If you are suspected of committing fraud, HMRC will make a thorough investigation into your affairs, including your financial conduct around the time you are thought to have committed tax fraud.
This will come about due to suspected irregularities in your tax affairs and will need to be investigated before a decision is made as to whether fraud has actually taken place.
During this investigation you might be issued with a Code of Practice 9 (or COP 9 for short). This gives you the opportunity to disclose deliberate and non-deliberate financial misconduct that may have led to the irregularity in question. Read on to find out more about this option and what it entails.
What is Code of Practice 9?
Whilst the COP 9 is only issued in select fraud cases, it can give you the opportunity to ‘have your say’ as it were, in order to provide the evidence needed to ensure that the fraud investigation is dropped.
If you are accused by HMRC of deliberately making false statements or intentionally putting wrong entries in your tax return, you may be able to clear up any irregularities by supplying financial information that shows that the return is, in fact, correct or that it was an unintentional error or mistake on your part.
When the COP 9 is issued, it is under a Contractual Disclosure Facility (CDF). This means that you have 60 days to respond once the offer is made, providing all of the information related to your financial affairs as well as ceasing any deliberate conduct that may be causing the highlighted irregularity in your accounts.
Full cooperation is expected during this time, which will ensure that any penalties you currently face are reduced or you avoid sanctions such as insolvency.
How long does a tax investigation take?
This will depend on how complicated your tax affairs are, what information HMRC require and how many past tax years need to be investigated. A timetable can be drawn up to allow you to complete a Disclosure Report.
This timetable, when agreed to by HMRC, must be adhered to except in the case of exceptional or unexpected difficulties. A period of one year is not unusual and three to five years is becoming common in cases where HMRC have decided to subject the taxpayer to close scrutiny.
A period longer than five years may result in any prosecution being in breach of the Human Rights Act.
HMRC tax investigation procedure
1. Suspicion of fraud
You have been suspected of committing tax fraud so will be thoroughly investigated by HMRC. You are notified and it is up to you to appoint an agent or adviser to assist you through this process. This is strongly recommended as it is difficult to retain objectivity when you have been told you are suspected of tax fraud.
2. The Investigation
You may be given the option of accepting a COP 9 under a CDF, which gives you 60 days to comply.
In this time you must either admit fraud and agree to disclose all relevant financial records and cooperate fully with HMRC or if you do not believe you have committed fraud then you can reject the terms of the CDF, though HMRC may then escalate the matter to a criminal investigation.
If you have a professional qualification such as a surgeon, banker, accountant or solicitor, be very careful before you decide to admit tax fraud because that will normally be the end of your professional career and you risk having your name published as a tax cheat.
For this reason, many professionals decide that they have no alternative but to reject the CDF and fight on.
3. Outline Disclosure
If you choose to comply with the terms of the CDF then you will be able to complete an Outline Disclosure form. This will disclose a complete description of your deliberate conduct, how you did it, who else was involved and how you benefited.
This is an opportunity for full cooperation and coming clean with any fraudulent conduct so that you are not prosecuted and your penalty may be reduced.
4. The Disclosure Report
Whilst your outline disclosure will usually lead to the fraud investigation being concluded with your assistance (along with any applicable penalties being made clear), in more complex cases you might be asked to complete a Disclosure Report.
A timetable will be agreed with your agent or adviser to give you adequate time to prepare and you are expected to provide regular updates to HMRC over your progress. You will also be expected to sign a Full Disclosure Certificate declaring every detail you have provided is true to the best of your knowledge.
5. Criminal Investigation
By rejecting the terms of the CDF you risk HMRC conducting a criminal investigation into your affairs which may result in you being prosecuted if sufficient evidence of tax fraud is found.
HMRC Criminal Investigations
If you have rejected the CDF or are suspected of not having fully revealed the extent of any admitted tax frauds where you originally took the CDF you are likely to be subjected to a criminal investigation.
It is very important to obtain professional advice and support from a lawyer with experience of this work during this phase so that your dealings with HMRC are carefully managed and the risk of the investigation leading to a prosecution is minimised.
For example, HMRC will usually seek an interview with you under caution or in some cases arrest you. It is normally a mistake to agree to an interview and to answer questions unprepared.
Taxpayers often welcome such an interview as a chance to persuade HMRC of their innocence. However, by then HMRC are pretty sure you are guilty (despite their assurances about keeping an open mind) and are simply hoping that you will slip up in the interview and provide them with material to support their case against you.
The sensible strategy is to decline an interview but to say through your lawyer that you wish to co-operate and ask HMRC to submit their questions in writing and offer to answer such questions in writing. That way you have better control of the process and lessen the chance of weakening your defence.
Patrick Cannon is a leading Tax Barrister with experience of COP 9 and criminal investigation interviews and can advise and accompany you to any meetings with HMRC.
If you would like more information regarding how HMRC will conduct a tax investigation, or some COP 9 guidance, get in touch with Patrick Cannon today.