inTAX achieve a successful defence in complex COP9 case!

In late 2022, HMRC launched a COP9 (Code of Practice 9) investigation into a husband and wife.

Acting on their behalf, we successfully navigated a complex and protracted enquiry involving offshore income, historic residence status, and a challenge over Foreign Tax Credit Relief (FTCR).

After more than two years of scrutiny, tax assessments, and appeals, HMRC closed the COP9 case with no tax adjustments required.

Background

Our client had spent most of his professional life overseas, managing infrastructure projects – often in developing countries.

For over a decade, he operated through an offshore company and used an offshore bank account to support his business activities.

Despite working abroad, he consistently filed UK self-assessment tax returns to declare UK income and, in certain years, claimed non-residence status.

Upon receipt of HMRC’s COP9 opening letters, we immediately began a comprehensive review of the couple’s tax affairs, working closely with them to fully understand their position.

We identified the likely trigger for HMRC’s suspicion of fraud: data obtained from our client’s overseas bank account.

The couple were understandably concerned that specialist legal counsel would be required to manage the complexities of a COP9 investigation.

We reassured them that, as former HMRC investigators with extensive experience in COP9 matters, we were fully equipped to represent them without external legal input.

Rejecting the COP9 offer

Following our in-depth review, and with the couple confirming they had never knowingly underpaid tax anywhere in the world, we recommended rejecting HMRC’s offer under COP9.

We advised that this would mean forfeiting the prosecution protection provided by the Contractual Disclosure Facility (CDF), but in our professional judgement, the risks were manageable.

After submitting the COP9 rejection letters, HMRC confirmed they would proceed on a civil, rather than criminal, basis.

Managing HMRC without client exposure

Although fully cooperative, our clients were understandably concerned about the emotional and psychological impact of attending a meeting with HMRC’s Fraud Investigation Service.

We reached an agreement with HMRC for inTAX to manage all communication related to the COP9 enquiry through written correspondence, calls, and virtual meetings.

A meeting was held without the clients present, during which HMRC disclosed it had acquired banking data from overseas and was concerned about the husband’s claimed non-residence status in periods dating back seven to ten years.

Establishing residence and reviewing foreign income

We conducted a detailed analysis of our client’s travel history and living arrangements to establish residency under the Statutory Residence Test.

Our review concluded that for three of the four disputed years, he met the Second Automatic UK Test and was therefore UK resident.

This meant his foreign income should have been declared in the UK and claims for FTCR submitted accordingly.

HMRC provided its analysis of the overseas banking transactions and produced calculations of what it believed was undeclared foreign income.

We consistently argued that tax had already been paid overseas and that our client was entitled to offset this via FTCR in the UK.

Disputing HMRC’s position on FTCR

Due to the remote jurisdictions involved and the time elapsed, original foreign tax documents were no longer available.

Nonetheless, we compiled a substantial body of evidence – including correspondence from the client’s overseas lawyer, financial records, and contextual documents – to demonstrate that tax had been paid abroad.

Despite this, HMRC refused to accept that our client was entitled to claim FTCR, citing the absence of original, contemporaneous documentation.

HMRC issued discovery tax assessments for the three relevant years – the assessing time limits being extended to 12 years for offshore matters.

We appealed on several grounds:

• HMRC’s foreign income calculations were inaccurate
• Our client was entitled to FTCR
• Sufficient evidence had already been submitted to support the claim

We firmly believed that HMRC already had in its possession, prior to the making of any assessment, sufficient evidence to conclude that our client did pay tax on his foreign income and that he was entitled to claim FTCR.

Whilst preparing the appeal, we obtained further evidence in the form of a decade-old lawyer’s handwritten note referencing our client’s foreign income and taxes paid.

Outcome

Finally, HMRC accepted that we had provided sufficient evidence to support a FTCR claim, reduced all assessments to nil, and formally closed the COP9 investigation – two COP9 cases closed without any tax adjustments required.

Letter from the HMRC investigator, to our client, confirming a successful appeal and tax assessments reduced to nil.

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This case highlights the significant challenges faced by individuals with cross-border financial arrangements.

Navigating the interaction between international tax regimes often places a disproportionate burden on individuals to maintain extensive records across multiple jurisdictions – sometimes well beyond standard retention periods.

In this example, our clients were burdened with retrieving materials from over a decade ago in difficult jurisdictions.

HMRC’s rigidity further complicated matters.

However, our technical expertise, strategic handling, and persistence led to the right outcome: complete exoneration for our clients in what proved to be a highly demanding COP9 case.

Letter from the HMRC investigator, to our client, confirming the closure of the COP9 investigation.

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It was one of the most frustrating COP9 investigations we’ve dealt with, but also among the most rewarding.

A test of resilience and perseverance – but in the end, justice prevailed!

If you’re worried about a COP9 letter or a complex HMRC investigation, speak to our experts.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email joe.mcdermott@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients