In cases where HMRC believes there are errors or irregularities in your tax affairs, HMRC may open an investigation under Code of Practice 9 (COP9).
Anyone who receives a COP9 letter is given the opportunity by HMRC to fully disclose to them details of all their deliberate and non-deliberate conduct that has led to errors and/or irregularities in their tax affairs.
In any cases where HMRC suspects that a full and detailed disclosure has not been made, they may commence a criminal investigation that can lead to prosecution.
If an individual accepts HMRC’s offer to make a full and detailed disclosure of all their deliberate and non-deliberate conduct they would need to do so under a contractual arrangement called a Contractual Disclosure Facility (CDF) which was introduced on 31 January 2012.
Under the CDF an individual is given 60 days by HMRC in which to decide whether they wish to admit to committing tax fraud and disclose any loss of tax that has been caused by their deliberate behaviour, or to reject the offer.
If the individual decides to admit to tax fraud, they will need to complete the following two stages:
It is extremely important that the individual makes a full and complete disclosure, as only those irregularities included in the Outline Disclosure will be immune from potential prosecution.
If only a partial disclosure is made, then the individual runs the real risk that HMRC will commence a criminal investigation into any suspected tax fraud.
An individual can if they so choose make a voluntary disclosure to HMRC using the CDF and if HMRC decides to accept the disclosure then HMRC will want to discuss the irregularities and why they arose, agree timescales for information to be provided and if deemed necessary request that a disclosure report is completed.
If an individual receives a COP9 letter but does not accept that any tax loss that may have arisen was brought about by their deliberate behaviour, then they are perfectly entitled to sign and return the CDF rejection letter.
On receipt of the CDF rejection letter, HMRC will commence its own investigation into the individual’s tax affairs and this could be in the form of a criminal investigation. HMRC can also use the rejection letter as evidence in any court or tribunal proceedings that they undertake.
If a penalty is charged by HMRC for a deliberate error then they at their discretion may decide to monitor/review the individuals tax affairs going forward more closely under the managing serious defaulters regime. This monitoring process can last between 2 to 5 years and as part of the process HMRC can make announced and unannounced visits to your business and carry out checks into your tax affairs.
HMRC may also decide to publish the details of the individual who has committed tax fraud.
If following their investigation, HMRC decides that tax has been lost and that there are further liabilities to pay, then it will use formal powers and raise tax assessments to recover the tax lost, they will also look to charge interest and penalties on any additional liabilities.
Penalties in these type of cases can be charged in amounts up to 200% of the tax lost, however, these can be mitigated/reduced by HMRC based on the behaviours of the individual during the investigation.
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