Code of Practice 9 – Suspected Tax Fraud

‘Dear [insert name]

I am writing to you because I have reason to suspect you have committed tax fraud. I enclose a copy of Code of Practice 9 (COP9)’

If a taxpayer has received a letter from HMRC that begins with something similar to that, it is likely they had an initial sense of confusion and dread followed by the question ‘what on earth is COP9?’.

Both are very normal ways to feel. There is no point in sugar coating it – Code of Practice 9 is a serious matter and can be incredibly stressful for the taxpayer and their family. In their opening letter HMRC ‘strongly’ advise that an independent specialist adviser is sought and, with the right one that has extensive experience in the area, the process can be made considerably clearer.

What is Code of Practice 9?

Code of Practice 9 (COP9) is issued by HMRC where they suspect serious fraud. It is a procedure HMRC will seek to engage the taxpayer in before they seek to criminally prosecute. It offers the taxpayer a chance to ‘put their hands up’ and disclose any behaviour (deliberate or otherwise) that HMRC suspect has led to some inaccuracies in their tax affairs and a loss of tax to the Revenue. With reference to the COP9 document, fraud means ‘dishonest behaviour that led to or was intended to lead to the loss of tax’.

COP9 is only issued when HMRC has a reasonable amount of information to give them suspicion that there are significant tax irregularities. They collect this information from software that is connected with numerous sources such as banks, land registry, companies house, employers and electoral roles. HMRC will not tell the taxpayer what fraudulent behaviour they suspect them of. The procedure is intended to be a final chance for the individual to admit fraud and pay the tax found to be due.

COP9 is an offer extended from HMRC – the taxpayer agrees to engage with the process by making a full disclosure to include details of the behaviour which led to the irregularities and calculation of the tax(es) found to be due. In return HMRC agrees to not criminally investigate with a view to prosecute. To make the disclosure under COP9, a contract is entered into by HMRC and the taxpayer.

The Contractual Disclosure Facility (CDF) is the means by which the recipient can make their disclosure. They have 60 days from the date of issue of COP9 to respond to the CDF. The offer can be accepted, rejected or ignored (which implies rejection) – there are no other options. After one has entered into a CDF, they typically have six months to make a full disclosure.

By entering into a CDF contract, the taxpayer is admitting tax fraud, which by its very definition amount to behaviour of a deliberate nature (as per the terms of a CDF). It being deliberate means that HMRC can look into tax affairs dating back as far as 20 years. Therefore, the investigation can be intense and stressful and HMRC will expect regular updates.

Rejecting the Offer

The CDF can be rejected by signing the Rejection Letter or by not responding to HMRC’s offer within 60 days. If this is done, HMRC will begin a criminal or civil investigation. This route could lead to prosecution, significantly higher penalties and even a public ‘name and shame’.

Accepting the Offer

If one accepts the offer, they must also accept that they deliberately committed tax fraud as per the terms of the contract. When they return the acceptance form, the taxpayer must also submit an outline disclosure. They have 60 days to do this. The purpose of the outline is for the individual to describe the series of events that have led to the fraud. The following gives an idea of what HMRC expect:

• What was done
• How it was done
• The involvement of others
• How the taxpayer benefitted from the behaviour

Due to the timeframe of 60 days, the outline disclosure is not meant to be the most detailed representation of the tax loss (this is expected in the next stage), but it must be truthful and specific. It is important that all tax irregularities are disclosed, for only those that are will be protected from a criminal investigation.

Following HMRC’s review of the outline disclosure, and assuming they accept it, there are a further two possible routes. If the case is straightforward and no further information is required, it is possible that the matter can be resolved without submitting a formal disclosure report. It is likely, however, that further work will be required.

Where HMRC feel that more information is necessary to conclude their investigation, they will ask that a formal disclosure report is prepared. Before they ask the person under investigation to create a report, they are likely to ask that a meeting is held with them to discuss the scope of the report. Attendance is not compulsory, but it might be considered that it would show engagement with the process. In some cases, it may suffice that HMRC just meet the specialist adviser.

Within the report it is expected that there will be a quantification of all irregularities with summaries of all tax, interest and penalties due. Given that it may be covering a 20-year period, the scope for error is enormous if a professional is not engaged. Legislation changes over that period will affect the calculation of liabilities and HMRC will expect that it is done correctly. The amount of work required is substantive and, without the help of a specialist adviser, can be immensely overwhelming.

A Certificate of Full Disclosure is a mandatory document that, in all cases, the taxpayer must complete. Its purpose is for the taxpayer to acknowledge that the disclosure is full, accurate and complete. The document cannot be amended in any way and the disclosure cannot omit any material information – doing so could result in criminal investigation with a view to prosecution for submitting a false document.

A COP9 is a serious notice. It is a matter that requires an experienced tax specialist. A general accountant is unlikely to be equipped with the knowledge to best deal with the case and with HMRC. General auto mechanics aren’t tuning formula 1 race cars – a COP9 demands the expertise of a specialist.

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