COP9 / Code of Practice 9

What is COP 9 / Code of Practice 9?

Code of Practice 9 is only issued as part of the Contractual Disclosure Facility and is solely used by HMRC Fraud Investigation Service. Code of Practice 9 is a leaflet which sets out HMRC's position on, and how to complete, the Contractual Disclosure forms and what the process of the HMRC investigation into their suspected serious tax fraud is.

The offer to take part in the Contractual Disclosure Facility and the issue of Code of Practice 9 are only undertaken where HMRC suspect serious tax evasion.

In effect, Code of Practice 9 sets out the protocols and procedures that HMRC expect to work under, where they are suspecting serious tax fraud outlining that:

• This is a person’s one-off opportunity to make a full and complete disclosure of all tax irregularities
• That, in order to take part in the process, an individual must admit to deliberately not declaring all of their income (or deliberately making claims for reliefs, expenses or VAT that they know are incorrect and not due)
• That if there are none deliberate errors as well that these also need to be disclosed on the relevant disclosure
• Sets out that by deliberate, HMRC mean that the individual knew that entries included in the tax return or accounts were incorrect but chose to submit them to HMRC anyway
• That if materially false statements are made as part of the process then the individual will be considered for prosecution
• If a full disclosure is made then the person will not be considered for prosecution
• That the individual only has 60 days from the date of receipt of the offer to take part in the Contractual Disclosure Facility to accept
• That if HMRC have not received the relevant forms back from the individual within this period then HMRC will treat this as the individual saying that they have not made any deliberate errors
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HMRC letter and leaflet

Leaflet Code of Practice 9 envisages two different situations in that the individual accepts that they have done something wrong or that they deny it (or do not respond to HMRC).

The document then goes into the process of completing the relevant forms for the participation in the contractual disclosure facility and making, what HMRC term, the outline disclosure (which is an overview of the tax issues).

In theory if someone accepts then HMRC will expect them to have a meeting with them to discuss matters further and that the individual will engage a professional advisor to do a full and detailed report of the tax irregularities. The importance of engaging a professional advisor who has experience of the Code of Practice 9 process is stressed in the leaflet by HMRC.
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COP9 investigation process

How the HMRC tax investigation is handled where Code of Practice 9 is present is most important, as if dealt with badly an individual can get a dramatic increase in penalties. Poor handling can also result in an individual having their name published on the HMRC website for tax fraud.

In theory when the report is submitted HMRC will test this and if they are happy with the contents of the report then the enquiry will be closed. In most instances, the individual will then be placed under HMRC's managing serious defaulters programme or a couple of years.

If the individual denies that they have committed tax irregularities then HMRC will in theory conduct their own investigation into matters and at stages when information is received or obtained by HMRC using their many powers, the individual will continue to be considered as a prosecution case. Thus, it is equally important that the individual seeks professional representation to make sure that HMRC only do what the letter of the law allows and works with the individual to show their innocence to HMRC. It is probably more difficult to prove innocence than deal with matters where the individual has committed tax fraud.

This is because HMRC have decided that the individual has already committed tax fraud and therefore, although it says in Code of Practice 9 that the HMRC officer will keep an open mind, in many cases it is unfortunately shut.
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Code of Practice 9 cases

Cases where Code of Practice 9 are issued are supposed to be built up with significant intelligence and review. Given the wealth of digital information now available to HMRC it would appear that HMRC now treat the information as gospel and true when it can often be flawed or based on false assumptions.

HMRC also seem to be more and more of the opinion that supposition is evidence and make wild claims without any supporting hard evidence.

In over 30 years of dealing with Code of Practice 9 investigations we have only had one denial up to the last 12 months. In the last 12 months, we have had 6 individuals we are representing where they have all denied that they have done anything deliberately wrong with regards to their tax affairs.

This compares with 3 where they have admitted that they knew that their tax affairs were not in order.

It should be stressed that HMRC only issue Code of Practice 9 where they believe that there is serious tax fraud (both in terms of the offence and the amount). It can be issued for any tax but only to an individual, but it covers any companies the individual has been involved in. It is vitally important that anyone who receives a Code of Practice 9 letter immediately seeks assistance from people who have experience of dealing with these matters.

"What should I do?"

• Don't panic. Provided a COP9 is dealt with properly from the start it is a manageable process whether you accept that there is something wrong with your tax affairs or believe that you are completely innocent of the allegations made.
• Take action. Decisions on the best option, whether to accept or deny the HMRC allegations and, if relevant, making the outline disclosure to HMRC need to be undertaken within 60 days of receipt of Code of Practice 9.
• Take Advice from a specialist.  Code of Practice 9 suggests that specialist advice is taken and this is something that we agree with HMRC on.  
• Make sure you find an advisor who not only has the relevant experience but that you get along with as a person too. Whether an acceptance or denial this is an intrusive process and you have to be sure the advisor has got your back.
• If someone tells you that if you do not go with them you will go to prison then run a mile.  It is the advisors job to explain how to get through the process and calm any concerns, not to stoke fear up just to make a sale.

Accepting COP 9

• The outline disclosure is just that; a brief outline of the key facts.  A good advisor will be able to succinctly summarise anything you tell them.
• Once your initial disclosure is submitted HMRC will check what you have stated in the outline disclosure information HMRC holds.
• If the inspector is satisfied that you have disclosed all material tax issues you will be notified of this in writing and HMRC will usually request a meeting.
• If HMRC is unable to accept your initial disclosure usually they will state this in writing. If the inspector is unable to accept your disclosure HMRC will generally want to start their own investigations (on either a civil or criminal basis).
• Assuming the outline disclosure is accepted, HMRC will want to meet and it is generally best to have a meeting.  To get the most out of the meeting and to ensure that facts are clearly presented most good advisors will spend a few hours with you to prepare you thoroughly making you aware of the wording HMRC will use (it is a very prescribed format which follows a standard brief) and helping you put some meat on the bones of the outline disclosure.
• The next stage is for your advisor to prepare a disclosure report. The report should include details of the irregularities, the amounts involved and provide sufficient information to enable HMRC to understand the work done and the reasons for any conclusions.
• During the report preparation a good advisor will keep in touch with HMRC and if there are any contentions points or areas of ambiguity then these can be openly discussed to ensure that when the report is received there are no surprises to HMRC.  This usually means that the report gets accepted quicker and without too much scrutiny.
• HMRC will then if they require test the report.  This is where having an experienced advisor really helps as if HMRC are aware of them and the way that they work and a proper detailed disclosure report is provided they are less likely to spend days revisiting each and every point as they generally trust the work of the (usually more experienced) specialist.

Denying COP 9

• Not everyone who is accused of tax fraud and offered COP 9 by HMRC has done something wrong.  If you do not think you have done anything wrong it is even more important to discuss matters with a professional advisor.  
• HMRC will conduct the enquiry themselves. Often HMRC will say that if someone has nothing to hide then they should not be afraid to provide bank statements etc.  It is our view that if HMRC are not legally entitled to the information then in most cases it should not be supplied.
• Always remember that no matter what they say if HMRC have issued COP 9 then they think you are guilty of tax fraud.

It cannot be stressed enough that advice should be taken from people who have extensive experience in dealing with COP 9 both acceptance and denial cases.  If you find yourself subject to a COP 9 find an advisor you like who has the right experience.  It may seem costly but they can save you in tax, interest and penalties as well as piece of mind.