What is a Code of Practice 9 (COP9) tax investigation?
If HMRC suspects serious tax fraud then they can issue a COP9 notice of investigation, and offer the Contractual Disclosure Facility. These investigations are managed by the Fraud Investigation Service (FIS) and are among the most serious civil tax investigations. If you’ve received a COP9 letter, immediate specialist tax advice is essential to protect yourself as there are strict time-limits.
What happens in a COP9 investigation?
- COP9 investigations are civil in nature, despite HMRC’s suspicion of tax fraud (i.e. deliberate / dishonest actions)
- HMRC commence these with a view to financial recovery, i.e. tax, interest & penalties
- HMRC use the Contractual Disclosure Facility (HMRC CDF) to give you an opportunity to avoid an in-depth and intrusive investigations. Instead, this secures a disclosure process where you can take control of the civil process
- If you secure the COP9 and CDF process, HMRC will not pursue a criminal investigation
- You have a strict 60 days from receipt of the investigation notice to accept or reject the CDF offer. An acceptance must include an Outline Disclosure of the fraud(s).
- If the Outline Disclosure is accepted by HMRC, you will secure immunity from a criminal investigation, be expected to meet HMRC for an opening COP9 meeting and commission the preparation of a full Disclosure
Failing to respond or rejecting the offer can expose you to a criminal investigation and therefore prosecution. Either way, HMRC are then likely to pursue an in-depth and intrusive investigation.
What is the Contractual Disclosure Facility (CDF)?
If you accept HMRC’s CDF process offer, you must:
- Admit involvement in tax fraud within 60 days.
- Provide an outline disclosure of all deliberate tax irregularities. This should be high-level in terms of the dates of the frauds, the amounts involved, other people involved, and the matters concerned. HMRC will compare this information against that which they hold already leading to their suspicion.
- One the outline disclosure is submitted and accepted by HMRC, you should meet HMRC to discuss it, the records available now, and commission a detailed disclosure report (at your own cost) explaining what happened, when, why, and with whom — supported by evidence and figures.
Remember, rejecting or ignoring the CDF offer can result in HMRC escalating the case to criminal proceedings if they decide not to continue with the COP 9 investigation. The Contractual Disclosure Facility offer and outline disclosure creates that contract.
See HMRC’s published booklet at: Code of Practice 9: where HMRC suspects fraud (COP9) – GOV.UK
Why Have I Received A COP9 Letter?
HMRC issue a COP9 notice of investigation when they believe:
- Tax has been deliberately underpaid, e.g. falsifying documents, under-declaring income, claiming private expenditure as if it were business, diverting income overseas.
- The fraudulent activity might have been omitted from tax returns filed to date, or you may have failed to notify HMRC about the taxable income, i.e. not submitting tax returns when they were required.
- Crucially, the Contractual Disclosure Facility can be requested voluntarily too. COP9 / CDF is appropriate where the reasons for the tax irregularities are serious, i.e. tax fraud. Once the CDF offer is made, the same process applies, although there are great benefits for coming forward voluntarily, for example- significantly lower penalties.
- Under HMRC’s Criminal Investigation Policy it has decided that a civil / financial recovery process is most appropriate, but a criminal prosecution remains possible in certain circumstances. Remember, HMRC suspects deliberate behaviour.
This is not the same as a routine voluntary disclosure. Those disclosures are typically initiated by the taxpayer and are usually about careless mistakes and involve lower penalties. COP 9 investigations are typically initiated by HMRC and require a formal admission of tax fraud and then co-operation with the disclosure process.
What Happens After The Outline Disclosure Is Submitted?
After submitting the high-level COP9 CDF outline disclosure:
- HMRC will review the tax fraud disclosure(s) made, any others, and the information provided. If accepted and not contrary to the information they hold, they will request a meeting and a detailed disclosure report thereafter
- Your specialist tax adviser will prepare you for the opening COP9 meeting with HMRC
- Your adviser will assist you in gathering the full documentation required and ascertaining the full facts at each stage
- Discussions usually include the assumptions and estimates to be made, where old records are incomplete and/or cannot be obtained anymore due to the passage of time
- HMRC will want regular progress meetings or calls with your specialist tax adviser, to ensure progress is being made with the disclosure report. They may ask for some information in the interim and/or help you obtain other records
- HMRC should accept the comprehensive and full disclosure report which will be supported by evidence to make it robust
- The COP9 civil investigation will be concluded by reaching a negotiated settlement on the facts and figures, therefore the taxes, interest and penalties payable
Incomplete or misleading disclosures can still lead to a criminal investigation and prosecution or increased scrutiny from HMRC’s inspectors managing the Code of Practice 9 investigation.
The CDF disclosure process can take several months to complete and requires professional and experienced oversight to protect your interests, especially where deliberate actions/behaviour is concerned.
As part of submitting your disclosure, you must sign four mandatory HMRC documents. The templates are provided by HMRC with their CDF offer. They are:
- a Certified Statement of worldwide assets and liabilities
- a Certificate and Schedule of all financial accounts operated
- a Certificate and Schedule of all financial cards operated
- a Certificate of Full Disclosure
Your adviser will agree with HMRC the relevant dates or periods these certificates should be completed for.
What Happens If I Reject The COP9 CDF Offer?
Reject or Ignore COP 9 CDF Offer
Whether you ignore the contractual disclosure facility offer or reject it, HMRC will reconsider the information it has already gathered, and decide whether to pursue a criminal investigation or proceed with a civil investigation.
If a criminal investigation is preferred, HMRC’s officer will make the referral internally to their criminal investigations team, which usually take several months to prepare and begin. It is usual not to hear from HMRC in the interim. Specialist advice should be taken if this happens.
If continuing with the Code of Practice 9 investigation is preferred, HMRC may still want to meet to discuss their concerns, but this is not mandatory nor always preferable. Since the CDF was not secured, HMRC will begin investigating itself. This means that HMRC will ask for information and records it requires from you, to carry out their tax risk assessment activities. They will request this information formally if it’s not forthcoming, which carries penalties for non-compliance too.
Do HMRC Carry Out Third-Party Enquiries too?
HMRC regularly conduct third party enquiries in all types of enquiries, compliance checks and investigations. This is so that they can test the information they hold and/or have received from you as the first-party. Please note that this is normal practice in a COP 9 investigation after a CDF offer is rejected or where information requested by them is not provided.
For example, they will approach your banks for financial records concerning personal, savings and business accounts; where you do not provide them or perhaps you provide a signed mandate to authorise them. Even worse, HMRC write to your customers/clients and suppliers too, to request business records confirming your business relationships, identifying what and how much was sold and bought etc i.e. checking the volume of business done against the records they already hold. It follows that where the contractual disclosure facility was not secured, HMRC will have to do more work than it expected.
The investigation may uncover non-deliberate errors too, for example, careless mistakes and/or those arising despite you taking reasonable care with your tax affairs. These may still give rise to additional taxes and so need to be included in the disclosure report too or identified by HMRC.
Before issuing the COP9 notice of investigation and making their CDF offer, the information held by HMRC will have been reviewed by the FIS officers. They will suspect there has been a serious underpayment of tax and that this underpayment has been deliberately and fraudulently manufactured. Any non-deliberate errors will therefore be in addition to those.
Real-World COP9 Examples
Example 1: Offshore Income Omissions
A business owner failed to report business income generated overseas, systematically omitting the sales invoices / informal quotes altogether and banking the income overseas. He believed that HMRC would never find that information, but they did, through a disgruntled ex employee. HMRC issued a COP9 Notice after identifying discrepancies between the owner’s known income (as self-assessed) and his extensive mortgage outgoings and credit/store cards expenditure.
The client promptly admitted to causing the historic errors, submitted a clear outline disclosure and then a full disclosure with supporting evidence (reducing the penalties), and reached a favourable financial settlement with HMRC and thus avoided prosecution with Pure Tax’s experience and guidance.
Example 2: Offshore Income and Gains Omissions
An individual failed to report his investment income generated overseas, and the sale of two family properties, ensuring the funds stayed overseas. He believed that HMRC would never find that information, but they did, through comprehensive banking data which is shared between over 100 countries annually, automatically. HMRC issued a COP9 Notice after identifying the many overseas bank accounts, annual returns and balances.
The client promptly admitted to causing the historic errors, submitted a clear outline disclosure and then a full disclosure with supporting banking records and land/property disposals records (reducing the penalties). He reached a favourable financial settlement with HMRC and thus avoided prosecution with Pure Tax’s experience and guidance.
Example 3: False Expense Claims
A contractor in business submitted false accounts and tax returns for many years, including inflated business expenses which were in fact personal / private in nature. After receiving a COP9 Notice, they worked with Pure Tax to compile a complete report of the expenditure which was not allowable as Corporation Tax deductions and also assets sold to the business above market value. Those systematic extractions of value caused business taxes to be underpaid as well as personal taxes.
We also identified the acquisition of rental properties where the deposits came from the business. HMRC accepted the disclosure report, which included considerable alternative evidence too where full contemporaneous records were no longer available. He reached a better financial settlement with HMRC, based on careless mistakes as well as deliberate actions, and so he secured lower penalties and avoided prosecution with Pure Tax’s experience and guidance.
Example 4: Crypto Tax Irregularities
HMRC issued a COP9 Notice to a tech entrepreneur suspected of not declaring significant crypto gains. He had been buying, selling, exchanging crypto-assets for several years. After it became public knowledge that several UK crypto platforms had shared data with HMRC, he knowingly sold his portfolio and re-invested the funds using offshore platforms. HMRC already had sufficient data to demonstrate that there were chargeable disposals, which was made worse here when he sold up in a bid to hide his assets/funds overseas.
Despite taking actions to conceal his frauds, HMRC accepted the reasonable disclosure report produced, which included documentary evidence of the transaction dates and values, but also the admissions from the client about his misconceptions and subsequent erratic decisions. He reached a financial settlement with HMRC, based on earlier careless mistakes and then deliberate omissions, and he avoided prosecution too with Pure Tax’s experience and guidance.
Can I Avoid a Criminal Tax Investigation for Fraud?
Tax fraud is a criminal offence. HMRC has access to a wide range of data sources and can cross-reference your tax returns with those and other financial information. If HMRC believe that you have committed tax fraud and want to make you a scapegoat, they may bypass the civil COP9 process and instead start a criminal tax investigation with a view to prosecution.
Pure Tax Investigations will help you:
- Understand and secure the ‘civil’ disclosure process under the Contractual Disclosure Facility, leading to a financial recovery for HMRC (not a criminal investigation, prosecution and confiscation order)
- Prepare and provide a complete disclosure to HMRC of the fraud(s) and other irregularities
- Minimise the risk of prosecution from the outset, and maintain co-operation with HMRC
- Ensure contemporaneous records/evidence is identified and collated, to support the disclosures being made, and calculate the correct amount of tax to be paid
- Resolve your tax investigation efficiently, because tax investigation specialists understand HMRC processes and the approaches taken by their officers.
Our founder, Amit Puri is an ex-HMRC senior Tax Inspector, who has considerable COP9 / CDF experience from there and has been building up on that to date.
Why Choose Pure Tax Investigations?
We are Ex-HMRC and help clients:
- Secure the civil disclosure route and avoid a full blown HMRC-led investigation.
- Prepare full and complete disclosure reports with supporting evidence.
- Minimise penalties and avoid criminal investigation / prosecution.
- Resolve complex tax disputes efficiently with HMRC, reaching commercial outcomes.
A COP9 notice is one of HMRC’s most serious civil investigations. Mishandling the process can lead to criminal charges, financial penalties, and reputational damage. Stop HMRC from commencing a criminal investigation.
Our team are experts at resolving contentious tax investigations accurately and efficiently. We are highly adept at managing our clients’ interactions with HMRC to ensure the investigations or disclosure processes run smoothly, and that our clients’ interests are best protected at all times.
Importantly, we deliver that all-important trusted ‘buffer’ between our client and HMRC during theses in-depth and intrusive investigations, and in all tax disclosures too.
Get in touch to learn more about how Amit and the Tax Investigations and Disputes team have successfully guided clients through the WDF disclosure, compliance checks, COP 9 or COP8 investigation processes. We don’t want HMRC to commence a criminal investigation.
Learn more about how we have helped our clients through their kind feedback here.
See our article on serious civil tax investigations statistics,
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.
