HMRC fraud investigations

“I am writing to you because I have reason to believe you have committed tax fraud.”

HMRC’s Fraud Investigation Service (FIS) undertakes their most serious civil fraud investigations under Code of Practice 8 and 9.

What exactly is a Code of Practice 9 (CoP9) investigation?

Technically a CoP9 isn’t actually an investigation at all. It is in fact a request for a disclosure. HMRC will normally issue these unfortunate invitations to those it suspects have underpaid tax and acted deliberately or with fraudulent intent.

The mechanism by which you make your disclosure is via a comprehensive disclosure report through HMRC’s contractual disclosure facility (CDF).

It is worth noting that a taxpayer may ask HMRC to assess a CDF without having been approached by HMRC and sometimes during a normal enquiry, where deliberate behaviour is identified, that taxpayer may choose to enter the CDF at that point.

What exactly is a Code of Practice 8 (CoP8) investigation?

Code of Practice 8 is very similar to a normal HMRC enquiry; however, it is exclusively undertaken by a FIS team. These enquiries are usually limited to mass-marketed avoidance schemes or aggressive bespoke tax planning that strays a little too close to tax evasion.

Will I end up in prison?

The main purpose of these investigations is NOT criminal prosecution but financial redress. HMRC will look to levy not only the tax due, going back up to 20 years, but also charge interest and penalties of up to 200% of the underpaid tax. HMRC may also seek to name and shame, by publicising the details on their deliberate defaulters list.

In fact, if your disclosure is accepted, it prevents HMRC from prosecuting you criminally in exchange for the acceptance of deliberate civil penalties from the start. This deal will only be binding where the taxpayer (which could be an individual or a business) under scrutiny discloses all the background, provides detailed computations, and works with HMRC to settle matters at their own expense.

With appropriate specialist advice and a full and accurate disclosure, any threat of a criminal prosecution and prison time should be avoided, and any civil liability minimised.

What should I do if I receive a letter from FIS?

HMRC’s risk assessment process, identifying those they believe have committed tax fraud, is thorough, but it is not fool proof. Before responding in any way, it is important to undertake a full review of your tax position to identify if any disclosure is required and to plan any approach to HMRC. A response will be needed if you have something to disclose, as ignoring the letter may lead to investigation and potentially criminal prosecution.

Expert advice is always recommended when dealing with any type of HMRC intervention. In COP8/9, HMRC like to keep their cards close to their chest to encourage a full disclosure, not just disclosure of what they already know (or think they know) about and that can make it difficult to navigate the formalities and options available. That why specialist advice is highly recommended from early on.

To fully support you, Kreston Reeves has a dedicated team of Tax Disputes and Risk Management specialists who have significant experience in handling precisely these types of HMRC fraud investigations. We will provide an impartial, and clear way through, keeping you one step ahead. If you would like to discuss, please get in touch.