COP 9 - Tax Investigations Update

Wendy Ramsay

Wendy Ramsay

Tax Senior Manager

HMRC has redrafted its Code of Practice 9 (COP 9) to encourage more use in cases of fraud, dishonesty or tax evasion. COP 9 gives taxpayers the opportunity to disclose fraud and bring their tax affairs into line on a civil basis, rather than a criminal basis.   

The taxpayer enters into a contract, known as the Contractual Disclosure Facility (CDF), under which they agree to make a full, honest and accurate disclosure of all deliberate behaviour and all other irregularities in their tax affairs, on the basis that HMRC will not open a criminal investigation which may result in criminal prosecution. The CDF offers the chance for the taxpayer to disclose tax fraud, pay any tax and penalties, and settle on a civil basis.

Failure to make a full, honest and accurate disclosure, may result in the CDF being withdrawn, and HMRC launching a criminal investigation with a view to prosecution.

Tax Fraud is defined by HMRC as any dishonest deliberate behaviour in respect of an individual’s liability to pay tax, duties, or levies, which exposes HMRC to a risk of loss of revenue. It includes behaviour that might be prosecuted as cheating the public revenue, a statutory offence of fraudulent evasion of tax, or an offence of fraud. At its heart, it will involve the telling of lies or engaging in other dishonest behaviour that led to or was intended to lead to a risk of loss of tax. This includes lying to HMRC about facts relevant to the assessment and collection of tax (including concealing or withholding relevant facts or failing to disclose a liability), dishonestly and deliberately claiming repayments or reliefs to which one is not eligible, or dishonestly and deliberately paying less tax that is properly owed.

The new version of COP 9, issued on 14 June 2023, refreshes the guidance, explaining the terms of the CDF contract to ensure that the user is clear on what is required and the seriousness of non-compliance.  It reinforces the criminal aspect by emphasising various circumstances when a COP 9 can escalate to a criminal investigation and possibly prosecution.  It also clarifies when COP 9 can be used in cases of fraud in HMRC functions not involving tax, for example fraudulent claims of targeted financial support.

CDF is only suitable if the deliberate behaviour has brought about a loss of tax, duty, or payment administered by HMRC. It is not suitable if there are only careless errors or mistakes to disclose, in which case the CDF offer should be rejected.

On receipt of an offer of the CDF, you have 60 days to accept or reject the offer and submit an outline disclosure. The outline disclosure is not expected to contain precise details of the deliberate behaviour, but must be an honest description of the deliberate behaviour being disclosed, made to the best of recollection, with the support of any documents and information readily available in the 60 day period. It should contain information on losses brought about by the deliberate behaviour or any other irregularities in the taxpayer’s tax affairs or those tax affairs of another.  The outline disclosure should state what was done, how it was done, the period involved, the extent of any involvement of other people and entities, and how the taxpayer benefited from the deliberate behaviour, including names, addresses and tax references of those involved where known.

HMRC will then review the outline disclosure, and decide how the investigation will proceed:

  • If HMRC consider the disclosure to be incomplete, they may commence a criminal investigation. 
  • If they are satisfied that the outline disclosure confirms what they suspect, and that no additional information is required, then they will proceed to request a formal certificate of Full Disclosure, and Letter of Offer to settle all tax, interest and penalties.
  • If they consider that more work is required, they will request the preparation of a Disclosure Report, and will agree the scope with you. Once that has been completed, and accepted, HMRC will move to the settlement stage.

HMRC has stated that it wants to re-establish COP 9 as the primary civil investigation tool in tackling tax fraud.

If you’d like to discuss further, please contact Wendy Ramsay or Aileen Scott of our Tax Investigations Team. 

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