Serious HMRC tax investigations

Serious HMRC (civil) tax investigations

Introduction

At Pure Tax, our Tax Investigations specialists make it their mission to keep up-to-date with all the latest statistics and operational approaches being taken by HM Revenue & Customs (“HMRC”), for the benefit of our clients. Even a routine HMRC self-assessment enquiry can pile on the pressure for entrepreneurs and businesses, so serious tax investigations dig deeper and often rattle clients. The latter are in-depth and intrusive to say the least. Our team fully understand this and work hard to provide peace of mind to our clients, acting as a trusted ‘buffer’ between them and HMRC.

I lead our Tax Investigations & Disputes practice; a fully trained and qualified former senior Inspector of Taxes with HMRC, and who regularly writes articles for leading publications regarding HMRC and the tax disputes world. After over a decade there, I left for the private sector in early 2015 to use my extensive tax investigations and disputes resolution experience; am definitely not a bookkeeper nor an accountant… our focus is on finding the light at the end of the tunnel.

The background?

It goes without say that HMRC investigations carried out under their Codes of Practice 8 and 9 are emotionally intensive and resource hungry. Without careful and experienced handling a client’s interests cannot be fully protected and the formal processes managed with more certainty. HMRC are looking for lost taxes, interest for the late payment of those taxes, and typically large penalties e.g. failing to submit correct tax returns or failing to notify HMRC that taxes were payable. In addition to this, HMRC usually seek to name and shame clients publicly – their non-financial weapon.

The two serious civil tax investigations

COP9 introduction

A civil investigation under Code of Practice 9 (COP9)?is into suspected tax fraud, where recipients of such investigation notices are challenged with having acted with deliberate/fraudulent/dishonest intent. They are then given an opportunity to admit tax fraud at the outset (at high-level, within 60 days) as part of then being able to voluntarily disclose the full details thereafter. They must disclose all the background and history of their dealings i.e. the what, why and how, compute the taxes payable, the late payment statutory interest thereon and penalties payable thereon, and all at their own cost.

HMRC’s COP9 framework requires people and businesses to commission suitably comprehensive disclosure reports, usually prepared by seasoned tax investigations specialists, instead of lengthy, in-depth and intrusive investigations from HMRC via correspondence and meetings, which can of course run on for many years.

The key takeaways here are that by meeting the qualifying criteria, full protection from a criminal tax investigation is secured, and the avoidable ‘investigation’ becomes a much more manageable ‘disclosure’ instead.

COP8 introduction

A civil investigation under Code of Practice 8 (COP8)?examines large amounts of tax which are considered to be at stake?but not necessarily due to tax fraud/evasion. These are usually reserved for cases of mass-marketed avoidance schemes and bespoke tax planning too that’s aggressive. HMRC will have identified potential historic tax losses (as a result of uncovering new information, or is hoping to).

It may also be the case that HMRC are acting on intelligence received (e.g. from unhappy family members, (ex) business partners, domestic or foreign banks). These investigations also typically span numerous personal tax years and/or corporate accounting periods for businesses.

It is rare but not impossible for a COP8 investigation to change into a COP9 one.

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COP9 and COP8 investigations are carried out exclusively by HMRC’s Fraud Investigation Service (FIS), formerly known as Specialist Investigations (and many other names in the past). These are non-routine civil interventions, with a view to financial recovery (as opposed to Criminal Investigations where the ultimate objective is a prosecution and likely confiscation action). By non-routine I mean- the investigators are not easily deflected by statutory enquiry windows having closed for certain periods/years and the returns.

·????????FIS investigators are often regarded as the ‘elite’ of HMRC inspectors due to the amounts of tax involved, the number of years and accounting periods involved, and typically the?number and calibre of professional advisers representing the individuals and businesses.?

·????????Only a few months ago HMRC advised there were some 4,994 (4,427 last year) full-time equivalent FIS staff. That was an increase of nearly 13% which I suspected was driven by the need to tackle high-end covid-19 related frauds e.g. furlough claims, and to generally prop up the Exchequer further.

·????????Certainly, one cannot expect to reply to these investigators once or twice to bring about swift conclusions like we usually do with routine enquiries. FIS investigations are much more involving, because HMRC invest significant time in preparation, carry out internal and sometimes third party checks in advance, and focus on far fewer (but larger) cases.

·????????There are comparatively much fewer specialist FIS investigators up and down the country, than the number of non-specialist inspectors (for example, those operating in other front-line directorates like Wealthy & Mid-sized Business Compliance (“WMBC”) and Individuals & Small Business Compliance (“ISBC”). These two directorates make up the vast majority of HMRC’s investigative personnel.

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COP9?Notices of Investigation understandably send shivers down the spines of recipients given the clear allegation of suspected tax fraud. Usually, if the person has not voluntarily sought out the COP9 process (to secure immunity from a criminal investigation and potential prosecution), then after exploratory conversations with and advice from their specialist advisers they accept HMRC’s offer: that they admit & confirm the tax fraud(s) at high-level and then commission a detailed report (at their own cost) to explain what happened, how, when and why… with whom, plus provide evidence and figures etc.

From my own experience in HMRC’s FIS and outside in practice, most people decide to make full disclosures to safeguard the civil investigation/disclosure status and lower penalty positions – which is what HMRC bank on!

COP8?Notices of Investigation are comparatively underrated, because HMRC don’t allege tax fraud at the outset, and don’t always explain what their focus is. But these are not routine enquiries; clients (and accountants) realise quite quickly that the investigators are looking at transactions / events concerning periods that are several years old and are confident in using formal Information Notices to gather the facts and evidence. They threaten and use penalties for failure to comply with Notices and approach third parties with less discourse too. They really put one to task!

It should be clear that COP9 and COP8 investigations have a completely different approach, but the FIS investigators are well equipped to identify and challenge ‘careless’ and ‘deliberate’ behaviour so as to confirm their reasoning for looking at older periods. They aren’t afraid to raise tax and penalty assessments if their investigations are resisted or delayed.

It follows that in a COP9 case, the client and their adviser:

·????????must take control by securing the disclosure process (where appropriate), that is, investigating matters in detail themselves and approaching third parties themselves, e.g. suppliers, customers, banks etc to gather facts & evidence.

·????????must manage HMRC’s expectations regarding timeframes for progress updates, the making of payments on account, and submission of the disclosure report and supporting work.

Conversely, in a COP8, HMRC are investigating from the outset, that is, they are asking the questions to confirm & test the risks they’ve identified. They will also identify & gather evidence to support their findings. From experience, I would say that a COP8 case is more difficult to manage due to the uncertainty in not always knowing what HMRC are thinking and doing and why, and their ability to investigate using third-parties directly – the outcome of which can result in reputational damage for clients.

Investigation statistics

An overview of COP9 and COP8 statistics obtained from HMRC, for the 2021-22 year:

COP9: 341 new investigations were opened; with 401 being settled; and some ￡140.3 million being recovered.

COP8: 176 new investigations were opened; with 279 being settled; and some ￡70.2 million being recovered.

Please read our latest article examining the fuller statistics and what the numbers could mean here .

How we can help?

We believe it’s in a client’s best interests to discuss these types of cases with an ‘independent specialist’ even if there are no discrepancies to disclose. The right help at the right time ensures that HMRC are effectively managed and investigations are concluded expeditiously.

Our team are experts at resolving contentious tax issues accurately and efficiently, and highly adept at managing our clients’ interactions with HMRC to ensure processes run smoothly and that our clients’ interests are best protected at all times.

We deliver that all-important and trusted ‘buffer’ between our client and HMRC during their in-depth and intrusive investigations, and in voluntary disclosures. This is something our clients, who have worked with us through these types of investigations, have truly appreciated.

Read some of their kind feedback?here .

Please do?get in?touch ?to learn more about me and our Tax Investigations and Disputes team and how we have successfully guided clients through the COP9 and COP8 investigation processes.