In many cases, HM Revenue & Customs (“HMRC”) initiate criminal proceedings when there is suspected tax fraud, however, HMRC reserve complete discretion to pursue alternative remedies where they consider it necessary and appropriate.
Code of Practice 8 (COP8)
Code of Practice 8 investigations are commenced where HMRC suspect that there has been a deliberate attempt by a taxpayer to pay less than the correct amount of tax. HMRC can launch an investigation under Code of Practice 8 with the objective of recovering any outstanding tax, together with interest and penalties. A criminal investigation will not normally follow under Code of Practice 8 investigations unless evidence is found of serious fraud. In that case, the investigation may proceed under Code of Practice 9 or criminal proceedings.
Code of Practice 9 (COP9)
In cases where a criminal investigation is not commenced, the Commissioners may decide to investigate using the Code of Practice 9 investigation of fraud procedure. Under this code, the recipient is given the opportunity to make a full disclosure under a contractual agreement called a Contractual Disclosure Facility.
HMRC will send an opening letter notifying the recipient of their suspicion of tax fraud. The letter will include a copy of the Code of Practice 9 and the offer of a contract through the Contractual Disclosure Facility. The recipient then has 60 days to respond once an offer has been made. By entering a Contractual Disclosure Facility, the recipient admits that there has been tax withheld from HMRC by deliberate conduct. As such, HMRC will be permitted to recover taxes, penalties, and interest that had been evaded up to 20 years earlier.
Upon making a full disclosure of deliberate conduct, HMRC will not pursue a criminal investigation with a view to prosecution. On the contrast, if the recipient makes materially false or misleading statements, the Commissioners reserve the right to start a criminal investigation into that conduct as a separate criminal offence.
The recipient does have the right to reject an offer made under the Contractual Disclosure Facility by signing the rejection letter. However, HMRC are able to commence a criminal investigation into any tax fraud that the recipient is suspected to be involved in, upon the signing of this document.
What should be disclosed in the Contractual Disclosure Facility?
There are two stages to the disclosure process:
- Outline Disclosure. This should be an honest description of the deliberate conduct that the recipient is disclosing, made in good faith and to the best of the recipient’s recollection, with the help of any documents that are readily available. The Outline Disclosure should contain a description of what the deliberate conduct was that caused the alleged tax loss.
- Formal Disclosure. Following the Outline Disclosure, HMRC will decide how the investigation should proceed. If the Outline Disclosure does not disclose all of the details which HMRC suspect that the recipient may have been involved in, then HMRC are entitled to commence a criminal investigation into deliberate conduct of non-disclosure.
At Audley Chaucer, we are highly experienced in representing clients during this stressful and fraught period, and work together with nominated forensic accountants and specialists, including ex HMRC tax inspectors and tax barristers, to ensure the impact upon the client and the business is minimised. We are experienced in negotiating with HMRC to swiftly settle the investigations and minimise the sums of tax, interest, and penalties. Audley Chaucer will support and guide the client through all of the available processes with the minimum of disruption. We will ensure that the client’s tax affairs are regularised as expeditiously as possible. Call John Szepietowski or retired Judge Malcolm Simmonds at Audley Chaucer Solicitors for a confidential discussion.