HMRC Fraud Investigation Service – Code of Practice 8

If HMRC believe that an individual, partnership or company has significantly underpaid the amount of tax that they should owe, the Fraud Investigation Service (FIS) may decide to investigate.

The purpose and undertakings of these investigations are described in the FIS’ Code of Practice 8 (COP 8)document.

What is Code of Practice 8?

Code of Practice 8 allows the FIS to begin investigations regardless of whether any tax avoidance claims have been raised against the suspected perpetrator. Tax affairs are kept under the strictest confidence and may involve looking through tax returns or other tax documentation.

During an investigation, the FIS may require face-to-face meetings with the person or business. Legal representation may be sought, whether that be from an accountant or legal practitioner (or both). The FIS have the right to visit business premises to access company records and look for physical evidence of fraud.

If omissions are discovered then they will need to be paid, plus interest and penalties. If the omission was found to be purposeful, perhaps by way of a tax avoidance scheme, the penalty can range from an additional 15-100% of the underpaid tax amount. Inadvertent or accidentals mistakes usually have lesser penalties.

If you are found to have done nothing wrong, you will be informed that the investigation has been completed and no further action will be taken. You may be susceptible for repeat investigations in subsequent years if further suspicious tax data is received.

What does Code of Practice 8 mean for individuals?

From an individual’s point of view, if you are faced with an investigation under Code of Practice 8 then you should always comply with what is being requested of you. It is highly recommended that you liaise closely with your accountant to answer all HMRCs questions in an accurate, timely manner.

An investigation can be very costly due to the additional cost of accountants and legal representation but also in terms of the time you may be required to take away from your business. Some types of business insurance can help to minimise this cost or entitle you to claim relevant expenses back through the insurance company once an investigation has been completed.

If you are worried about getting in to trouble because of a slight mismatch on your tax return, you probably don’t need to worry about this piece of legislation. Code of Practice 8 investigations are usually only started if the suspected avoidance is at least £500,000 due to the amount of time and resources it takes to compete them.

What does Code of Practice 8 mean for accountants?

If one of your clients is undergoing an investigation, you may be required to submit evidence on their behalf. This might include creating reports of income and expenditure and comparing this to the relevant year’s tax returns.

You may be required to help negotiate final settlements and time to pay, as well as dealing with requests for information. If you are hired by a client to help with their investigation but you have not previously worked with them, you may have to liaise with their previous accountancy firm to ascertain the issues with their taxation documents.

Civil investigations into tax liability and fraud are a major part of the FIS’ duty and should be taken seriously. Whether you are an individual or an accountant, Code of Practice 8 investigations can be lengthy, expensive and complicated. Understanding the worst-case scenario can often be the best way to approach an investigation – if only so that you can stop it from getting to that stage.

If you have received a letter from HMRC regarding COP 8 please contact The Accountancy Solutions on 01216297768 or 02070784001 for further advice. We are accountants specialist in conducting and negotiating inquiries and investigations with HMRC.