Tax Investigations Into Serious Tax Fraud
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If HMRC suspects a significant loss of tax due to fraud or evasion, they will initiate the investigation under Code of Practice 9, unless they deem the case severe enough to warrant prosecution.
Under Code of Practice 9, the taxpayer has two options:
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1. Admit to committing tax fraud.
2. Deny the allegation of tax fraud.
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The Contractual Disclosure Facility (CDF)
The CDF procedure allows the taxpayer to make a full disclosure to HMRC of all tax frauds in exchange for immunity from prosecution. This choice leads to a financial settlement with HMRC.
In the CDF procedure, the taxpayer must provide an outline disclosure detailing all areas of tax fraud at the outset. The taxpayer has 60 days from the offer date to prepare this disclosure. Immunity from prosecution only applies to the disclosed areas. HMRC reserves the right to prosecute if there are material omissions.
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Definition of Tax Fraud
HMRC defines tax fraud as “a person commits an offence if he/she is knowingly concerned in the fraudulent evasion of tax or duty, by him, or another person. You cannot commit tax fraud accidentally.”
The Fraud Investigation Service team, comprised of senior Tax Inspectors, handles investigations under Code of Practice 9, dealing with the most serious and complex cases.
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How Cases Are Worked Under Code of Practice 9
The initial stage of this type of tax investigation may involve a formal meeting with HMRC. During this meeting, HMRC will seek further details regarding the outline disclosure and the taxpayer’s personal and business affairs. The taxpayer is generally required to attend this meeting.
Following this, the taxpayer must commission a report, prepared by their tax adviser, detailing the underpaid taxes and providing as much evidence as possible to substantiate the figures disclosed. Often, due to insufficient documentary evidence, some figures will be based on assumptions and estimates. HMRC will thoroughly review and test these assumptions and estimates before negotiating the final settlement.
By making a full disclosure under the CDF, the taxpayer can reduce the financial penalties HMRC will seek during the final settlement negotiations.
The consequences of inadequate disclosure are severe. If HMRC discovers material irregularities that were not disclosed in the report, they may escalate the case to criminal prosecution.
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How We Can Help
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We have successfully represented numerous clients subjected to tax investigations under Code of Practice 9 – Contractual Disclosure Facility (CDF). This is the core service of our practice, and in all cases, we have achieved civil settlements with HMRC.
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Our team has extensive experience attending initial formal meetings with HMRC, determining the scope of the report, and preparing the report on the taxpayer’s behalf.
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Due to the serious consequences of not making a full disclosure, it is crucial to ensure 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."
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We are tax specialists who exclusively handle tax investigations. Many general tax advisers refer specialist cases like this to our team, knowing that we manage these types of investigations daily. We maintain regular contact with tax inspectors within HMRC’s Fraud Investigation Service teams, enabling us to provide you with the highest level of professional representation.
If you are subject to a tax investigation under Code of Practice 9, please contact us for a free, confidential, and no-obligation discussion. We are happy to offer an initial meeting free of charge to prospective clients.