WHEN A CLIENT receives notification that they are going to be the subject of a Code of Practice 9 investigation, it can be the beginning of an extremely stressful and daunting time.
Inevitably some cases will be more straightforward than others, but the process is such that they will certainly need assistance from an experienced and trusted adviser, and I am currently supporting a client through the early stages of the procedure.
Put simply, Code of Practice 9 (or COP9) is a process whereby HM Revenue & Customs (HMRC) will investigate situations where they suspect that serious tax fraud may have occurred.
It signals the beginning of a full and detailed investigation of an individual’s personal and business affairs, covering both direct taxes including income taxes, corporation tax, capital gains tax, National Insurance contributions, and indirect taxes including Value Added Tax and Excise and Customs duties. The investigation will typically be conducted by either Specialist Investigations for larger cases, or Civil Investigation of Fraud teams.
HMRC will only contact individuals for a Code of Practice 9 when they have reasonable grounds to suspect there are irregularities in their tax affairs. However, at this early stage they will not reveal what those grounds are, in order to give the individual the opportunity to make a full and complete disclosure of their tax affairs. The level of mystery results in a really stressful situation for the recipient, and in the case I am currently working on, my client was clearly in need of reassurance for the emotional strain, as well as more technical advice.
The individual in question does not actually need to respond at this point, but the fact is that the investigation will proceed with our without their voluntary co-operation, and I would certainly advise my clients that once they have grasped the situation, they should cooperate as fully as possible in order for the process to run quickly, efficiently and to increase the chances of a more satisfactory outcome for all parties.
It is important to note that Code of Practice 9 is a civil, rather than a criminal process, and once a case has been selected for COP9, a taxpayer has a guarantee against criminal prosecution for tax offences already committed. Through COP9, HMRC is working towards a civil settlement of tax, penalties and interest, but if materially false statements and documents are provided with intent to deceive during the civil investigation, HMRC may then pursue a criminal investigation.
In the case that I am currently working on, the client asked me to accompany them to a formal opening meeting. We arrived at the revenue offices and were escorted upstairs to an official meeting room. Here, the representatives of the HMRC talked the client through the proceedings and what to expect over the coming months, and while they were friendly and professional, the atmosphere was inevitably an intimidating one for the client, despite reassurances.
Then followed a formal challenge meeting, where the client was asked a series of questions regarding tax returns that were suspected to be incorrect. The communication and language used by the HMRC is clearly very precise and deliberate, but for some clients the combination of technical terms and pressured situation can be overwhelming, so I always take the time to go back over exactly what has been said.
The process is actually quite straight forward, and it is often the confusion and misunderstanding that mount up to make it so stressful for clients.
Following these meetings, I am now working with the client on a full disclosure report for the HMRC. This is a comprehensive report delving deep into what is effectively the tax history of their entire business lifetime, looking back over the last 20 years. The report includes a brief summary of their personal, employment and business history, including a statement of personal assets and liabilities such as details of bank and building society accounts, credit cards, as well as full explanations for any time spent abroad. It is a huge amount of information, and even attempting to remember exact details from 20 years ago is certainly a challenge in itself!
In addition to the case background, we are also working collaboratively with the client on an explanation of the nature and extent of the irregularities that have occurred. It is an important part of the process, providing supporting documentation and a detailed schedule of irregularities for each year in question, and is likely to take around 6 months to complete.
Due to its nature, the Code of Practice 9 process is one that does not arise very frequently, but it requires a large amount of time, thorough attention to detail and a level of technical and emotional support for clients that should not be underestimated.
It is clearly a necessary process in order to resolve situations where problems of tax fraud are suspected, and as an advisor I am playing a key role, working hard to achieve an outcome that is as satisfactory as possible for both my client and the HMRC.
Anita Brook is an ACCA-qualified accountant, chair of UK National Practitioners Network Panel at ACCA and the founder of Accounts Assist
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