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COP8 and COP9

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HMRC’s Fraud Investigation Service, formerly Specialist Investigations, undertakes investigations under Code of Practice 8 (COP8)
and Code of Practice 9 (COP9).

These are serious, invasive and time-consuming investigations that can have serious consequences if mishandled, including escalation to criminal investigation and prosecution.

COP8

COP8 will apply where HMRC believe large amounts of tax have been underpaid because of complex tax arrangements or tax avoidance schemes that have been implemented by a large number of taxpayers.

These investigations involve an allegation of deliberate or fraudulent conductat the outset. However in the majority of cases where there is cooperation and disclosure from the taxpayer, HMRC do not prosecute.

Unlike COP9, there is no standard format to a COP8 investigation. However, typical areas of focus for COP8 investigations include large transactional matters often with overseas connections, complex trust arrangements and tax avoidance schemes not under enquiry or settlement elsewhere.

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COP9

Like COP8, HMRC undertakes investigations under COP9 where they suspect fraud. However, with COP9 there is a highly prescribed code of conduct setting out how HMRC will proceed with their investigation and the taxpayer’s rights.

Having established that they have a suspicion of fraud, HMRC will contact a taxpayer to offer the contractual disclosure facility. If the taxpayer makes an outline disclosure of the fraud within 60 days, he or she will be given immunity from prosecution.

Should the taxpayer refuse the offer, HMRC reserves the right to commence its own investigation, which may be a criminal investigation. Frustratingly for the taxpayer, HMRC will give no indication in its initial correspondence as to the nature of their suspicions.

The COP9 process can be very intrusive and can go on for a very long time.

Our Knowledge Centre has further articles and information on the COP9 process, however please contact our team if you have any immediate concerns.

 

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Case Study

Investigations

COP8

Physician, heal thyself

Intro

Our client, the managing partner of a chartered accountancy practice, approached us for assistance with a serious tax issue. He had not submitted his own personal Self Assessment returns for 7 years.

Issue

He wished to bring his affairs fully up to date but was concerned that:

  • As he is regarded as a “special category person”, HMRC would view his failure to submit returns as deliberate behaviour (or, in other words, fraud) and would investigate him under COP9.
  • In that case he would need to report the matter to his regulatory body with a risk of losing his practicing certificate.
  • His details might also be published by HMRC, and the resulting reputational damage would be likely to prove terminal for his business.

How we solved it

Having been presented with the bare facts of the matter, we set out to establish the story behind those facts. It became apparent that a series of unfortunate life events coupled with episodes of poor mental health had directly contributed to the failure to keep his tax affairs up to date.

We approached HMRC to make a voluntary disclosure on behalf of the client, and at the same time, we provided a detailed submission setting out all of the mitigating factors.

The Outcome

By focusing on the strong presentation of the mitigating factors we were able to persuade HMRC to investigate the matter under COP8 rather than COP9. This meant that:

  • The client did not need to make an admission of deliberate behaviour.
  • This was reflected in a lower level of penalty.
  • He did not need to disclose the matter to his regulatory authority.
  • HMRC did not publish his details, so his professional reputation remained intact.

COP9

Intro

Our client, a UK resident who worked overseas during the week, approached us because he had received correspondence from his offshore bank advising that they were obliged to share details of his account with HM Revenue & Customs under the Common Reporting Standard.

Our client knew that he had not declared amounts in that offshore bank account to HM Revenue & Customs and he was now aware that HMRC were about to be told of its existence.

Issue

Our client needed to disclose the issue to HMRC before HMRC received information from the bank that could lead to them investigating our client for tax fraud (a criminal offence).

Contracting income of more than £700k was paid into the offshore account over the years. In the first year of contracting, none of the income was declared to HMRC in the UK.

From year two, he transferred half of the income to a UK bank account and only told HMRC about that portion of the contracting income.

How we solved it

We applied to HMRC for the Contractual Disclosure Facility on behalf of our client, to disclose the additional tax liability on a civil basis.

The Outcome

We concluded that, whilst the failure to discuss the contracting income was very serious, if the first year was looked at in isolation, there were valid arguments for carelessness on the part of the taxpayer because he was in a new country, advised by third parties, such as the agency representatives and the bank, and he followed their advice.

By distinguishing the behaviour in year one from the behaviour during subsequent years, we successfully argued that careless behaviour applied to year one saving the client a total of £170k of tax, interest and penalties, as HMRC were out of time to assess.

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COP8
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Nudge Letters

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Voluntary Disclosure

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