Worried about a COP9 tax investigation? Don’t panic

Croner-i My VIP Tax Team

When HMRC launches a COP9 investigation, they can go back 20 years into tax records so putting a foot wrong can be damaging and costly, explains Uzair Delair, HMRC enquiry expert at Croner-i My VIP Tax Team

Code of Practice 9 (COP9) is a formal investigation process used by HMRC in cases where they suspect serious tax fraud. It grants the taxpayer an opportunity to make a full disclosure of any tax irregularities through the Contractual Disclosure Facility (CDF). Taxpayers who want to disclose tax fraud voluntarily can apply to HMRC, either online or in writing, to be allowed on to the CDF facility.

HMRC will open a COP9 investigation if they have credible evidence or reasonable suspicion that the taxpayer has committed tax fraud, such as but not limited to, deliberately underreporting income. COP9 is facilitated only when the taxpayer accepts that there has been significant and deliberate behaviour which has resulted in tax loss for HMRC, not for careless or minor errors.

Therefore, HMRC generally can go back up to 20 years to investigate fraud, depending on when the fraud occurred. The COP9 facility is an opportunity to engage in a civil investigation process. For the client, the main difference is that they have the opportunity to ‘come clean’ and, in return for a financial settlement, HMRC will not pursue criminal prosecution.

Therefore, dealing with COP9 can be complex, and professional representation is crucial to ensure the best outcome for the taxpayer. Whilst representatives such as accountants, play a crucial role in managing tax affairs, they may not always have the expertise to handle a COP9 investigation on their own.

Below are just five key reasons why appointing tax specialists is essential when facing a COP9 investigation.

1. Expert knowledge of COP9 procedures

Tax specialists have an in-depth understanding of HMRC’s procedures and the legal framework surrounding COP9, ensuring that every step of the journey is handled with precision and care. They are well-versed in the rules governing the CDF, disclosure timelines, and effective negotiation strategies ensuring that taxpayer follows the correct procedures- avoiding unnecessary penalties or even criminal investigation.

The complexities of COP9 cases varies depending on the level of the disclosure. Each stage poses different challenges that can either streamline the process or cause delays and complications (similar to a home extension project).  With a skilled tax specialist guiding you, every stage becomes more efficient, saving the client time, stress and potential financial fallout.

COP9 cases require a comprehensive review of forensic financial analysis to identify and uncover any discrepancies. Tax specialists bring sharp investigative skills to the table, necessary to conduct comprehensive assessments, ensuring full disclosure and compliance with the CDF process. Their ability to identify irregularities early is critical- failing to do so can lead to delays and increased penalties, or worse: HMRC revoking the protection of the CDF, potentially leading to a criminal investigation or prolonged uncertainty for the taxpayers.

2. A fresh perspective

A tax specialists can bring a new insight to an investigation, help identify overlooked details and challenge HMRC assumptions.

One of the primary objectives of a tax specialist is to minimise the financial exposure of taxpayers and to protect their interests. HMRC imposes heavy penalties for tax fraud, but specialists can assist in negotiating reduced penalties by ensuring full and accurate disclosure.

Tax specialists are very experienced in framing disclosures in a way that secures the best possible outcome and foster creative solutions. Specialists don’t just understand the rules, they know how to present the case effectively to HMRC, using strategies tailored to the taxpayer’s situation. Typically, this is something a general accountant may not be able to achieve alone.

3. Handling complex financial disclosures

Tax fraud investigations often involve intricate financial matters, including offshore assets, corporate structures, and historical tax records. Specialists possess the technical expertise to review and analyse complex financial data, ensuring that all necessary information is disclosed accurately and in compliance with HMRC’s expectations.

COP9 investigations involve forensic tax analysis and legal expertise that extend beyond standard accounting practices.

Moreover, certain specialists bring added value through their prior experience as ex-HMRC officers. For instance, having worked in HMRC’s Fraud Investigation Service (FIS) or on Contractual Disclosure Facility (CDF) cases equips them with unique insights and skills that can strengthen their approach to handling such matters. Whilst this background is not a prerequisite, it is certainly worth considering when selecting a tax specialist for COP9 investigations.  

4. Negotiating with HMRC on your behalf

Let’s face it – dealing directly with HMRC can feel like stepping into the lion’s den without armour. It’s risky business!

Tax specialists act as your trusted intermediaries, handling all communications and negotiations with HMRC, ensuring every communication is carefully worded to avoid missteps or accidental self-incrimination. They manage contentious and complex tax matters daily – it’s their bread and butter. So, whilst the client may feel like a deer in headlights, with the direct assistance and support of a COP9 specialist, they are able to remain much calmer, composed and collected.

Accountants and taxpayers may not be fully aware of the legal implications of certain disclosures. We’ve seen happen time and time again – that an accountant believes they are ready to tackle an HMRC investigation (not just a COP9), only to realise halfway through that they were in over their head. The result? A longer investigation, higher taxes, steeper penalties and skyrocketing fees – not to mention the stress and headaches that follow.  

5. Protection against criminal prosecution

COP9 investigations carry the risk of criminal prosecution if HMRC believes that tax fraud has not been fully disclosed or that deliberate misstatements have been made. There is a serious risk of self-incrimination as taxpayers are required to make a full and honest disclosure of all tax irregularities.

While accepting the CDF grants immunity from criminal prosecution for disclosed offenses- any omissions, inconsistencies, or misleading statements expose the taxpayer to further scrutiny. HMRC has the power to reject the CDF if they suspect dishonesty, which could lead to a criminal investigation – something HMRC are actively pursuing in increasing numbers since last Summer.  

Simply put, if HMRC suspect dishonesty through the process, they may slam the door shut on that immunity. Tax specialists can ensure your disclosure is airtight and the case is handled with precision.

Conclusion

A COP9 investigation is a serious matter that requires careful handling and strategic decision-making. Appointing a tax specialist is crucial to minimising penalties, reducing risks, ensuring compliance with HMRC’s requirements and significantly reducing the risk of escalation to criminal charges.

If you are facing a COP9 investigation, seeking expert advice at the earliest opportunity can make a massive difference in the outcome of your case.

Getting the representation right is just as crucial as getting the disclosure right.