Tax evasion: Good cop, bad COP9

Tax evasion: Good cop, bad COP9

Offshore account holders who ignore HMRC’s amnesties face expensive grillings

The most robust demands yet are coming through the letterboxes of people
suspected of having secret offshore accounts, another sign that the taxman is
ratcheting up the pressure on offshore tax evasion.

HMRC only sends out such letters, known as COP9s, if they think the target is
involved in “serious tax fraud”, and gives those with overseas accounts one last
chance to avoid criminal prosecution by coming clean about their undeclared tax

COP9s have rarely been used since they came into force in 2005. But what
makes their use any more likely to succeed than any other previous fishing
expeditions by HMRC? What can people receiving COP9s expect to face?

Knowledge is power

The first point to consider is that HMRC is now starting to process the wall
of information that it forced 308 banks around the world to compile last year
alongside the Liechtenstein Disclosure Facility (LDF).

Simon Airey, director of tax investigations at law firm DLA Piper, and a
representative of the banks affected, said the taxman now has a much more
informed view of those with secret offshore accounts.

This is because the financial institutions are now handing over the glut of
information – collected on individuals, trusts and corporates going back six
years, including closed accounts, payments and transfers – to the taxman.

This has led to the rolling programme of letters going out according to
Airey. “It’s only a matter of time until [HMRC] whack people,” he said.

Those receiving COP9s will lose their right to use the LDF and its more
favourable terms, including lower penalties and the ability to limit undeclared
tax liabilities going back
to 1999.But this is the least of their problems.

Being hit with a COP9 means the taxpayer not only loses the right to come
forward voluntarily, but a train of events is set in motion which sees the onus
firmly placed on the taxpayer to prove they have not only come clean, but have
also not held anything back.

HMRC will demand that the person comes to a meeting before giving them one
last chance to make a full disclosure of all tax irregularities.

In this instance advisers should benefit by holding clients’ hands through
the process. The detail needed to satisfy the taxman that the account holder has
genuinely come clean is exhaustive.

This includes preparing a report detailing the nature, extent and reason for
those tax irregularities together with supporting evidence.

Frank Strachan, director of tax investigations at Grant Thornton, said: “This
is the equivalent of drinking in the last chance saloon. The [HMRC] bartender
slings you a beer down the bar and if you don’t catch it, you’re done. Account
holders will need expert help.”

Swiss offensive

UK depositors of HSBC Switzerland got a shock recently when a whistle­blower
handed over details of up to 1,500 UK-based cust­omers to HMRC.

Some of Strachan’s clients held HSBC Switzerland accounts, but took his
advice to use the LDF before the taxman began sifting through data from the

This culture of tax authorities paying for confidential information is
another reason why the COP9s have been – and will continue to be – rolled out.
The information is current and, therefore, more accurate, which gives HMRC more
certainty that tax may
be owed.

Tax agencies across the globe, including Germany, the US and the UK, have
made it clear that they are not only willing to pay for information, but they
are also willing to share it with each other, which will accelerate the number
of COP9s being issued.

There is one other factor that must be considered. There are a number of
people with offshore accounts who may be non-domiciled in the UK and therefore
spared from paying UK tax on their offshore profits.

Opinion is split among advisers about whether this has been taken into
consideration when issuing the COP9s.

Some say that non-doms will be mistakenly caught in the net, but others
believe that a certain level of sign-off is needed from senior HMRC individuals
for a COP9 to be endorsed.

HMRC would have factored this in before passing it on to the special
investigations team, based in Glasgow.

Even though the COP9s favour civil penalties, the legislation could still
spur the criminal investigations that have been promised after a series of
amnesties including the Offshore Disclosure Facility and the New Disclosure
Opportunity closed.

This is because HMRC has the right to pursue a criminal investigation with a
view to prosecution where they “consider it necessary and appropriate” during a


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