Receiving a COP9 investigation letter from HMRC's Fraud Investigation Service can be a daunting experience, signalling that HMRC suspects deliberate tax underpayment by you or your business. This letter indicates that HMRC has initiated a civil investigation under the Contractual Disclosure Facility (CDF), a process offering immunity from criminal prosecution in exchange for full disclosure and cooperation. It's crucial to understand that the information leading to this investigation might stem from various sources and might not always be accurate.
Navigating a COP9 investigation requires prompt professional advice to mitigate risks and ensure a fair resolution. This article provides guidance on the nature of COP9, the steps involved in the investigation process, and the importance of seeking expert guidance when faced with such serious tax matters.
Why have I received a COP9 investigation letter?
If you have received a letter from HMRC Fraud Investigation Service informing you that they have opened a COP9 investigation into your tax affairs and offering you the terms of the CDF, it is because HMRC have information that leads them to have a strong suspicion that you and / or businesses under your control have deliberately underpaid tax.
HMRC's information might not necessarily be correct. It could have come from multiple sources – for instance, allegations about unpaid tax made in Court in divorce or other family or commercial dispute hearings, from a disgruntled ex-employee, customer or supplier or from a foreign tax authority.
What is COP9 / Contractual Disclosure Facility ("CDF")?
COP9 is HMRC's longstanding process for the civil investigation of people suspected of having committed tax fraud / deliberate wrongdoing – together with any businesses controlled by them as appropriate. HMRC open over 500 new COP9 investigations a year.
In its current form, COP9 is offered with a contractual agreement that if the taxpayer accepts and fully complies with its terms, the taxpayer will not be subject to criminal prosecution – this is called the Contractual Disclosure Facility ("CDF").
In cases of deliberate wrongdoing, HMRC can go back up to 20 years to assess and collect any unpaid taxes, as well as late payment interest and tax geared penalties thereon. Depending upon the final amount of tax involved and the quality of the disclosure, individuals may also have their details published on HMRC's website as deliberate tax defaulters – so-called "naming and shaming".
What should I do if I receive a COP9 / CDF investigation letter?
Seek urgent professional advice before responding to HMRC.
Failure to correctly engage with HMRC's civil investigation process could instead result in a criminal investigation or might broaden the scope and duration of a civil investigation and compromise its outcome.
Stages of the COP9 / CDF process
COP9 / CDF investigations follow an obligatory format:
- Initial "Outline Disclosure" – this must be made within 60 days of the date of the opening COP9 investigation letter offering the terms of the CDF, and must make an initial admission of any deliberate wrongdoing that the individual wishes to disclose with the CDF guarantee of non-prosecution – any omissions can later result in the withdrawal of the CDF terms and the possibility of criminal prosecution. Pending receipt of the Outline Disclosure, HMRC will enter into no dialogue that might indicate the nature of their suspicions. In the absence of any deliberate matters to disclose, the individual can reject the offer to enter the CDF but should instead offer full cooperation. HMRC take a very dim view of taxpayers who make an initial admission of deliberate wrongdoing to get a guarantee of non-prosecution and then seek to withdraw the admission later in the process.
- Initial interview – HMRC will normally insist on meeting and interviewing the individual in person. That meeting is not conducted under caution – hence the guarantee of non-prosecution – but should still only be attended with professional advisors. Detailed notes are prepared by HMRC of the meeting and are subsequently agreed with the advisors who attend the meeting.
- Scoping meeting – at this meeting, HMRC and the advisors will reconvene to discuss the full scope of HMRC's concerns, and the information and verification work required to address those concerns.
- Disclosure report – this report is prepared by the advisors consistent with the outcome of the scoping meeting. The report will set out the full relevant background, the advisors' technical conclusions about the relevant tax treatments and the "behaviours" involved, and compute any outstanding tax and late payment interest based on those conclusions.
- Testing the disclosure and negotiations – upon review of the disclosure report, HMRC are likely to seek some further information to test the conclusions therein. HMRC may also seek to challenge some of the advisors' technical conclusions or any assumptions made to address any areas where full information could not be obtained. The advisors will negotiate with HMRC to agree the basis of a reasonable settlement.
- Penalties – tax geared penalties are discussed with the advisors and agreed based on the behaviours established during the course of the investigation, and the quality of the disclosure made under so-called "telling, helping, giving" criteria. The level of penalties for an investigation initiated by HMRC involving UK tax matters where deliberate behaviour is established can be anywhere between a minimum of 35% and a maximum of 100%. If offshore related, the potential deliberate behaviour penalties can be up to twice as high depending on the category of jurisdictions involved.
- Contract settlement – a COP9 investigation will be concluded with a contract settlement – a Letter of Offer made by the taxpayer on the basis agreed and a formal letter of acceptance.
- Possible publishing of details as a deliberate defaulter – if the relevant criteria are met.
Can I make a voluntary COP9 / CDF disclosure?
Yes, and in some circumstances that might be advisable – if you have made a deliberate omission to disclose to HMRC and require the CDF guarantee of non-prosecution subject to full disclosure. That guarantee is not offered by HMRC with other forms of voluntary disclosure. Additionally, at 20%, the minimum deliberate behaviour penalties are lower than for an investigation initiated by HMRC.
However, you should not enter into a voluntary CDF disclosure lightly or without professional advice as you will need to make an upfront admission of deliberate wrongdoing in the Outline Disclosure.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.