation Tax, VAT and Employer Duties simultaneously, so are armed with various specialists on their side, and expect the business to put forward their Finance team (which may or may not include internal staff and/or the accountants and/or the auditors).
A CTE is resource intensive, because HMRC risk-assess the entire record keeping system. Usually they download a copy of it and then present the risks to be checked/pursued by way of an Action Plan (which is updated as they progress). Any errors identified will need to be adjusted, and it goes without say that ‘careless’ mistakes will attract penalties.
Like regular enquiries, a CTE can appear to be a fishing expedition, because the tax risks are usually unknown at the outset. But HMRC do expect to find errors, and from experience they do, no matter how small.
Our advice has always been that, a business ought to use an independent, specialist tax investigations/disputes firm to assist with a CTE. The reasons being that, they are much better resourced to work expeditiously (so no delays) and not antagonise HMRC unnecessarily, and are wholly objective as to the causes for any errors (rather than covering up one’s own mistakes/short comings). The specialist’s professional costs are outweighed considerably by the tax, interest and penalty savings secured.
What is the Worldwide Disclosure Facility (WDF) – for offshore income/gains?
The Worldwide Disclosure Facility (WDF) gives a client an opportunity to bring their tax affairs up to date, where the individual has received income and gains outside of the UK, but has not declared that in the UK. It allows the person to make a voluntary disclosure, and thus avoiding an enquiry and harsher penalties.
Provided a full and complete disclosure is made, there is no need to meet with HMRC face-to-face. This will be a great relief to most taxpayers, particularly those who never set out to deliberately evade tax and are anxious to put things right and get on the correct footing going forwards. HMRC typically allow the individual 90 days to make a full and complete disclosure and pay what is owed. HMRC do however, reserve the right to refuse entry into the process, in which case they may open a compliance check or, in more serious cases, a tax fraud investigation. This is becoming more common as HMRC obtain more information from third party sources including overseas banks.
HMRC are also sending out ‘nudge letters’ to people, to encourage disclosures but which won’t be wholly voluntary after that, so any penalties payable will be higher as a result.
See: WDF webpage and Tax Disclosures
What is the Let Property Campaign (LPC) – for rental profits?
The Let Property Campaign (LPC) gives a client an opportunity to bring their tax affairs up to date, where the individual has been letting out property, whether in the UK or abroad (including a holiday home) but not declaring all the rental income. It allows the person to make a voluntary disclosure, and thus avoiding an enquiry and harsher penalties.
Provided a full and complete disclosure is made, there is no need to meet with HMRC face-to-face. This will be a great relief to most taxpayers, particularly those who never set out to deliberately evade tax and are anxious to put things right and get on the correct footing going forwards. HMRC typically allow the individual 90 days to make a full and complete disclosure and pay what is owed. HMRC do however, reserve the right to refuse entry into the process, in which case they may open a compliance check or, in more serious cases, a tax fraud investigation. This is becoming more common as HMRC obtain more information from third party sources.
HMRC are also sending out ‘nudge letters’ to people, to encourage disclosures but which won’t be wholly voluntary after that, so any penalties payable will be higher as a result.
What happens in a regular tax enquiry? (Compliance Checks)
Regular tax enquiries, called ‘compliance checks’ by HMRC, differ significantly from the more intrusive and in-depth serious tax investigations (like Serious HMRC tax investigations, Code of Practice 9 (COP9) & Code of Practice 8 (COP 8)).
Every year, HMRC checks thousands and thousands of individuals’, partnerships’ and corporates’ tax returns, for errors. Where losses of tax are identified, adjustments follow and collection action taken as appropriate. HMRC’s self-assessment rules and framework apply here. The compliance checks often cover multiple taxes, e.g. Income Tax, Capital Gains Tax, Corporation Tax, VAT and PAYE etc. They could focus on one period or year but often concern a few simultaneously.
They tend to conclude much quicker than serious COP9 and COP8 investigations, and the issues therein and the figures involved are usually much smaller too. HMRC rarely carries out random enquiries though – preferring to target ‘risks’ in that person’s or entity’s tax affairs. If HMRC have contacted you, or your client, it is likely they have a specific risk area in mind which they would like to know more about.
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What happens if we cannot reach an agreement with HMRC?
Where we cannot reach a negotiated settlement with HMRC or where we consider an alternative approach might be better, perhaps simultaneously or exclusively, there are several options. The actions we take are based on carefully assessing our client’s own circumstances and ensuring a bespoke strategy for them always.
Where HMRC has shared an appealable decision letter, the client can send a notice of appeal back to HMRC, in writing, within 30 days. We usually provide further arguments, representations and evidence to HMRC at this stage if it’s useful. Usually, this is sufficient to reach an agreement.
If there is nothing more than can be achieved to satisfy HMRC at that stage, the client could request an Independent Review. The Review must take account of any additional representations made by the client as part of that review; and one doesn’t pay for HMRC’s Reviewer. We believe a fresh pair of eyes and a different approach can sometimes help extract pertinent points that may have been overlooked during the enquiry/investigation impasse, to achieve an effective resolution.
After considering the caseworker’s submission and papers, and anything added by the client, the Reviewer may uphold or only vary the appealable decision, so the client could decide to accept the findings or make an appeal directly with the FTT. An appeal to the FTT carries with it much stricter timelines.
To avoid disputes going to the FTT and adding to the backlog, the Alternative Dispute Resolution (ADR) process was brought in by HMRC, with a view to resolving disputes by engaging differently. The ADR process involves a mediator working with the client and HMRC to mediate discussions, with the aim of reaching an agreement on the facts and thus a negotiated settlement. Any discussions are on a ‘without prejudice’ basis, and co-operation with the process demonstrates to HMRC that the taxpayer is committed to resolving the dispute.
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Do HMRC publicly name and shame people?
HMRC have the power to publish the names and details of deliberate tax defaulters (“PDDD”), who have received penalties for either having ‘deliberate errors in their tax returns’ or ‘deliberately failing to comply with their tax obligations’. This affects individuals and companies.
For over ten years now, HMRC’s aim has been to create an aggressive and additional deterrent for potential defaulters who are not sensitive to the existing financial penalties. The PDDD list damages the person’s reputation and potentially affects their third-party relationships with e.g. banks, customers/clients and suppliers.
Click on the link below to see our detailed analyses of defaulters, their locations and business sectors, over a recent 12-month period. Within that, there is also a link to HMRC’s current and recent publication lists.
What is special about Indian Mutual Funds re UK Tax?
Many Indians resident in the UK, and their advisers, mistakenly believe that income and gains arising in Mutual Funds are not also taxable in the UK.
However, with HMRC’s offshore “reporting funds” list not featuring Indian funds, any chargeable event gains arising there are chargeable to Income Tax (e.g. 40/45%) in the UK, not Capital Gains Tax (i.e. 20%). Also, any losses arising have restrictions in their use. This has left many advisers struggling to identify the type of financial product their clients have in India for UK tax purposes.
See: Indian Mutual Funds & UK Taxation – A Little Known Problem!
What is special about Indian interest income (tax-free in India)?
Many Indians resident in the UK, and their advisers, mistakenly believe that FD interest income arising in India is not taxable in the UK.
Non-Resident Indians (NRIs) can benefit from savings and investment products in India, geared specifically to their non-residence status. For example, NRE accounts have always tended to offer higher rates of interest than local investments and they generate tax-free returns in India.
But the income is strictly reportable in the UK, subject to the Remittance Basis rules, so disclosures are prevalent. Also, while tax will not have been paid in India, there may still be an opportunity to claim some double taxation relief in the UK.
Should I use an independent tax investigations specialist firm?
As one might expect, our advice has always been that, a business ought to use an independent, specialist tax investigations/disputes firm to assist with tax investigations, business enquiries and tax disclosures.
The reasons being that, they:
- Are much better resourced to work expeditiously (so they don’t cause delays, and get results sooner);
- Ensure HMRC are not unnecessarily antagonised (avoiding the officer taking aim at and retaliating against the client);
- Are wholly objective as to the causes for any errors found (as opposed to the regular agent who might be covering up their own mistakes/short comings), and thus protect the client in terms of HMRC’s ability to raise tax assessments and pursue penalties; and
- Ensure the resultant taxes, late payment interest and penalty agreed are the lowest they could be, so focused on commercial outcomes rather than perhaps aiming for a simpler life at the client’s cost. The specialist’s professional costs are thus outweighed considerably by the commercial savings.
How do I fix historic Crypto Tax problems (disclosure)?
The Cryptoasset Disclosure Service from HMRC gives a client an opportunity to bring their Cyrpto tax affairs up to date, where that person has sold crypto investments and/or swapped them for other types of crypto, whether in the UK or abroad, but not declared that. It allows the person to make a voluntary tax disclosure, and thus avoid a lengthy enquiry and harsher penalties in the near future.
Provided a full and complete disclosure is made, there is no need to meet with HMRC face-to-face. This will be a great relief to most clients, particularly those who never set out to deliberately evade tax and are anxious to put things right and get on the correct footing going forwards. HMRC typically allow the individual 90 days to make a full and complete disclosure once registered, and pay what is owed. Remember, if voluntary action is delayed, HMRC may open a compliance check or, in more serious cases, a tax fraud investigation. This is becoming more common as HMRC obtain more information from cryptoasset platforms.
HMRC have also been sending out ‘nudge letters’ to people, to encourage disclosures but after which any penalties payable are usually higher – because the person waited for HMRC to contact them.
What happens in an Inheritance Tax enquiry? (IHT compliance check)
An Inheritance Tax compliance check can be started by HMRC in several situations. For example, HMRC can enquire into the IHT return/account sent in by an Estate’s Executors, to challenge the market values used by them and/or test the availability of Business Property Relief.
In another example, HMRC can pursue Trustees where IHT returns have not been submitted, and/or check market values used and any reliefs/exemptions being claimed.
IHT enquiries can be resource intensive, because HMRC will usually rely on their own internal valuations team and test the qualifying criteria for IHT reliefs/exemptions vigorously. These matters are usually better managed by HMRC tax investigation specialists, rather than a probate lawyer.
HOW CAN PURE TAX HELP?
Tax Investigation FAQs / HMRC FAQs
At Pure Tax our Tax Investigation & Disclosure specialists are industry recognised and have dealt with hundreds of contentious situations with HMRC over the years. We are adept at managing interactions with the tax authority to ensure that the investigation and disclosure processes run smoothly and that your interests are best protected. We have put together these high-level tax investigation FAQs / HMRC FAQs for easy reading.
We are Ex-HMRC and help clients with tax disputes – see our tax investigation FAQs:
- Avoid escalations i.e. tax fraud allegations, criminal investigation / prosecution, large business enquiries
- Manage HMRC through co-operation, and identify supporting evidence.
- Resolve complex tax disputes efficiently with HMRC, reaching commercial outcomes.
