I’ve received an HMRC investigation of fraud statement, what do I do?


This article addresses the following questions:

  • What is COP9?
  • When will HMRC pursue a criminal prosecution and the COP 9 process?
  • What is the offer process and what must be disclosed as a result of an offer?
  • What is the effect of the contract with HMRC?

What is COP9? - Contractual Disclosure Facility process

Where HMRC suspects tax fraud or tax evasion, they can pursue it by criminal or civil procedures.

If it decides to follow the civil route, the investigation will be conducted in accordance with HMRC’s Code of Practice 9 (COP9).

You can read about the criminal route [here]

The procedure under COP9 is called the Contractual Disclosure Facility (CDF). This allows you to receive immunity from prosecution if you comply with certain conditions.

The CDF is an offer from HMRC to you to disclose the nature of the tax fraud. There are 2 options under the CDF:

  • Owning up to tax fraud and accepting the offer.
  • Not replying to the CDF or denying fraud and refusing to co-operate with HMRC (non-co-operation route).

There used to be a third option where you could deny it but co-operate with HMRC. That was removed on 30 June 2014. Therefore, you can only accept or reject the offer of CDF. If an individual accepts the terms of the CDF and owns up to the tax fraud they have committed, an Outline Disclosure setting out the full details of the tax fraud needs to be submitted by them to HMRC within 60 days of the CDF offer.

When a taxpayer is subject to an investigation in accordance with COP9, it is advisable to appoint a specialist professional adviser (either an accountant or lawyer) who is familiar with COP9, to advise them on how they should proceed with HMRC.

I’ve received an HMRC investigation of fraud statement, what do I do?

Firstly – seek legal advice urgently.

The COP9 is the start of a formal process which begins with a letter from HMRC which offers the opportunity to make a full disclosure under a contractual arrangement. There are very strict rules and time limits to follow.

The taxpayer has to either accept or reject/ ignore the offer within the timescales given. You will be given the opportunity to make a complete and accurate disclosure of your deliberate and non-deliberate conduct that has led to irregularities in your tax affairs. Where HMRC suspects that the recipient has failed to make a full disclosure of all irregularities, the Commissioners reserve the right to start a criminal investigation with a view to prosecution.

In the course of the COP9 investigation, if the recipient makes false or misleading statements, or provides false documents, the Commissioners reserve the right to start a criminal investigation into that conduct as a separate criminal offence.

Disclosure requires agreement to give complete disclosure of the full extent of the tax evasion. If so, HMRC will agree not to start a formal criminal investigation. Following full and accurate disclosure of the tax irregularities and supporting records, plus formal undertakings to this effect, there will be a civil settlement of tax plus interest plus penalty. Rejecting or ignoring the offer, or making an inaccurate disclosure are highly likely to lead to HMRC commencing a full criminal tax fraud investigation and prosecution.

What is meant by tax fraud?

In the context of the COP9 CDF process “fraud” means the dishonest behaviour that led to, or was intended to lead to, the loss of tax. Remember, it doesn’t matter if you actually benefitted.

How it starts: The COP9 CDF offer

HMRC will send you a letter saying that they suspect you have committed tax fraud. This will include a copy of COP9.

The letter will include the offer of a contract through the CDF. This gives you the chance to disclose any loss of tax that has you have caused. You have 60 days to respond from the date of HMRC’s initial letter. During this 60-day period, HMRC will not communicate with the recipient or his adviser.

What you must disclose

If you accept HMRC’s offer, your full disclosure of all you tax irregularities consists of two stages:

  • Outline Disclosure.
  • Formal Disclosure.

I want to take up the offer of CDF – what does that mean in practice?

If you accept the offer you will be admitting that tax has been lost because of your deliberate conduct. HMRC may be able to seek recovery of the tax, interest and associated penalties evaded by you for as far back as 20 years.

If you enter into the CDF contract, you are expected to fully co-operate with HMRC. If you do not, HMRC reserves the right to criminally prosecute you.

What happens in CDF?

You will need to submit an Outline Disclosure.

Your outline disclosure needs to be an honest description of the deliberate conduct, made in good faith and to the best of your recollection, with the help of any documents that are readily available. The form is not expected to contain precise details if you can’t get them within the 60 days allowed.

For each separate tax loss, you should provide details of the following:

  • What you did.
  • How you did it.
  • The involvement of other people and entities.
  • How you benefited from the deliberate conduct.

You will then submit a Formal Disclosure.

Once you have completed the Outline Disclosure process, and provided HMRC need no additional information, HMRC will:

  • Look to agree the additional duties, interest payable and any penalty that is due.
  • Ask you to make Formal Disclosure.

To do this you must certify that you have made a full and complete disclosure of all the tax irregularities, and provide HMRC with the following:

  • a certified statement of worldwide assets and liabilities;
  • a certificate of bank accounts operated;
  • a certificate of credit cards operated; and
  • a Certificate of Full Disclosure.

Invite you to make a financial offer to cover the tax, interest and penalties to settle the investigation.

In complex cases, a Disclosure Report needs to be prepared. This should be completed by you in conjunction with your advisers, at your cost. HMRC may ask you to attend a meeting to discuss the Disclosure Report.

Certificate of Full Disclosure

You must submit a Certificate of Full Disclosure. This is mandatory. The HMRC template must be used and cannot be amended. The certificate must be witnessed and include a dated signature.

Meeting with HMRC

Once you have responded to HMRC’s offer to engage in the CDF you may be asked to attend a meeting. Your attendance and full co-operation at any meetings may help to reduce the penalty due.

Calculation of penalties

Penalties in some cases can be up to 200% of the tax lost, subject to a reduction for positive behaviour.

Rejection of the COP9 CDF Offer

If you do not believe you have brought about a loss of tax through your deliberate conduct, you can reject the offer by signing and returning the CDF Rejection Letter within the same 60-day period.

HMRC have said that they are happy to consider any explanations or documents that support a rejection of the offer.

You should only choose the rejection route if you genuinely believe that you have not brought about a loss of tax through your deliberate conduct. If you sign the Rejection Letter, HMRC will start its own investigation. This can be a criminal investigation. The Rejection Letter can also be used in court or tribunal proceedings as evidence.

If HMRC do not hear from you within 60 days of receiving the offer, it will be treated as a rejection of the offer and HMRC will proceed with either a civil or criminal investigation.

If you believe or suspect you are to be the subject of an HMRC criminal investigation, and are considering using the CDF mechanism as part of COP9, we strongly recommend that you seek urgent legal advice. If you wish to discuss any matters and talk with one of our experts, please call +44(0)1908 414990.

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