Here we look at what a COP9 is, when HMRC will use it, and what it means to those who have been offered it.
What is COP9 and when is it used?
In many cases where HMRC suspect fraud, they carry out criminal investigations with a view to prosecuting the offender. However, in cases where a criminal investigation is not suitable or commenced, HMRC may investigate suspected cases of fraud using the COP9 investigation of fraud procedure.
The offer of COP9 will be made where HMRC have information that gives rise to a suspicion of tax fraud having been committed. HMRC will not state what their suspicions are, and it is for the recipient to decide whether to tell HMRC about deliberate behaviour and any other tax or duty irregularities by making a disclosure.
What happens when HMRC use COP9?
Under the civil investigation of fraud procedure, the recipient of a COP9 is given the opportunity to make a complete, accurate, open and honest disclosure of:
- all their deliberate behaviour that brought about the loss of tax or duty, or payment administered by HMRC, known as the “deliberate behaviour”; and
- all other irregularities in their tax affairs. This is not just limited to those irregularities as a result of the deliberate behaviour, but also from non-deliberate behaviour, such as careless errors and errors made despite taking reasonable care.
The definition of 'deliberate behaviour’ has been defined in the COP9 procedure as:
- a person who submitted documents to HMRC containing information that they knew was incorrect; and/or
- they did not tell HMRC at the right time about information that they knew was relevant to a liability to tax or duty; and/or
- they made a claim for a payment from HMRC to which they knew they were not entitled.
If the reciepent agrees to the COP9, HMRC will enter a Contractual Disclosure Facility (CDF) whereby the recipient commits to make a complete, accurate, open and honest disclosure of all deliberate behaviour and all other irregularities in their tax affairs, and in return HMRC commits not to open a criminal investigation.
However the underlying caveat set out in the new guidanceis that HMRC reserve complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate. For example, if the recipient makes materially false or misleading statement or provides materially false documents during the investigation, HMRC reserve the right to commence a criminal investigation into the tax fraud and whether such behaviour involved the commission of separate criminal offences, such as perverting the course of public justice.
The recipient will have 60 days from the date the offer is received to accept it or reject it, and if no response is sent back to HMRC, it is deemed rejected.
If the recipient decides not to cooperate with HMRC, HMRC can:
- commence an investigation which may ultimately be a criminal one;
- use powers to obtain information about the recipient's financial and business affairs, including from appropriate third parties, such as banks, customers and suppliers;
- take formal action, including raising assessments for any tax, duty and interest that they consider is due as a result of the tax evasion;
- charge significantly higher personal penalties;
- commence legal proceedings to secure the recipients assets; and
- require financial security from the recipient against unpaid tax and duty.
Although HMRC will contract with the recipient not to prosecute them for the evasion of tax, any information supplied to HMRC during the process may be passed on to a relevant authorities in appropriate circumstances for their consideration.
The effect of entering into a COP9/CDF is that the recipient will have to admit that there is a loss of tax, duty, or a payment has been administered by HMRC because of their deliberate behaviour. It is akin to an admission of guilt.
Furthermore, if the disclosure does not disclose all the frauds that HMRC suspect, they may commence a criminal investigation into the suspected frauds at any stage.
The recipient of a COP9 offer has to make a very careful decision as the offer is a notice that HMRC suspect the recipient of committing tax fraud or tax evasion. The COP9 offer is the most serious civil investigation utilised by HMRC and getting specialist advice when the offer is made is critical in managing the whole process and avoiding any criminal investigation and subsequent prosecution.