Code of Practice 9 (COP9) / Contractual Disclosure Facility Explained
Code of Practice 9 is only issued as part of the Contractual Disclosure Facility and is solely used by HMRC Fraud Investigation Service. Code of Practice 9 is a leaflet which sets out HMRC’s position on, and how to complete, the Contractual Disclosure forms and what the process of the HMRC investigation into their suspected serious tax fraud is.
The offer to take part in the Contractual Disclosure Facility and the issue of Code of Practice 9 are only undertaken where HMRC suspect serious tax evasion.
In effect, Code of Practice 9 sets out the protocols and procedures that HMRC expect to work under, where they are suspecting serious tax fraud outlining that:
- This is a person’s one-off opportunity to make a full and complete disclosure of all tax irregularities
- That, in order to take part in the process, an individual must admit to deliberately not declaring all of their income (or deliberately making claims for reliefs, expenses or VAT that they know are incorrect and not due)
- That if there are none deliberate errors as well that these also need to be disclosed on the relevant disclosure
- Sets out that by deliberate, HMRC mean that the individual knew that entries included in the tax return or accounts were incorrect but chose to submit them to HMRC anyway
- That if materially false statements are made as part of the process then the individual will be considered for prosecution
- If a full disclosure is made then the person will not be considered for prosecution
- That the individual only has 60 days from the date of receipt of the offer to take part in the Contractual Disclosure Facility to accept
- That if HMRC have not received the relevant forms back from the individual within this period then HMRC will treat this as the individual saying that they have not made any deliberate errors
The document then goes into the process of completing the relevant forms for the participation in the contractual disclosure facility and making, what HMRC term, the outline disclosure (which is an overview of the tax issues).
Leaflet Code of Practice 9 envisages two different situations in that the individual accepts that they have done something wrong or that they deny it (or do not respond to HMRC).
In theory if someone accepts then HMRC will expect them to have a meeting with them to discuss matters further and that the individual will engage a professional advisor to do a full and detailed report of the tax irregularities. The importance of engaging a professional advisor who has experience of the Code of Practice 9 process is stressed in the leaflet by HMRC.
How the HMRC tax investigation is handled where Code of Practice 9 investigation is most important, as if dealt with badly an individual can get a dramatic increase in penalties. Poor handling can also result in an individual having their name published on the HMRC website for tax fraud.
In theory when the report is submitted HMRC will test this and if they are happy with the contents of the report then the enquiry will be closed. In most instances, the individual will then be placed under HMRC’s managing serious defaulters programme or a couple of years.
If the individual denies that they have committed tax irregularities then HMRC will in theory conduct their own investigation into matters and at stages when information is received or obtained by HMRC using their many powers, the individual will continue to be considered as a prosecution case. Thus, it is equally important that the individual seeks professional representation to make sure that HMRC only do what the letter of the law allows and works with the individual to show their innocence to HMRC. It is probably more difficult to prove innocence than deal with matters where the individual has committed tax fraud.
This is because HMRC have decided that the individual has already committed tax fraud and therefore, although it says in Code of Practice 9 that the HMRC officer will keep an open mind, in many cases it is unfortunately shut.
Cases where Code of Practice 9 are issued are supposed to be built up with significant intelligence and review. Given the wealth of digital information now available to HMRC it would appear that HMRC now treat the information as gospel and true when it can often be flawed or based on false assumptions.
HMRC also seem to be more and more of the opinion that supposition is evidence and make wild claims without any supporting hard evidence.
In over 30 years of dealing with Code of Practice 9 investigations we have only had one denial up to the last 12 months. In the last 12 months, we have had 6 individuals we are representing where they have all denied that they have done anything deliberately wrong with regards to their tax affairs.
This compares with 3 where they have admitted that they knew that their tax affairs were not in order.
It should be stressed that HMRC only issue Code of Practice 9 where they believe that there is serious tax fraud (both in terms of the offence and the amount). It can be issued for any tax but only to an individual, but it covers any companies the individual has been involved in. It is vitally important that anyone who receives a Code of Practice 9 letter immediately seeks assistance from people who have experience of dealing with these matters.
Gilbert Tax understands that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.
Gilbert Tax is a firm of tax advisors who specialise in resolving people's problems with HMRC. We have extensive expertise in dealing with all forms of tax investigations and tax disputes as well as with taking matters to the Tax Tribunal where agreement cannot be reached.
Gilbert Tax deal both directly with the individual who is under enquiry and also work with many firms of accountants supporting them in dealing with HMRC disputes and advising them on how to handle HRMC to get the best result.
The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.
Gilbert Tax are none judgemental and rigorously defend your position within the scope and parameter of the law. We take control and manage the process to minimise the interruptions that any form of tax investigation causes to an individual's life and business.