The COP9 Outline Disclosure: What you need to know

If a taxpayer has decided to accept HMRC’s CDF offer, to obtain the protections available against prosecution, the acceptance must be accompanied by a valid outline disclosure.

In our opinion, the outline disclosure is the most important part of the COP9 investigation process and arguably, the most important document a taxpayer will ever send to HMRC.

Many taxpayers (and some tax agents) assume that the Outline Disclosure needs to include a considerable volume of information and serve as a miniature version of the full and final disclosure report. It does not. For taxpayers, the only objective of the Outline Disclosure is to provide HMRC with sufficient information to secure acceptance into the CDF and obtain criminal immunity.

Un-necessary information included in an Outline Disclosure can create difficulties later in the investigation – delaying settlement and creating additional unwarranted stress.

What is the COP9 Outline Disclosure?

The Outline Disclosure template is sent by HMRC as part of the COP9 opening letter. The template includes 7 ‘Boxes’ and HMRC will expect all 7 to be addressed. These boxes form the basis upon which HMRC decides whether the taxpayer has made a valid disclosure of deliberate conduct and whether/to what extent immunity from prosecution can be granted.

Box 4A – What Happened?

This box is used to provide a concise summary of the deliberate irregularities. It is necessary to clarify that the actions described in this box were deliberate and that they have led to a loss of tax. The temptation is often to provide extensive narrative. However, in our view, a concise explanation is preferable. The focus should remain on the deliberate conduct itself rather than every factual detail surrounding the matter.

We have seen responses in Box 4A that go into minute detail, attempting to estimate liabilities, provide calculations or even speculate about issues that the taxpayer and their agent believe HMRC might consider deliberate. Responses of this nature can narrow the scope of criminal immunity or can confuse HMRC as to what the taxpayer accepts as having been deliberate. By trying to be too helpful, taxpayers make matters harder for themselves as the COP9 investigation progresses. Getting the balance right is essential when it comes to completing Box 4A.

Box 4B – Individuals and Entities involved?

This box requires the taxpayer to list every entity whose tax affairs may be affected as a result of the taxpayer’s deliberate conduct. For example, if you are a company director and the company’s tax affairs are incorrect because of actions you’ve taken, the company should be listed in this section of the outline disclosure. When completing this box it is worth considering spouses, companies, fellow directors, partnerships, fellow partners, trusts, co-trustees, estates and co-executors.

There may be significant implications for those identified in this box and specialist advice should be sought before it is completed.

Box 4C – The period of time over which the deliberate behaviour took place

We consider this to be a very important box. It will determine the periods over which criminal immunity will be granted and the periods over which deliberate penalties will be applied. It is entirely possible that immunity is required over different time periods for different errors. It is also possible that something which started as innocent error became something that you were aware of and made a conscious decision to continue with.

HMRC will test the content of this Box as the COP9 investigation progresses. In our view, this box and Box 4A are the two boxes that require most attention.  It is important to secure the necessary protections without making unnecessary concessions.

Box 4D – The approximate amount of tax due as a result of this disclosure

In our view, there is little value in committing yourself to a particular figure in the outline disclosure. An estimate that later proves to be too low can be criticised by HMRC and used to try and suggest that the quality of disclosure was not as good as it could have been. Similarly, an estimate that later proves to be too high can delay settlement. HMRC sometimes take the view that at the time the outline disclosure was prepared, the taxpayer believed the liability was higher than is now being presented and until it has established the reason for the difference, it won’t be able to conclude its enquiries.

Ultimately, it is often best not to guess. You can provide HMRC with an indication of the liability without stating a specific figure. HMRC will know that 60 days does not provide sufficient time to calculate up to 20 years of tax liabilities across many different entities and will not penalise you for being transparent about this.

Box 4E – What records are available?

HMRC asks this question to establish what documents will be used to reconstruct your historic tax liabilities. It will also help HMRC to determine what information it can request from you when it comes to assess the accuracy of your full disclosure. In our experience, we don’t always know the full extent of the documents that the taxpayer has or will be able to obtain during the preparation of their full disclosure report. If you know records are available and are required to address an anomaly in your tax affairs, it should be listed in this section. However, we would be hesitant to list all the records in your possession that may or may not be used when preparing the report. HMRC may use Box 4E to justify information requests and appealing requests from HMRC for irrelevant information can delay settlement and cause clients to increase professional costs unnecessarily.

Good advisers will be very careful when completing this box. The key is to be helpful without being overly so.

Box 4F – Other relevant information

This box is, in our opinion, the most challenging to complete correctly. It is an opportunity to provide HMRC with information that doesn’t fit into any other box. Taxpayers are not necessarily required to provide additional information in this box simply because it is available and doing so can be either extremely helpful or extremely harmful.

For example, we have seen other advisers using this box to refer to difficulties in the taxpayer’s life and attributed those as being partly responsible for the deliberate irregularities. While this is often well intentioned and done to try and secure sympathy from HMRC, it can have a damaging impact on the outline disclosure as a whole. If HMRC believes that a taxpayer is trying to suggest that their actions were not deliberate and were instead caused by poor mental health (as an example), HMRC may determine that the taxpayer has not acknowledged deliberate behaviour and conclude that the outline disclosure is invalid.

If Box 4F is to be completed (and to be clear, we regularly do include information in this section) the contents need to be considered extremely carefully. If the information does not categorically assist the disclosure in a manner that benefits the taxpayer, it should not be included.

Box 4G – Details of non-deliberate irregularities

Immunity from criminal prosecution will only be required for irregularities that have arisen as a result of deliberate conduct. Nevertheless, as part of a COP9 investigation, taxpayers will be expected to correct all historic non-compliance – including non-deliberate errors.

Box 4G provides taxpayers with an opportunity to bring these non-deliberate irregularities to HMRC’s attention at an early stage of the COP9 process. In doing so, taxpayers will be rewarded with a greater ‘quality of disclosure’ reduction when HMRC comes to calculate any financial penalties that are due. Importantly, doing so also makes clear to HMRC that the taxpayer will not accept errors listed in Box 4G were ‘deliberate’. Whereas an omission from the outline disclosure altogether may cause HMRC to suspect that an outline disclosure is incomplete, including it in Box 4G will allow for early behavioural discussions with the taxpayer on the front foot, having been the party that raised the issue.

As with Box 4F, this Box does need to be completed carefully. Where confusion exists as to whether irregularities are being described as ‘deliberate’ or ‘non-deliberate’, HMRC is likely to reject the validity of the outline disclosure. Consequently, failing to satisfactorily distinguish between deliberate and non-deliberate behaviour can have serious consequences. We would strongly advise taxpayers to take specialist advice from experienced COP9 experts before responding to HMRC’s CDF invitation.

Why specialist advice matters

The Outline Disclosure is often only a few pages long. However, it can shape the entire direction of the investigation. A well-drafted outline disclosure should:

• Secure acceptance into the CDF.
• Define the scope of the investigation.
• Establish a clear distinction between deliberate and non-deliberate conduct.
• Reduce the likelihood of unnecessary disputes later in the process.

The COP9 process is intensive and, unfortunately, quite expensive. The length of the enquiry and often, therefore, the cost of it, can be impacted dramatically by the contents of the Outline Disclosure. For that reason, taxpayers who receive a COP9 letter should seek specialist advice as early as possible and ideally long before the 60-day deadline approaches. Not only will good advisers minimise the risk of paying unnecessary tax, penalties or interest, they’ll also prepare an Outline Disclosure that allows your case to progress smoothly, avoiding excessive professional fees.

Need advice on a COP9 investigation?

Kreston Reeves’ Tax Disputes and Investigations team regularly assists clients with COP9 investigations, including advice on whether to accept or reject HMRC’s offer and the preparation of Outline Disclosures, Statements of Assets and Liabilities and full disclosure reports. If you have received a COP9 letter, early specialist advise can make a significant difference to the outcome of the investigation.

For a free, confidential, no obligation discussion with one of our experts, please contact us today. You can also explore our wider COP9 information along with our full range of tax disputes insights and services.