Code of Practice 9 (COP9) investigation of fraud procedure

At a recent ‘talking points’ webinar HMRC summarised some of the main points on how it tackles fraud and related issues such as the use of the Contractual Disclosure Facility (CDF) and the potential liability that accountants may face.

 

As these are very important issues we are summarising its comments below with additional links and information from HMRCs code of practice (COP 9)

 

How does HMRC handle tax fraud?

Each year we check the tax position of various individuals, companies and many other areas to ensure the right amount is being paid. When we think that the right amount of tax is not being paid we open an investigation to find out more details.

 

When is a criminal investigation started?

The Commissioners of HMRC reserve complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate.

 

If the investigation is not a criminal one, what is the procedure?

In cases where a criminal investigation is not started, the Commissioners may decide to investigate using the Code of Practice 9 (COP9) investigation of fraud procedure. We will only open a COP 9 investigation where we have a suspicion of fraud:

  • specially trained investigators work on these cases
  • it’s not a fishing exercise
  • we keep an open mind.

 

Using a Contractual Disclosure Facility (CDF)

If we open a COP 9 investigation, we offer the individual the chance to tell us about all irregularities in their tax affairs.  The Individual enters into a contract with us. If they accept this offer we undertake not to conduct a criminal investigation into the tax frauds disclosed.

 

You will make a full disclosure of all your tax irregularities under the terms of the CDF. To comply with your part of the contract you need to complete the two disclosure stages:

 

  1. A valid Outline Disclosure of the deliberate conduct that brought about a loss of tax (Outline Disclosure).
  2. A certified statement that you have made a full, complete and accurate disclosure of all tax irregularities together with certified statements of your assets and liabilities, and of all bank accounts and credit cards you have operated (Formal Disclosure).

 

This is the only way that you can be certain that we will not carry out a criminal investigation into the tax frauds we suspect.

 

Does the taxpayer have to wait for the offer of CDF?

  • There’s no need to wait for us to offer CDF
  • You can request to make a voluntary disclosure but it’s up to us if we offer CDF
  • If we do offer CDF, we will not undertake a criminal investigation on what the individual discloses to us

Can HMRC help with this disclosure report?

You may not need to produce a full report but we will discuss and agree a way forward with you. We will work with you to ensure it contains the correct information. Your client will always make the final decision on whether to produce or adopt a report

Penalties for accountants

Schedule 38 Finance Act 2012 allows HMRC to charge penalties on agents complicit in evasion.  These could be £5,000 to £50,000 per client. This is mainly concerned with the agent being involved in ‘dishonest conduct’.

Dishonest conduct includes dishonesty through action, through omission, and through advising or assisting a client to do something that the tax agent knows is dishonest.

Remember that:

  • a loss of tax does not need to actually occur – it is the intent that matters
  • HMRC have the power to access the agent’s working papers and their client files.

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