There are many terms that describe similar interventions but which all mean the same thing. For example: tax investigation, tax enquiry, HMRC investigation and HMRC enquiry. When HMRC was created in 2005 from combining the old ‘Inland Revenue’ and ‘Customs & Excise’, it inherited a number of differing terms and powers to check the accuracy of direct taxes, VAT and other returns.
Between 2005 and 2010, HMRC sought to align its compliance and tax investigation powers (where possible) and introduced the concept of a “Compliance Check” which still means an HMRC investigation / tax investigation in many ways. These are usually statutory enquiries, based on the self-assessment rules, but sometimes they are informal, usually carrying a threat of HMRC raising formal tax assessments where it is too late to open valid enquiries.
The formal HMRC tax investigation rules / framework is comprised within Section 9A of the Taxes Management Act 1970 (and onwards) for personal tax and partnership tax enquiries, and within Paragraph 24 of Schedule 18 to the Finance Act 1998 (an onwards) for corporate tax enquiries.
However, more in-depth and intrusive investigations are the realm of Fraud Investigation Service. These are not routine compliance checks, and so they need additional care and experience to manage.
Which tax investigations does Fraud Investigation Service carry out?
HMRC also have two distinct processes under which they investigate what they perceive to be much more serious and/or deliberate tax irregularities.
These are known as Code of Practice 8 (COP8) and Code of Practice 9 (COP9) investigations.
To be clear, these are distinct from a routine tax investigation or HMRC investigation. These are much more intrusive and in-depth, and likely to run on for much longer. HMRC make enquiries of the first-party (usually the taxpayer) and also target third-parties for information and evidence, like a person’s bank, suppliers and customers.
See HMRC’s published guidance on its Criminal Investigation Policy to see when they might opt for civil COP9 or COP8 investigation instead of a criminal investigation: HMRC’s criminal investigation policy – GOV.UK
At the most serious end of the spectrum, HMRC may commence a criminal investigation with a view to a prosecution, rather than a financial recovery. They may do this, seemingly out of the blue, or they may change their approach during an on-going civil tax investigation.
If you have not yet been approached by HMRC about potential tax errors but wish to discuss potentially making a voluntary disclosure, in order to take control and mitigate potential penalties, please visit our tax disclosures advice page or give us a call on 0203 7575 669 and one of our tax specialists will discuss the best route for you.
If not a serious tax investigation, then what? Compliance Checks – what powers do HMRC have?
Under the tax legislation, HMRC can enquire into your tax affairs by way of a ‘compliance check’. As above, most of the time these enquiries are opened under the relevant legislation i.e. these are valid formal enquiries.
If HMRC commences a compliance check into your personal or business tax/VAT affairs then you should quickly consider whether you feel comfortable dealing with the HMRC investigation on your own or as the regular adviser/agent, or whether you might appreciate specialist tax disputes resolution assistance from someone independent.
Remember, HMRC have the power to request documentation directly from you and also from third parties. They can visit your home and/or business premises too and can insist on seeing your business records. Failure to comply with notices and arangements often leads to penalties being imposed.
It is always in a client’s best interests to explore chat matters through with a specialist if they receive a Notice of tax enquiry from HMRC – even if you have no discrepancies to disclose. The right help at the right time would ensure that a potentially long, drawn – out process is effectively managed and, concluded, and that HMRC do not obtain information they were not entitled to.
Read more about compliance checks and what Pure Tax can do to help you or your client here.
Code of Practice 8 and Code of Practice 9 investigations – what are they?
HMRC use these processes to investigate what they perceive to be more serious and/or deliberate tax irregularities. Of the two, Code of Practice 9 (COP9) is the more serious one. It is a in-depth and intrusive tax investigation, which runs for a longer time. And of course, there is an allegation of suspected tax fraud from the outset too.
COP9 is the civil procedure by which HMRC investigate suspected serious tax fraud. If you or your client receive a COP9 letter, it is extremely important that you consult with a suitable tax specialist as there are strict time limits which must be adhered to in order to ensure that you/your client are best protected.
Code of Practice 8 (COP8) is the civil HMRC investigation process by which HMRC investigate tax avoidance and arrangements where large amounts of tax are believed to be at stake. HMRC are usually looking at a number of tax years and company accounting periods, so they are out of time to open regular enquiries under those rules.
It is important to take any notification of HMRC proceeding on this basis seriously as, unlike under the COP9 process, there is no protection from a criminal tax investigation / prosecution. A COP8 is about securing a financial recovery for HMRC and using their extensive information gathering powers and ability to raise tax assessments where they consider the person has not taken reasonable care with their tax affairs.
Read more about what Pure Tax Investigations can do to help you or your client where COP8 and COP9 investigations are concerned.
Criminal Investigations – what can I do?
Where you or your client have received a notification that HMRC are commencing a criminal tax investigation, or you suspect that they are looking to prosecute based on information they have obtained or their perceived lack of co-operation in a a civil investigation, then we would urge you to get in touch immediately. Legal and specialist tax disputes resolutions assistance is most important.
It is imperative that matters are handled carefully and that the right specialists get involved at the right time in order to protect the client’s best interests, mitigate the likelihood of a successful prosecution and minimise potential reputational damage.
With the Corporate Criminal Offence now in effect, for the facilitation of tax evasion by an associate of the business, we are seeing more criminal prosecutions and a change in HMRC’s use of their powers.
Read more about a criminal tax investigation and what Pure Tax Investigations can do to help you or your client here.
HOW CAN PURE TAX INVESTIGATIONS HELP?
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 authorities to ensure that the investigation and disclosure processes run smoothly and that your interests are best protected.
