Code of Practice 9 Interview

COP9 has been issued and a meeting with HMRC is looming.

Code of Practice 9 (COP9) tax investigations are only opened by HMRC if they suspect that there has been a “serious” loss of tax as a result of tax fraud/tax evasion.

A client faced with COP9 has three options:

  • Admittance: The client can admit to a tax fraud

  • Denial with cooperation: The client may deny any tax fraud although agree to cooperate with the investigation

  • Denial: The client denies tax fraud and refuses to cooperate

A client should be made fully aware of the information available to HMRC and consider in light of this, whether denial is actually appropriate. It is often uncomfortable and difficult to challenge a client, although where COP9 is issued, it is imperative that a client is challenged: HMRC may not share the same view of legitimate tax planning or innocent errors and care needs to be taken to inform a client of the law and risks to them. Often preparation for these difficult meetings with clients will require expert tax knowledge and a comprehensive understanding of HMRC’s attitude towards certain transactions.

Under COP9 or the Contractual Disclosure Facility (CDF) procedure a client has the opportunity to make a complete disclosure to HMRC of all tax irregularities, in return for immunity from prosecution. Embracing the procedure should result in a financial settlement being reached with HMRC.

A client under COP9 is requested to provide HMRC with an outline disclosure setting out all of the areas where there are tax irregularities at the outset (often in a meeting). Given that material omissions from the outline disclosure could result in prosecute, means that the client must be fully prepared and circumstances tested.

The first stage of COP9 often involves a formal meeting with HMRC. It may also be appropriate for a client not to attend such a meeting. Experts can assist in preventing this in certain circumstances or at worst prepare them for such a meeting. Some clients will be uncomfortable with the idea of a meeting, whilst some may appear confident. However, both traits can be detrimental where the client is ill prepared and where their circumstances have not been challenged. This may be an exceptionally difficult task for an adviser who has a long standing relationship with the client and a lack of experience with COP9.

During the initial meeting HMRC will probe and answers to questions need to be managed so as not to compromise the client’s position. HMRC will seek further detail in respect of the outline disclosure and will inevitably “want to understand” the client’s personal and business affairs.

One of the most important acts at the opening meeting is the answering the ten (up to ten) questions that are specifically asked by HMRC.

The six questions asked on Direct Taxes in a Code of Practice 9 interview are:

  1. Have any transactions been omitted from or incorrectly recorded in the books of any business with which you are or have been concerned, whether as a director, partner or sole proprietor, to the best of your knowledge or belief?

  2. Are the accounts sent to the HM Revenue and Customs for each and every business with which you have been concerned, whether as a director, partner or sole proprietor, correct and complete to the best of your knowledge and belief?

  3. Are all the tax returns of each and every business with which you are or have been concerned, whether as a director, partner or sole proprietor, correct and complete to the best of your knowledge or belief?

  4. Are all your personal tax returns correct and complete to the best of your knowledge and belief?

  5. If you have acted as a trustee, administrator or executor or in any similar capacity, are the tax returns and accounts that have been sent to HMRC in that capacity correct and complete to the best of your knowledge and belief?

  6. Will you allow an examination of all business books, business and private bank statements and any other business and private records in order that HM Revenue and Customs may be satisfied that your answers to the first five questions are correct?

The four questions which are asked on Value Added Tax in a Code of Practice 9 interview are:

  1. Have any transactions been omitted from, or incorrectly recorded, in the books and records of any business with which you are or have been concerned, whether as director or managing officer, sole trader or partner?

  2. Are the books and records you are required to keep by HM Revenue and Customs for any business with which you are or have been concerned, whether as director or managing officer, sole trader or partner, correct and complete to the best of your knowledge and belief?

  3. Are all the VAT returns and any business with which you are or have been concerned, whether as director or managing officer, sole trader or partner correct and complete to the best of your knowledge and belief of the (name of legal entity) for which you are (responsible status) correct and complete to the best of your knowledge and belief?

  4. Were you aware that any of the VAT returns were incorrect or incomplete at the time they were submitted?

The questions are specifically constructed to ascertain whether the client is being honest and open to making a full and complete disclosure of tax irregularities under COP9. The correct answers are important. For example, if a client is absolutely honest, the following would be true:

  • Transactions have been omitted from or incorrectly recorded in the books of any business

  • The accounts are not correct and complete

  • Tax returns are not correct and complete

The temptation of the inexperienced may be to assert transactions that have not been omitted and account and returns and correct. Such answers may significantly affect the validity and acceptance of any disclosure. The incorrect answers may assist as evidence in any subsequent prosecution.

Because of the serious consequences of not making a full disclosure, you need to be sure that your adviser is experienced in this specialist field. Code of Practice 9 itself includes the following statement:
You are strongly advised to seek independent professional advice. If you already have an appointed adviser you should contact them immediately. However, many people find it helpful to appoint a specialist adviser who is familiar with COP9, in addition to their regular adviser.

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