You usually put the plain brown, HMRC branded envelope in a separate pile to be dealt with when you’re at your mentally strongest but it’s a nice afternoon and who knows? You might have just received a tax rebate!
It’s only when you open it and see words like “tax investigation” and “fraud” that your mood sinks quicker than Lusitania.
Here’s our guide to what it means when HMRC have reason to believe that there’s a suspected tax fraud; what they’ll be investigating; what a Contractual Disclosure Facility (CDF) is and how the Code of Practice 9 (COP9) work.
It’s a fair COP
The first thing to understand about COP9, which takes place under the structure of the CDF, is that it’s a chance for anyone under investigation to make a total and complete formal disclosure of any and all tax malfeasance and irregularities that they’re aware of.
This means being honest and admitting to deliberately not declaring all income or deliberately making claims for VAT, expenses or tax relief they know they aren’t eligible for.
There are only 60 days from the date of the receipt of the offer to accepting the offer to take part in the CDF so time is of the essence. .
The most important consideration to bear in mind is that if the offer is accepted and a full disclosure is made to HMRC then they will not prosecute or pursue legal action against the recipient.
Tell them everything and legally at least, it ends here.
Two paths, one choice
i) COP9 Acceptance
COP9 sets out two formal paths that can be followed from this point:
The recipient either accepts that they have done something wrong or they deny it.
If the HMRC doesn’t receive a reply after 60 days of issuing then they will classify it as a denial.
If the recipient accepts the offer to take part in the process then the next step is to make an outline disclosure which is overseen by an HMRC inspector.
This is a brief outline and summary of the key facts of the case including amounts, individuals or companies involved, dates they occurred and your reasons for reaching these conclusions. They can also include other tax irregularities at this stage that are not considered as fraud in order to tidy them up.
HMRC may decide to test the report which is where they will run the numbers and investigate the circumstances as well as they can to see if they obtain the same outcomes.
If the information supplied matches up to their evidence and the inspector is satisfied that this is the case then HMRC will confirm that the investigation is closed in writing and request a meeting to discuss next steps including taking part in the HMRC’s managing serious defaulters programme if applicable.
2) COP9 Denial
It’s important to state that not everybody accused of tax fraud has committed an offence.
If you believe there’s been a mistake and you’ve nothing to own up to then you can complete the form to state this and decline to take part in the CDF.
This will automatically trigger an HMRC investigation and because the CDF has been declined, it leaves the recipient open to possible prosecution if illegal activity is uncovered or proven.
There will be a pressure – not just because of the investigation – but also because of the presumption of guilt that the issuing of a CDF confers.
If the HMRC already believes an offence has been committed, they will be motivated to prove it along with rectifying any other financial discrepancies they uncover in the course of their investigation.
Words to the wise
Chris Horner, Insolvency Director with Business Rescue Expert, cannot stress enough the need for specialist advice to be taken at every stage of the CDF.
He said: “The financial penalties alone from not taking a CDF seriously or mishandling the response can be terminal for a business.
“There is also the possibility of being publicly labelled as a tax avoider along with your name and details appearing in The London Gazette so it can be found by current and future lenders and business partners.
“This is on top of possible civil or even criminal action being taken by the HMRC based on the findings of their investigations.
“This is where you need specialist expert advice from professionals who deal with HMRC regularly, who already have a strong working relationship and a good reputation with them. The consequences for not taking this seriously or mishandling the response could be professionally and personally catastrophic.”
Take our advice and get some
Snap back to that moment in the kitchen when you felt your world begin to circle the plughole.
It should be no secret or surprise that HMRC will be thorough, methodical, deliberate and calm. Exactly what you need to be from this point on. If you have just received the first round of paperwork and dispute there is an issue we can get you the right help in defending yourself.
Alternatively, if you have already received a demand for payment, and it is financially unmanageable, the circumstances are rare under which HMRC will accept a CVA or Time to Pay arrangement, due to the historic compliance, so we can discuss options such as voluntary liquidation or administration to help you move forward.
Finish that coffee and contact us to set up a free initial consultation because acting quickly and correctly are both critical for you right now.