It used to be said that if an accountant saw one serious fraud tax enquiry in his career he would be unlucky! Times have sadly changed and a serious fraud enquiry is now commonplace due to the relentless pursuit of increased tax revenues by the government.

So what happens when a COP 9 notice is received?

First reaction is usually somewhere between concern and panic! These notices have a habit of being sent out by HMRC on a Friday so they arrive at the client’s home on a Saturday morning and the client can’t contact his accountant until Monday, giving the poor client a long and stressful weekend. Whether the timing in this way is intentional I do not know but it is certainly effective in putting the client under immediate (and sometimes unnecessary) pressure.

COP 9 incidentally is Code of Practice 9 – a 10 page document explaining how HMRC investigate serious tax fraud and outlining to the taxpayer what his rights are and how he can minimise the damage by making full disclosure and cooperating with the enquiry.

There is no right of appeal against a COP 9 notice and indeed it is not desirable to appeal! The issue of this notice offers immunity from prosecution provided a full disclosure is made by the taxpayer and the COP 9 notice is therefore an extremely valuable and desirable thing to have in that regard. If COP 9 is not adopted then HMRC is likely to investigate suspected serious fraud with a view to prosecution which would in all likelihood result in a custodial sentence if the taxpayer was found guilty. The receipt of a COP 9 notice is therefore preferable if not exactly welcome!

So the COP 9 notice is received – what then? The client will no doubt contact his accountant on the same day (the accountant will normally receive a copy of the notice direct from HMRC) and it is advisable to arrange an immediate meeting with the client to reassure him and most importantly to find out if there is any substance to the challenge by HMRC (they can be wrong in their suspicion and it is important not to lose sight of that). Some clients will immediately disclose to the accountant what it is that they have failed to disclose whilst others will doggedly maintain innocence in the hope that if they can fool their accountant then the accountant will in turn be able to fool HMRC!

This is a forlorn hope – serious fraud investigators are carefully selected for their determined approach and they have seen it all before. Attempts to fool them will generally result in a much more severe approach being adopted with the aim of squeezing the maximum amount of money from the taxpayer serving as a lesson to behave in future!

These days a COP 9 notice offers the taxpayer to make a disclosure under the Contractual Disclosure Facility (CDF) which must be done on an HMRC form no later than 60 days from the date on which the COP 9 notice was issued. This form requires the taxpayer to disclose all irregularities and to give brief details of why a previous disclosure was not made.

This form must be completed with great care. Any attempt to “water down” the nature of the offence will be stamped on by HMRC. The purpose of the form is to get the taxpayer to admit in writing that he has been guilty of serious tax fraud as defined by COP 9. In so doing HMRC has an established case of serious fraud and the very significant first step has been taken in the enquiry.

HMRC view the nature of the disclosure as very simple – if the CDF is accepted then serious fraud MUST be acknowledged by the taxpayer. The taxpayer will not be allowed to accept the offer of CDF whilst at the same time attempting to avoid an acceptance of fraudulent conduct. HMRC is well aware that taxpayers will not wish to lose the agreement of no prosecution which they obtain if they accept CDF and will not allow the issue of fraud to be fudged – either it is and CDF is underway or it isn’t and the safety net of no prosecution is withdrawn.

Once the disclosure has been made there will normally be a request by HMRC for a meeting at which the irregularities disclosed will be discussed. This tends to follow quite quickly(within a few weeks)and the meeting should be accepted as at this stage it is vital to display full cooperation in order to kill the case quickly and to minimise what could be a hefty penalty.

HMRC will usually be happy to meet at the taxpayer’s premises (there are numerous good reasons to avoid this but sometimes it is most convenient to agree) or at the accountant’s offices (much better). I would generally avoid meeting at HMRC offices as the occasion will be pretty intimidating for most clients and meeting on HMRCs home turf would only add to the stressful nature of the meeting.

There will usually be at least two and more often three officers from HMRC who attend the meeting. One will merely be the note-taker and one will do most of the talking but the third may be the group leader who won’t say much but can come out with some killer questions so do not write him off as a mere spectator! Always ask in advance for the names and roles of all HMRC officers who will attend the meeting – apart from common courtesy this will sometimes give you an idea of what areas HMRC intends to discuss.

The meeting will start in a cordial manner with introductions and an explanation of the taxpayer’s rights. HMRC will check that the taxpayer is in good health (ie.unlikely to have a heart attack due to the stress of the meeting) and they will offer comfort breaks as and when required. This can be a dangerous part of the meeting as a poorly briefed client tends to relax a bit thinking that the meeting will be friendly and easy to handle. Hopefully the client has been briefed in detail a number of days before the meeting and will know exactly what to expect.

Once the preliminaries are out of the way the taxpayer will be asked about his disclosure and must explain why and how the failures/irregularities took place and the sums of money involved. If HMRC is satisfied with the disclosure the officers will often visibly relax and the tone of the meeting will revert to some degree of cordiality. It is vital though to tell the client not to relax until HMRC has departed as careless talk in an unguarded moment can cost a lot of money. I was invited to a meeting some time ago where the client had handled the meeting beautifully with a relatively minor misdemeanour disclosed. HMRC engaged in casual conversation as they were packing up saying what they were doing for the rest of the day and the client who by now had dropped his guard blissfully informed them that he was due to sail his new yacht that afternoon.

HMRC unpacked again and asked the killer question “how much did the yacht cost?” It had cost upwards of £50k and had been financed by last year’s undeclared business takings which had not been disclosed during the meeting!

Some basic advice as to how to brief a client in readiness for a meeting with HMRC:

Ensure that you make a FULL disclosure of ALL irregularities – if unsure at any time during the meeting ask for a private word with the accountant – you must NOT leave the meeting without having made a full disclosure

Only speak when spoken to

Listen to the question, understand it and answer, then shut up

Do not offer detail which has not been requested – talk in facts not hazy recollections

Do not chat – this is a Q and A process

HMRC is there for one reason and that is to get as much money from you as possible

HMRC will never become a friend so don’t talk to them as if they could become one

Think before you speak – HMRC cannot rush you and if they try your accountant will stop them

Do not guess – if unsure tell them and refuse to guess – you can think after the meeting

Take comfort breaks – it stops their momentum and gives you time to clear your head

Ensure you make a full disclosure to keep the protection offered by COP 9

If unsure during the meeting take a break to discuss with your accountant in privacy

Maintain eye contact with your accountant

The less you talk the quicker it will be over

Do not feel obliged to break a period of silence – it is HMRC’s meeting not yours

After the meeting HMRC will often stay behind to discuss with the accountant what work needs to be done – referred to as a “scoping meeting” – and will also agree a timescale. It is important to inform HMRC as soon as possible if a timescale becomes impossible as they will be happy to extend this provided the taxpayer is cooperating.

The report which HMRC will request has to cover all business and private financial matters stretching back to when the fraud commenced. If records are not held for the entire period HMRC expect approaches to be made to banks etc for historical records and this can be quite expensive but it MUST be done.

Usually where tax fraud is concerned there will be a number of years involved and the report will require a great deal of time to be spent on it. Even the most straightforward case can require £10k or more of the accountant’s time and it is advisable to make clients aware of this before work is undertaken.

Once the liabilities have been agreed HMRC has to calculate penalties. It is easier to negotiate a penalty before HMRC has suggested one in writing. If he has committed to writing it means that his group leader will have approved it and HMRC is much more inclined to stick to his guns at that point. A COP 9 settlement will often be £100k plus and a small reduction in the penalty loading can easily pay for the fees charged by the accountant for preparing the report.

Dealing with a COP 9 enquiry is specialist work and this is acknowledged by HMRC both in the COP 9 booklet and usually in the meeting itself where they will suggest to the taxpayer that specialist help should be considered.

We have a specialist COP 9 team including former HMRC officers who are very experienced in this type of work and minimise both tax liabilities and stress to the client. We like to work very closely with the client’s accountant as his in depth knowledge of the client and the personal relationship he has already established can be of considerable help during the course of the enquiry.

We will take on a case at any stage of the enquiry but have a special offer concerning fees where we are engaged on receipt of the COP 9 notice. We will meet with the client and establish whether a disclosure needs to be made. We will then complete the disclosure with all of the appropriate detail and then meet with the client and HMRC all for a fee of £2000 plus VAT.

If you require more information or if you wish to discuss engaging our assistance please call Dave Williams, Chris Watts or Mark Davies on 01803 320 100.

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