Code of Practice 9 Investigation: What you need to know
Whether you’re a small business or large corporation, finding out there is a Code of Practice 9 investigation into your tax affairs can be frightening. While it sounds quite innocuous on the surface, what it means is that the HMRC suspect you have committed fraud with respect to your tax return and are going to investigate it. Code of Practice 9 gives you an opportunity to get out of this difficult situation without having criminal charges brought against you.
What is a Code of Practice 9 Investigation?
If you have been given notice of a COP 9 investigation, alarm bells should immediately start ringing. The last thing you should do is ignore it and hope it goes away. HMRC don’t undertake this kind of operation without being reasonably sure they have a case – it takes time and money to investigate such things as we all know. They also don’t open a Code of Practice 9 investigation unless they can get back a relatively large amount of cash, usually over £75,000.
When HMRC launch this kind of investigation, the process includes looking back over the last 21 years of your businesses’ financial and tax affairs, all of which will be examined in minute detail. If you have something to hide, therefore, it’s in your best interest to cooperate.
While this is initially a civil action, failure to be honest with HMRC can result in criminal prosecution if they find out you are still trying to hide nefarious activities.
How Does it Work?
If there is an issue with your tax return, you will be given a notice that HMRC believes you have not made a full and frank disclosure. The purpose of the Code of Practice 9 notice is to give you the opportunity to come clean about any irregularities, set the record straight and make a payment of the tax that you owe including any penalties.
The Code of Practice 9 points to what is called deliberate conduct, which means you have undertaken certain measures to reduce the amount of tax you pay in a fraudulent manner. In other words, you knew what you were doing was wrong but did it all the same.
During any COP 9 investigation, the onus is on you to provide the information that HMRC are looking for and you need to give a full and honest account of what went on and which activities you were responsible for.
Key Points About the Code of Practice 9 Investigation
- HMRC can take the option to carry out a criminal investigation but the COP 9 offers an easier route to coming clean with investigators.
- You are issued a formal notice and then have 60 days in which to reply.
- You will be given the chance of a contractual arrangement with the HMRC. This is called a Contractual Disclosure Facility (CDF).
- As long as you comply with the CDF, you can expect a reduced penalty and may avoid other sanctions such as going into insolvency.
- If you provide full disclosure, you will not be subject to any criminal charges.
The Investigation Process
In the normal run of things, a business will submit its tax return for the previous year and then pay the amount owing. At this point, HMRC may review your tax return and, if they have information that suggests you have committed fraud, they will initiate a Code of Practice 9 Investigation.
They are not under any obligation to tell you the exact reasons why they have decided on this action. You have the opportunity to provide full disclosure – in other words, HMRC want you to tell them everything.
Of course, there may be an entirely innocent reason why you have failed to disclose certain matters and HMRC are there to keep an open mind about this. You have two options, however, once you receive notice of a Code of Practice 9 investigation. The first is to cooperate and disclose everything to do with the tax affairs of your business. The second is to fail to cooperate. The latter is by far the worst thing you can do.
HMRC will move on with their investigation without your help. This route can also lead to criminal prosecution because you have failed to fully disclose everything. It also means that HMRC can charge much higher penalties if their suspicions about your fraudulent activity are finally confirmed.
What Should You Do?
The temptation when you first receive a Code of Practice 9 notice is to panic. Even if you don’t feel that you’ve been engaged in fraudulent activity, the key here is to cooperate as much as possible and make sure you disclose everything.
You will need to get the help of a tax specialist or advisor if you are not sure where the problem is with your return and it isn’t clear cut.
The CDF involves you producing a full disclosure report which HMRC can then use to determine how they want to proceed. This will need to be signed by you at the end and, for all intents and purposes, is a legal document. You need to get it right first time which is why expert help is essential.
Your disclosure report should include:
- A short history of your business.
- A full outline of any irregularities and when and how these were implemented. That includes everything that you did intentionally and anything that may have been accidental. HMRC what to know how you did it, what you did, whether anyone else was involved and how it benefited you.
- How much each irregularity was for and details of how you came to these figures, demonstrating that you have made every effort not to miss anything out.
- The CDF should include everything due to HMRC including penalties, tax and duties and any interest.
- You need to provide details of global assets and any liabilities as well as certificates of bank accounts and credit cards, for example.
Because of the nature of the report, HMRC always make it clear that it’s best to hire a professional who can guide you through the entire process. They will be able to ensure that nothing is left out and a full disclosure is made. You will also need to provide assurances that your fraudulent behaviour is going to change in the future.
If you have been given the offer of a Contractual Disclosure Facility or CDF, it is vital that you take that opportunity as it is basically an agreement that HMRC will waive their right to take you to criminal court for full disclosure and payment, including any penalties that might be due. Ignoring a Code of Practice 9 investigation is tantamount to saying you want HMRC to take the alternative route of prosecuting you fully under the law.
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