Code Of Practice 9 (COP9) Tax Investigations - FAQ

What is the Contractual Disclosure Facility?

At the opening of a COP9 tax investigation, you are issued with the Contractual Disclosure Facility offer, otherwise known as CDF. The CDF offer gives you the chance to disclose any loss of tax to HMRC that has been brought about by your deliberate conduct and gives you 60 days to accept or reject the offer.

Should I accept the CDF offer?

If you accept, you will receive immunity from criminal investigation and/or prosecution, in return for:

• An admission of deliberate behaviour
• Full disclosure of all omissions, errors or irregularities
• Full cooperation with HMRC, which includes personally attending meetings that HMRC may request, retaining relevant records and documentation. 
• Repay any liabilities owed within a defined period. 

You only receive immunity for what you disclose. HMRC FIS will not advise you of the risks they identified that led them to opening the COP9 investigation. If you disclose only a proportion of the tax irregularities committed, the  undisclosed irregularities remain unprotected and you run the risk of HMRC discovering you made a false or incomplete disclosure.

By accepting the CDF offer, you are admitting to having committed fraud which will lead to higher financial penalties than in non-deliberate inaccuracy cases. Therefore, it is imperative that you did in fact act deliberately under HMRC’s behaviour guidelines.

Just because HMRC FIS has started a COP9 investigation and issued a CDF offer, it does not mean you should, or have to, accept the CDF offer. Many non-specialist advisers wrongly convince clients to accept the CDF offer and disclose all irregularities as deliberate even when the behaviour is in fact non-deliberate.

The distinction between deliberate and non-deliberate irregularities can be complex. At Buzzacott, we view each case on its own merits and facts. We have never had a case where HMRC FIS has shown that our client’s rejection of the CDF offer was wrong. We have not had a case where we have viewed irregularities as arising from non-deliberate behaviour and HMRC has shown it to be deliberate behaviour, even in cases where our client has accepted the CDF offer due to some, but not all, deliberate behaviour. We are also sometimes approached, most unfortunately, by people who were advised to accept the CDF offer by their previous adviser when in fact they should have rejected it. We would always advise seeking professional advice prior to making a decision of accepting or rejecting the CDF offer.

How do I accept the CDF offer?

The CDF offer is accepted by returning the acceptance form sent by HMRC, together with a completed form CDF5 or ‘Outline Disclosure’. The Outline Disclosure must contain reference to every irregularity within your tax affairs that has arisen through your deliberate behaviour. Anything not included in this document may not be covered by the grant of immunity from prosecution. This will, therefore, take some time to produce and HMRC will confirm in due course if your disclosure is valid or not so it is important to appoint representation as soon as possible. 

At Buzzacott, all Outline Disclosures for our clients have been accepted by HMRC as being valid.

What happens if I accept the CDF offer?

Accepting the CDF offer will set the CDF process in motion. Initially, the case needs to be classified as ‘simple’ or ‘complex’, with the latter category requiring more detailed work. This may entail multiple meetings with HMRC, especially if you do not have specialist representation, and will end with the submission of a full report on your tax affairs, covering up to 20 years. and focusing specifically on your deliberate behaviour. HMRC will then review the report and either accept it as a complete disclosure or raise queries.

Once HMRC accepts the disclosure as complete, penalties will be levied. The penalty range for deliberate behaviour, whereby the disclosure was prompted by HMRC action, is between 35% and 100% of the unpaid tax. The final levy is all dependent on the level of cooperation and the quality of your disclosure.  Although representations can be made to challenge the level of penalty should it be above the minimum.

It is important to note that should the disclosure be managed poorly, it can lead to higher penalties and possibly still result in a criminal investigation and/or prosecution given HMRC has the right to withdraw immunity under certain circumstances. 

At Buzzacott, we decide if our clients’ attendance at a meeting with HMRC is necessary and in their interests and we have outstanding success at securing our clients the lowest possible financial penalties.

Should I reject the CDF offer?

You should only reject the CDF offer, and deny tax fraud, if you genuinely believe that you have not deliberately filed an inaccurate return or deliberately failed to file a return altogether. Determining whether something has been done deliberately or carelessly is not always as simple as it sounds. Given the seriousness of the decision, and the potential ramifications, it is essential that you obtain specialist advice to assist you in your decision. If HMRC FIS believes you have committed serious fraud, it needs to be persuaded otherwise and specialist representation is key here.

What happens if I reject the CDF offer?

HMRC FIS will either start a more detailed investigation, or accept your rejection and issue a confirmation that it no longer suspects you of fraud. However, in cases where a disclosure is required for non-deliberate irregularities and a full disclosure is not made, HMRC FIS will almost certainly pursue their investigation. What constitutes a full disclosure will depend on relevant time limits.

If HMRC FIS still believes a disclosure of deliberate irregularities should have been made with an acceptance of the CDF offer, HMRC FIS may commence a criminal investigation with a view to prosecution.

What happens if I do nothing?

If HMRC FIS receives neither acceptance nor rejection, they will continue to investigate your tax affairs, which could lead to criminal prosecution. Even if HMRC FIS does not pursue such a prosecution, any penalties they levy under the civil regime will be much higher due to the failure to cooperate.

Do I need specialist professional representation?

At the outset of a COP9 tax investigation, HMRC FIS will not share or divulge the evidence it holds that supports its suspicion of fraud. This makes it difficult for non-specialist agents to advise their clients as to whether they should accept or reject the CDF offer. Therefore, specialist advice about the potential consequences of accepting or rejecting the CDF offer is imperative. Furthermore, HMRC FIS may also require a meeting with you. Without adequate representation, these can become confrontational and extremely stressful.

Should you be placed under COP9 tax investigation, HMRC’s published view is as follows: “You are strongly recommended to seek specialist independent professional advice…many people find it helpful to appoint a specialist adviser who is familiar with the Code of Practice, in addition to their regular advisor.”

Tax investigation specialists, such as ourselves, who have been provided with full details of your affairs can guide you around potential pitfalls to ensure you are best protected. They will also allow you to get ahead of any accusations by HMRC, and should reduce the overall cost of any investigation.

Can I go to prison?

As a result of the current political climate, HMRC is under pressure to increase the number of criminal prosecutions it undertakes and the use of its ‘naming and shaming’ powers. Tax fraud is a serious crime and does carry the potential for a custodial sentence. 

That being said, one of the benefits of accepting the CDF offer for deliberate irregularities is that HMRC guarantees immunity from prosecution, provided a full and accurate disclosure is made. Engaging specialist advisers is the first step to ensure criminal prosecution, and the threat of prison time, is avoided. 

What penalties are involved?

HMRC says people who take reasonable care when completing their returns will not be penalised, but that careless or deliberate irregularities will attract penalties. For deliberate irregularities whereby the disclosure was prompted by HMRC action for onshore non-compliance and offshore non-compliance, you may face penalties of a minimum of 35% and potentially 150% respectively. These penalties will be levied as a percentage of the unpaid tax and will vary according to the culpability of the taxpayer and the degree of their cooperation.

Our expertise ensures that penalties are considered from the outset, allowing us to work towards the lowest penalty that can reasonably be applied. Penalties for careless irregularities can be suspended.

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