Civil Investigation of Fraud

The Civil Investigation of Fraud procedure using COP9 was completely re-written on 31 January 2012 to the Contractual Disclosure Facility. The investigation will be conducted by Specialist Investigations (SI) or Civil Investigation of Fraud (CIF) teams. SI typically manages larger cases.

COP9 is issued where HMRC suspect fraud. That suspicion is founded on evidence obtained from information in HMRC’s possession. To find out what information, HMRC are able to obtain click here [Information Powers]. In addition, inspectors managing COP9 cases will have access to HMRC’s Connect software system.

Connect has access to more than 1bn records from taxpayers and third parties. Information includes income, interest from bank accounts and other sources, taxes paid and unpaid, land registry information, border agency information, business ownership, accounts, data from tax authorities in other countries. The software uses analytics to spot connections that show true level of income and spending that can reveal tax irregularities.

Given the information at HMRC’s hands and the fact that COP9 is issued, it is prudent to seek independent professional advice. HMRC encourage the appointment of a specialist adviser who is familiar with COP9.

HMRC are unlikely to tell a recipient of COP9 what their suspicions are because it is for that recipient to choose to make a full and complete disclosure.

Where the recipient chooses not to cooperate, HMRC will investigate and may:

• Investigate with a view to criminal investigation

• Obtain financial and business information from third parties

• Take action to protect the Revenue including:

  • Assess the tax they consider due

  • Commence legal proceedings to secure assets

  • Seek financial security against certain unpaid taxes and duties

• If irregularities are proven, it is likely to attract higher penalties as a result of the lack of cooperation

Under COP9, the Commissioners of HMRC reserve complete discretion to pursue a criminal investigation with a view to prosecution. Where a criminal investigation has not commenced, HMRC may investigate using COP9.

The recipient of COP9 has the opportunity to make a complete and accurate disclosure of tax irregularities: those arising from deliberate and non-deliberate conduct. HMRC reserve the right to start a criminal investigation where there is a failure to make a full disclosure, or materially false or misleading statements are made or false documents provided.

Deliberate conduct means knowing:

• That an entry or entries included in a tax return and/or accounts were wrong

• That a liability to tax existed but chose not to tell HMRC at the right time

Under COP9, HMRC offer the chance to make a full disclosure under a contractual arrangement called a Contractual Disclosure Facility (CDF). Those issued with COP9 have 60 days to respond once an offer is made. If a full disclosure is made, HMRC will not pursue a criminal investigation with a view to prosecution.

Key Points:

• COP9 can provide a guarantee against criminal prosecution for tax offences already committed

• HMRC will request an initial meeting and will expect an outline disclosure of the tax irregularities, for information on meetings click [meetings pt 1 and pt2]

• A disclosure report [for further information click – see below] will need to be prepared and submitted to HMRC in a strict time parameter

• HMRC will expect regular updates

• Payments on account of tax irregularities will need to be considered and paid

Disclosure Report

A typical disclosure report will cover the following areas:

1. Transmittal letter

2. Certificate of adoption and full disclosure

3. Statement of assets and liabilities

4. Statement of bank accounts and credit cards operated

5. Summary of tax irregularities

6. Scope of review/work undertaken to prepare the disclosure

7. Records reviewed

8. Background to the disclosure

9. Personal history

10. Business history 

11. Nature of irregularities and explanation of how they arose

12. Detailed analysis of irregularities and any technical analysis

13. Appendices with supporting evidence

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