What is COP9/CDF?
COP9, or the CDF, is a process which HMRC uses to investigate suspected tax fraud, where it is not pursuing a criminal investigation. It is effectively a contract between the taxpayer and HMRC. The terms of the contract are that the taxpayer will disclose ALL tax problems and in return HMRC will not seek to prosecute.
What are the stages of COP9/CDF?
In brief, HMRC will first offer COP9 and ask if it is accepted. If COP9 is accepted, then an ‘outline disclosure’ setting out in brief the issues to be disclosed needs to be sent to HMRC at the same time. If the outline disclosure accords with HMRC’s view of what has gone wrong, HMRC will accept you into COP9.
After this, HMRC will often want to have an initial meeting to discuss the issues in the outline disclosure. A specialist like inTAX can help you prepare for that meeting and remove some of the uncertainty and fear about what is going to happen. Once this meeting has happened, a specialist such as inTAX will prepare a detailed report for HMRC, analyzing all the issues and quantifying any additional tax, interest and penalties that need to be paid.
The report is then submitted to HMRC. At this point HMRC may ask some further questions to test the report. Once the report and analysis are agreed and accepted, and the tax is paid, the matter will be finalised. Depending on the number of years and the complexity, writing the report may take some time, but it is an important part of bringing the matter to a close. The more comprehensive the report is, the more likely it will be accepted without significant queries. Often HMRC will ask that the report considers other aspects beyond the fraud to show that all other areas have been dealt with properly.
Can I ask for COP9?
If you know that you have committed a tax fraud and wish to disclose it to HMRC, you can ask for COP9. We have helped a number of clients to do this in the past.
Acceptance into COP9 means that HMRC will not commence a criminal investigation. This certainty around what type of investigation will take place can be valuable.
Can a COP9 become a criminal investigation?
If you fail to cooperate, or materially mis-represent what has happened, then yes, a COP9 can be escalated to a criminal investigation. COP9 is a bargain made between the parties. If everything is disclosed, then no criminal investigation will take place. If HMRC believes it is being mislead during COP9, or that significant matters are being left out, then it may withdraw COP9.
What if I refuse COP9?
If you refuse COP9, HMRC may commence a criminal investigation, or it may commence a civil investigation. If you believe you have not committed a taxfraud and have refused COP9, you will probably have to demonstrate that your tax affairs are correct and up to date. A small minority of people offered COP9 have not committed any fraud. We have helped clients in that situation to demonstrate that their affairs are in order, or that any errors in the past were not deliberate.
Will I pay a penalty, as well as tax, if I have COP9?
For any deliberate errors then yes, a penalty will be payable. The amount depends on the behaviour and level of cooperation, as well as whether the issue is onshore or offshore.
Where we help a client with COP9, we will argue for the lowest possible penalty that can reasonably apply to their situation.
What triggers a COP9 investigation?
HMRC has access to a vast quantity of data, both from within the UK and also from around the world. It also receives tips from members of the public and may receive reports from banks and similar institutions about suspicious transactions. Sometimes HMRC is referred cases by the police, or other law enforcement agencies.
Where information HMRC holds does not tie up with tax returns received, it may open a COP9 enquiry. Anyone who is under investigation for fraud should assume that HMRC has detailed information about them, their businesses, their financial position and also the people that they are associated with.
Should I get specialist advice if I have been offered COP9?
Yes. If you have been offered COP9 or the CDF, HMRC’s own guidance suggests you get specialist advice. It is essential that you cooperate, but also prudent to ensure that you protect your own interests. It is also important that you have help distinguishing between any deliberate errors and those that are not deliberate, as this may lower the overall tax and penalties. As a specialist adviser, inTAX is not there to help you hide any issues from HMRC, but rather to present your case in the best possible way.
We have helped many people with COP9 enquiries and as a team we have decades of experience in doing so.
Will HMRC tell me why it has offered COP9?
Usually not. Once you have received the offer of COP9 it is up to you to determine whether you have committed a fraud and accept the offer or decline it. Your outline disclosure should include all issues that you are aware of.
When you are accepted into COP9, HMRC may disclose further areas that it has interest in. Sometimes these are aspects that can simply be explained and there is no error and sometimes these are areas where a non-deliberate mistake has been made and this needs to be rectified.
Until you have responded to and are accepted into COP9, HMRC usually discloses no information.
What if I am offered COP9 and I have not committed fraud?
In some cases, HMRC selects a case for COP9, but no fraud has been committed. This may be because it has misinterpreted data, or some information is missing which explains a situation. This is not particularly common (HMRC usually does a lot of research), but it does happen, and we have helped clients in this situation to show that nothing is wrong.
Can COP9 be used to disclose errors offshore, or with property, or with crypto?
COP9 can be either issued or asked for in relation to tax on any aspect of your business or personal affairs. However, it can only be used for ‘deliberate’ problems, where a tax fraud has been committed.
HMRC also has other disclosure routes available, including the worldwide disclosure facility (WDF) and the digital disclosure service (DDS). If you have errors that are not particularly serious, perhaps an innocent error, it may be that one of these routes is more appropriate. We would be happy to discuss your issue and then let you know what route is most appropriate.
If you have a tax issue where you have committed a fraud, COP9 may be the best option since it provides protection from a criminal investigation.
What is tax fraud or evasion in relation to COP9?
From HMRC’s perspective, fraud or evasion is where you have not paid the right amount of tax and have done so deliberately. For example, you may have submitted an inaccurate tax return that left some income off, or claimed expenses that either did not exist, or were not actually for your business. It may be that you have taxable income and have not registered to pay tax, but you knew that you should be paying tax. The important point is that at the time you submitted a return, or failed to notify HMRC that you had started to receive taxable income, you knew that your actions were wrong. If you got something wrong because you misunderstood, or didn’t check properly, that might be ‘careless’, but it would not be fraud.
Some cases are quite obviously clear cut. Some can fall into a grey or subjective area. Tax can be complex, and sometimes when people get things wrong without knowing it, HMRC can erroneously make an allegation of fraud. We have helped many clients assess their past actions and decide whether fraud is the correct categorisation of any past errors.
What is the difference between COP9 and COP8?
Code of practice 8 (COP8)
is used by HMRC to investigate bespoke avoidance and possible fraud. COP8 does not give immunity from prosecution like COP9 and should also be handled very carefully. When HMRC is enquiring under COP8, it may bring all other enquiries that are already ongoing ‘under one roof’. So, if there is an enquiry into you as well as your business, HMRC will bring these into the same team.
It may be that HMRC believes that there is a fraud involved in a complex situation, but does not have sufficient evidence to make that allegation. If a fraud becomes apparent during a COP8 investigation, HMRC may change the investigation to a criminal one, or offer COP9. If you receive an enquiry under COP8, and know that you have committed a fraud, you may consider asking for COP9.