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Facing a Code of Practice 9 (COP9) tax investigation?
HMRC suspects serious tax fraud when issuing a COP9 notice. These investigations are handled 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.
What Is A COP9 Investigation?
- COP9 investigations are civil, with a view to financial recovery, into suspected tax fraud (i.e. deliberate / dishonest actions).
- HMRC uses the Contractual Disclosure Facility (HMRC CDF) to recover unpaid taxes, interest and penalties in return for not pursuing a criminal prosecution.
- You have 60 days from receipt of the notice to accept or reject the CDF offer.
Failing to respond or rejecting the offer can expose you to a criminal investigation and therefore prosecution.
Understanding The Contractual Disclosure Facility (CDF)
If you accept HMRC’s CDF process offer, you must:
- Admit involvement in tax fraud.
- Provide an outline disclosure of all deliberate tax irregularities. This is high-level in terms of the dates, amounts, people and matters concerned.
- Thereafter, 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.
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 issues COP9 notices when they believe:
- Tax has been deliberately underpaid, e.g. falsifying documents, under-declaring income, claiming private expenditure as if it were business.
- Fraudulent activity has occurred, including failure to notify HMRC about taxable income, i.e. not submitting tax returns when they were required.
- Civil / financial recovery is appropriate, but a criminal prosecution remains possible.
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 within a disclosure process.
What Happens After The Outline Disclosure?
After submitting your high-level COP9 CDF outline disclosure:
- HMRC will review the disclosure(s) made and information provided, request a meeting and a detailed disclosure report thereafter
- Your tax adviser will assist in gathering full documentation and ascertaining the facts at each stage
- Discussions usually follow regarding assumptions made, estimates made, taxes calculated, and the interest and penalties thereon
- HMRC should accept the full disclosure and supporting evidence to resolve the matter civilly, providing it is not lacking or robust. Importantly, reaching a negotiated settlement
Incomplete or misleading disclosures can still lead to criminal prosecution or increased scrutiny from HMRC’s inspectors.
This CDF disclosure process can take several months and requires professional and experienced oversight to protect your interests.
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 its position in light of the information it has already gathered, and decide wither to pursue a criminal investigation or proceed civilly.
If a criminal investigation is preferred, HMRC 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.
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, which they can request formally too if it’s not forthcoming, which then carries penalties for non-compliance too.
HMRC FIS Carry Out Third-Party Enquiries
HMRC regularly conduct third party enquiries as well. For example, they will approach your banks for records concerning personal, business and savings accounts, usually where you do not provide them or provide a signed mandate. They typically write to your customers/clients and suppliers too, to request records confirming the 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 envisaged and expected given their CDF offer. Sometimes, but not usually, this is necessary where there was no tax fraud therefore no need to admit to that. But then the investigation may uncover non-deliberate errors, for example, careless mistakes and/or those arising despite you taking reasonable care with your tax affairs, which still give rise to additional taxes.
Before issuing the COP9 notice of investigation the information held by HMRC will have been reviewed by FIS officers. They believe that there has been a serious underpayment of tax and that this underpayment has been deliberately and fraudulently manufactured.
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.
Avoiding 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 that and other financial information. If HMRC believes that the taxpayer has committed tax fraud and wants to make them into a scapegoat, they may bypass the civil COP9 process and move instead to a criminal tax investigation with a view to prosecution.
Pure Tax will help you:
- Secure the ‘civil’ disclosure route, leading to a financial recovery for HMRC (not a prosecution and confiscation order)
- Prepare and provide a complete disclosure to HMRC
- Minimise the risk of prosecution at the outset, and maintain co-operation
- Ensure contemporaneous records/evidence is identified and collated, to support disclosures being made, and the correct amount of tax is paid
- Resolve your tax dispute efficiently, because tax investigation specialists understand HMRC processes and approaches
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.
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.
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 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.
