I often hear the term Code of Practice 9, what does it mean and is it the same or different to the Contractual Disclosure Facility?
Code of Practice 9 (COP9) sets out HMRC’s practices when investigating suspected tax fraud. When HMRC starts this type of investigation, the taxpayer will be invited to use the Contractual Disclosure Facility (CDF).
If HMRC write to me explaining that I am being investigated under Code of Practice 9, is this serious and does it mean I could be criminally prosecuted?
COP 9 is the most serious type of civil investigation conducted by HMRC. However, it can be a lifeline and entering the CDF has many advantages including a prescribed format and fixed time frame, allowing a taxpayer to see a way out of their situation. If HMRC offers the CDF, it means that they do not intend to criminally prosecute currently, providing the taxpayer engages with HMRC and the offer of the CDF. HMRC may start a criminal investigation during the COP9 process if the taxpayer ceases to cooperate or if HMRC discovers that there are additional tax irregularities that were not disclosed in the Outline Disclosure (see How does the CDF process work below).
Can anyone use the Contractual Disclosure Facility?
Individuals, who are not currently under criminal investigation and who have tax irregularities caused by deliberate behaviour can apply for the CDF. The individual can also disclosure tax irregularities of their company during the process.
How does the CDF process work?
An individual enters the CDF in one of two ways. Via an application, usually made by a tax adviser specialising in COP9 work, or by invitation from HMRC.
HMRC then allows sixty days from the date the individual was offered the opportunity to participate in the CDF for an outline disclosure to be prepare and submitted. This will include an explanation of the tax irregularities, how they came about and the approximate quantum of the tax liabilities. HMRC also expects a payment on account of those liabilities to be made on submission of the outline disclosure.
Once HMRC has reviewed the outline disclosure, they will be in touch with the tax adviser to arrange an Opening Meeting. The taxpayer is expected to attend and will therefore benefit from the attendance and support of their COP9 adviser on the day. During the meeting HMRC will ask the taxpayer to confirm the details in the outline disclosure and HMRC will likely ask some questions about it. It is not uncommon for such meetings to last two to three hours. At the end of the meeting, the taxpayer is asked to confirm that they have engaged the tax adviser in attendance to commission a COP9 report.
A Scoping Meeting will take place soon after the opening meeting. At the scoping meeting, HMRC confirms what it expects to be included in the COP9 report. A report submission deadline will be agreed and this is usually six to 10 months from the date of the opening meeting as the report must include a detailed analysis of both the business and private side of the taxpayer’s financial affairs including a review of all bank statements for all bank accounts in existence during the period in question.
During the months that follow the tax adviser will report progress to HMRC and they may meet for a Progress Meeting.
Once the report is approved by the taxpayer, signed, and submitted, HMRC will review the report and then usually arrange a Settlement Meeting with the tax adviser to discuss the report, negotiate penalties and work towards agreeing settlement of the case.
What are the main advantages of entering into the CDF?
Is it an expensive service?
This is a specialist service providing strategic advice and day to day management of the investigation and HMRC. There is a process and a set format and, providing the individual is open and honest with the COP9 specialist from the outset, that specialist should be able to provide an estimate of fees for each stage of the process from the outset.
What is the first step for me (or my client)?
Contact a tax adviser such as myself who specialises in COP9 work. I will offer you a confidential, no obligation discussion in person or by call which will likely take at least at hour but will provide you with all the information you require to be able to consider your options and decide how you wish to proceed.
To find out more about what we do, please get in touch.