Changes to the Code of Practice 9 (COP9) Procedure

The COP9 always looked like a way for HM Revenue and Customs (HMRC) to give anyone it was investigating a fair chance to state their case and work with it to out right any wrongs.

Whether it was an investigation into income tax, VAT, inheritance tax, corporation tax, capital gains tax, national insurance or customs duties, HMRC would use COP9 to outline to anyone being investigated a range of options. It would write to the taxpayer, stating they are suspected of serious tax fraud and would enclose a booklet explaining the full COP9 procedure.

The procedure involved giving the person being investigated three clear choices:

• DISCLOSURE: A person could accept that they had committed tax fraud and say they wanted to co-operate with HMRC by entering into a Contractual Disclosure Facility (CDF) which involves them making a full disclosure of their tax fraud.
• DENIAL: A person could deny any tax fraud but co-operate with the HMRC’s investigators.
• NON CO-OPERATION: The person could deny tax fraud and not co-operate with HMRC.

The taxpayer under COP9 investigation was given 60 days to decide if they were prepared to enter into a CDF. If they did, HMRC would agree not to pursue a criminal tax investigation, preferring instead a civil monetary settlement.

Removal of the Denial Option

As outlined above, the spirit of cooperation extended to a person under investigation being able to deny doing anything wrong and yet assist the HMRC’s investigators. That option, however, is now off the table. You can no longer cooperate with the investigation while denying any wrongdoing.

This option did not guarantee anyone immunity from prosecution. But it did give someone who was genuinely surprised to be given a COP9 the chance to work with the HMRC to reach some sort of resolution acceptable to both parties. It was, in essence, the middle option: it had none of the acceptance of guilt of the disclosure option but it did involve working with HMRC, unlike the non-cooperation option.

Now anyone facing a COP9 has a far starker choice to make in their dealings with HMRC. With penalties for tax fraud able to be as much as twice the amount of tax lost, the stakes are very high; especially when you consider that any admission of fraud – which is what the CDF is – can be a major handicap to an individual’s or a company’s ability to borrow large sums of money in the future. The COP9 has always been about weighing up the options and working out which course of action is the most appropriate.

Entering into a CDF, for example, involves a taxpayer making an outline disclosure of the tax frauds and providing a certified statement that they have made a full, complete and accurate disclosure of all tax irregularities. This has to be supported by financial statements and other supporting evidence. Disclosure has to cover the full series of events, the amounts involved and the records available.

In the past, if a person chose the denial option, HMRC retained the right to investigate and possibly bring a criminal prosecution. But at least the person being investigated could cooperate and stood some chance of influencing the likelihood of a criminal investigation. With non-cooperation now the only option other than disclosure, anyone under investigation who denies wrongdoing is no longer able to have any impact on the possibility of a prosecution. A taxpayer’s denial letter can be used as evidence against them and HMRC does not even have to notify them that a criminal tax investigation has begun.

It was always the case that whatever option a person facing a COP9 chose, they had to come to their decision after giving the matter detailed consideration and taking expert legal advice. Such a decision was not the sort of issue where anyone could go with their gut reaction, hope for the best or decide to try and “wing it’’ by outsmarting HMRC. With only two options now remaining, that decision has to be reached even more carefully. With no middle option, the decision is between two wildly differing choices.

Non-cooperation and Criminal Investigation

It has to be remembered that if someone chooses non-cooperation, the HMRC can begin a criminal investigation into them immediately, obtain information about their financial affairs from third parties, raise tax assessments and charge much higher penalties than they would have done under the disclosure option. It is also possible that legal proceedings could be brought to secure a charge over the person’s assets.

If someone is the subject of a COP9 investigation, it tends to indicate that HMRC believes large amounts of tax have not been paid. The process involves the HMRC’s specialist investigators. It is not the type of situation that the HMRC leaves to its rookies. For that reason alone, expert legal advice has to be sought at the earliest possible point. Such advice will be required in order to conduct a full appraisal of your tax affairs and decide which of the two remaining COP9 options is appropriate. The HMRC’s COP9 booklet strongly recommends seeking specialist independent professional advice and such a recommendation is made for a reason: HMRC wants the process to be resolved in the most appropriate way. Making the wrong choice of option may mean more hassle for HMRC’s investigators but it is sure to be far more harmful to the person who makes that crucial error of judgement.

A person’s innocence or even their ignorance of their wrongdoing is no guarantee of a satisfactory COP9 outcome. They never were. With one less option to choose from, anyone facing a COP9 now has even less “wiggle room’’ than they did before. Anyone under such an investigation must only act after taking the best legal advice available.

The options may have been reduced but the importance of that decision certainly has not. 

It is even more important for taxpayers to seek expert advice.

Read more about: Defending HMRC - Tax and VAT Investigations.