COP8 and COP9 Frequently Asked Questions Solved

What is Code of Practice 9?

HMRC issue COP9 where they suspect serious fraud.  Fraud is defined as the dishonest behaviour that led to or was intended to lead to the loss of tax.  COP9 is generally only issued where there is a significant tax loss suspected.

What information does HMRC have?

COP8 and COP9 is only issued when HMRC has a reasonable amount of information to give them suspicion that there are significant tax irregularities.  The investigations can be extensive, so the codes are reserved for cases that HMRC expect will be worth their time.  Therefore, if one is a recipient of either of these codes, it would be wise to assume that they possess a wealth of information that makes the investigation commercially viable. 

How can HMRC find information on me?

HMRC has far more powers to acquire information than people might expect.  A software system known as Connect has access to over 30 different databases such as bank accounts, foreign tax jurisdictions, online social websites, council tax records, DVLA records, land registry and electoral roll.

Further methods include visits from undercover inspectors, property raids, online information and bulk information from third party sources.

How do I rectify my tax irregularities?

HMRC’s objective under these codes is to enter into a settlement with the taxpayer to recover tax and collect interest.  To do this, they must make a disclosure of all their tax irregularities.  The process may look quite different depending on the code received but the principle is the same.

What is the Contractual Disclosure Facility?

The Contractual Disclosure Facility (CDF) is a contract enclosed with COP9.  It offers the target of COP9 protection from criminal prosecution on the condition that they agree to the parameters set out in the CDF.  This includes making a full and complete disclosure.  A further condition is that the individual, by signing the contract, is admitting tax fraud.  As such, it is only suitable for those that wish to admit fraud.

Can I be prosecuted?

If you decide to reject the CDF then HMRC are not bound to its terms.  They therefore might start a criminal investigation with a view to prosecute.  Even if you agree to the CDF, the disclosure must be accurate and all encompassing.  Failure to disclose all of the tax losses brought about by deliberate conduct and making false statements or providing false documents may also lead to a criminal investigation.  HMRC will also expect that you stop any irregular behaviour and, going forward, comply with all future tax obligations.

How far back can HMRC investigate?

In the case of deliberate behaviour HMRC can look back over a period of 20 years, although the scope can be limited by agreement with HMRC.  Accepting the CDF is an admission of deliberate behaviour and so one should be prepared for a lengthy investigation.

How long does the investigation take?

How long the investigation takes will vary on a case by case basis.  The more complex the case, the more time is needed.  When the CDF offer is received, you have 60 days to sign and return your intention to accept or reject it.  If the CDF is accepted and an outline disclosure is made, HMRC generally expects that the full disclosure should follow within six months.  During this time, you are responsible for keeping HMRC informed on the progress of the report at regular intervals.  As mentioned, the actual time HMRC will give you to prepare the report can vary.  For example, the complexity of the work, the amount needed and how easy it is to access the data can all adjust how much time they will be willing to give you.

What and how do I tell HMRC?

HMRC will expect that a description of all tax irregularities along with a quantification is provided through a disclosure.  They will want explanations on how the irregularities arose and information to show how it was quantified.  To deliver this, a disclosure report will be normally be required.  At this point HMRC may suggest that a meeting is held to discuss the scope of the report.

What is a disclosure report?

Under COP9, you must first submit an outline disclosure with your acceptance of the CDF.  The outline disclosure is not expected to contain precise details.  Following the outline disclosure, a full disclosure report is required. The disclosure report is the primary piece of documentation by which the irregularities can be conveyed to HMRC.  The idea is that all necessary information is pooled together and summarised in the report

Do I need a specialist adviser?

HMRC state:

“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, as well as their regular adviser.”

COP8 and COP9 are serious procedures that can include complicated work over a number of years, during which time the tax legislation has changed significantly.  It is unlikely that standard professional advisers will be familiar with tax investigations or disclosure.  Appointing a professional with extensive experience in the area is paramount to a producing an accurate disclosure that seeks to mitigate penalties as far as possible.

Can my adviser deal with HMRC on my behalf?

It is part of HMRC’s charter that you can appoint a representative to deal with them on your behalf.  The onus is still on the taxpayer to ensure that the information within a disclosure is accurate, so it is important that all the facts are given to the adviser.

As per the COP9 document:

“You are personally responsible for your tax affairs and the accuracy of the information supplied to us, and so you must give your adviser all the facts.”

Am I required to attend a meeting with HMRC?

You do not have to attend a meeting with HMRC.  However, they view attendance as a “strong indication of your engagement with the process.”  Therefore, not attending can severely impact HMRC’s view on you.  You may have genuine and good reasons for not wishing to attend a meeting, so effectively conveying this to HMRC is important in preventing it from being a detriment to your position.

On the other hand, attending a meeting without being fully prepared could put you in a worse position.  The questions can be difficult and answers should be carefully considered.  Inaccurate answers can lead to further enquiry.

Meetings are useful for all parties involved.  It will help give you and your adviser an idea of what HMRC understand.  An experienced tax adviser can utilise the meeting as a tool to strengthen your position in the disclosure.

And if I don’t tell HMRC everything?

Intentionally failing to disclose tax irregularities makes it highly likely that HMRC will pursue a criminal investigation.  An ethical and reputable tax adviser would only represent clients that intend to make full and honest disclosures.

What if I can’t find all my records?

It is required by legislation that records are kept to support the tax returns of individuals and businesses.  How records are kept is up to the individual in case, but they should be accurate, complete and legible.

Individuals need to keep records for at least 22 months after the end of the tax year the return is for unless you are in business, in which case records should be kept for five years and ten months or five years from the SATR deadline.  Companies need to keep records for six years following the end of accounting period.

Where records have been lost or destroyed, there are methods by which transactions can be identified.  Often this can be done by a review of bank statements which banks are required to keep for at least six years with many holding on to them for longer.

An absence of records, where they should exist, may result in increased penalties or increase your risk of prosecution.

Do HMRC think I’m guilty?

It is part of HMRC’s charter to treat you fairly.  This means that they should assume that you are telling the truth unless they have good reason to think otherwise.  However, HMRC conducts COP8/9 in a commercial manner meaning that they would only open an enquiry where they have substantial evidence.

How do I pay the tax?

If a COP8 or COP9 enquiry is opened on you, HMRC will request that payments on account are made.  Complying with the request and making payments demonstrates you are cooperating and seeking to regularise your tax affairs.  The actual level of the payments on account needs to be considered.  If significant liabilities have been identified and only a small payment on account is made, HMRC may not consider that a willingness to rectify tax problems has been demonstrated.  It is important that an experience tax adviser is appointed – correctly quantifying the liability owed is crucial.

What are interest charges?

Where there is a late payment of tax, interest accrues from the original due date until the date of payment.  Interest rates are set in legislation and are linked to the Bank of England base rate.  As at the time of writing, the HMRC’s official interest rate is 3.50%.  The rate has changed numerous times over the last 22 years and you can expect that it will continue to change.

What are penalty charges?

Penalties can be charged where there are errors that have led to the underpayment of tax.  The level of penalty is determined by the behaviour that led to the error.  If it is deemed to be deliberate and concealed, the maximum penalty chargeable is 100% of the tax owed (otherwise known as potential lost revenue).  For offshore affairs, this rate can be further increased to up to 200% of potential lost revenue.

As per the terms of the CDF, signing and accepting it is admitting to deliberate behaviour.  With this in mind, you should be prepared for higher penalties although these can be mitigated.  Furthermore, the deliberate behaviour may not relate to all tax irregularities and as such the higher penalty might not apply to certain liabilities.  HMRC may incorrectly assert that the deliberate penalty applies more broadly than it should and therefore challenging them on this is important.

What if I can’t afford to pay?

The retrospective payment of tax due is a common problem for those subject to an investigation.  Where the terms of the CDF have been adhered to, HMRC are typically willing to agree to a payment plan.  The payment plan agreed will be subject to what you have done to try and raise funds to meet your liability.  A period of 12 months is typically agreeable, but this is ultimately at the discretion of HMRC, and longer periods can be negotiated.  Where the circumstance is particularly unusual, the plan that spans several years can be accepted.  It should be noted that forward interest is charged on all payment plans so it’s often in the taxpayer’s best interest for this period to be as short as possible.

Am I a future target of HMRC’s?

If you have been subject to a serious investigation, it is a reality that HMRC may wish to monitor your future tax affairs.  Should they deem it so, you could be added to their ‘managing serious defaulters’ programme whereby they will keep checking that you file all your returns.  They will continue to monitor you until they are satisfied that all tax obligations are being met and that the previous non-compliant behaviour is over.  This can last for a period between two to five years.

Other resources

The governments guidelines on COP8 can be viewed here

The governments guidelines on COP9 can be view here