Code of Practice 9 (COP9)

The Contractual Disclosure Facility (CDF) is a procedure offered by HM Revenue and Customs (HMRC) in the UK as part of a Code of Practice 9 (COP9) tax investigation. It provides individuals suspected of tax fraud with an opportunity to disclose any deliberate conduct resulting in a loss of tax.

When HMRC initiates a COP9 investigation, they issue a CDF offer to the taxpayer. This offer gives them 60 days to accept or reject it. If accepted, the taxpayer must admit to deliberate behaviour, fully disclose all omissions, errors, or irregularities, and cooperate fully with HMRC.

By accepting the CDF offer, the taxpayer receives immunity from criminal investigation and prosecution specifically related to the disclosed irregularities. It’s important to note that the immunity only applies to what is disclosed, and any undisclosed irregularities remain unprotected.

Deciding whether to accept the CDF offer is a significant decision that should be carefully considered. Accepting the offer means admitting to deliberate behaviour, potentially leading to higher financial penalties compared to cases of non-deliberate inaccuracies. It is crucial to ensure that the behaviour falls within HMRC’s guidelines for deliberate conduct before accepting the CDF offer.

Seeking professional advice from tax specialists or experts who are well-versed in COP9 investigations and the CDF is highly recommended. They can assess the specific circumstances and provide guidance on whether accepting or rejecting the CDF offer is the appropriate course of action.

If you accept the CDF offer, several steps will follow:

1. Case classification: HMRC will categorise the case as either “simple” or “complex.” Complex cases typically involve more extensive work and may require multiple meetings with HMRC. Having specialist representation, such as from Lexicon Tax, can help navigate this process effectively.
2. Full report submission: You will need to prepare and submit a comprehensive report on your tax affairs, focusing specifically on the deliberate behaviour that led to the loss of tax. The report will cover a period of up to 20 years, depending on the circumstances.
3. Review and queries: HMRC will review the report and may raise queries or request further information. It’s essential to cooperate fully with HMRC during this stage, providing any additional details or clarifications they require.
4. Acceptance of complete disclosure: Once HMRC accepts your disclosure as complete, they will proceed with assessing the penalties. The penalty range for deliberate behaviour prompted by HMRC action is typically between 35% and 100% of the unpaid tax. The final penalty amount depends on factors such as the level of cooperation and the quality of the disclosure.
5. Penalties and challenges: Penalties will be levied based on the accepted disclosure. However, it is possible to make representations to challenge the level of penalty, particularly if it exceeds the minimum threshold. Seeking professional representation, like from Lexicon Tax, can help ensure you receive the lowest possible financial penalties.

It’s important to note that mishandling the disclosure process or failing to cooperate fully can result in higher penalties or even the potential withdrawal of immunity by HMRC. Additionally, although accepting the CDF offer provides immunity from criminal investigation and prosecution specifically related to the disclosed irregularities, it does not guarantee immunity in all circumstances.

Professional advice and guidance are crucial throughout the CDF process to navigate the complexities effectively, manage the disclosure, and secure the best possible outcomes in terms of penalties and protection.

Deciding whether to reject the CDF offer is a significant decision that should be carefully considered. It is crucial to seek professional advice from tax specialists or experts who are well-versed in COP9 investigations and the CDF process. They can assess the specific circumstances of your case and provide guidance based on the available information.

Reasons to consider rejecting the CDF offer and denying tax fraud may include:

1. Strong belief of non-deliberate behaviour: If you genuinely believe that you have not deliberately filed an inaccurate tax return or deliberately failed to file a return altogether, and you have evidence to support this claim, you may choose to reject the CDF offer.
2. Lack of evidence or doubts about the allegations: If you have reasons to doubt the accuracy or validity of the information that led HMRC to suspect tax fraud, you may consider rejecting the CDF offer. However, it is important to gather and present compelling evidence to support your position.
3. Challenging HMRC’s position: If HMRC’s assessment of deliberate behaviour is based on incorrect assumptions or incomplete information, and you can provide a strong counterargument with supporting evidence, you might choose to reject the CDF offer.
4. Seeking alternative resolution methods: Depending on the circumstances, it may be appropriate to explore alternative resolution methods, such as negotiation or dispute resolution, rather than accepting the CDF offer. This can be discussed with tax specialists who can assess the viability of such options.

It is crucial to note that rejecting the CDF offer means challenging HMRC’s position, and it can result in further investigations or potential legal proceedings. Seeking professional advice is vital to understand the potential risks and benefits associated with rejecting the CDF offer in your specific case.

Ultimately, the decision to reject the CDF offer should be based on a thorough understanding of the allegations, your confidence in your position, and the advice provided by tax professionals.

If you reject the CDF offer, the following outcomes may occur:

1. Detailed investigation: HMRC Fraud Investigation Service may initiate a more comprehensive investigation into your tax affairs. This investigation can involve gathering additional evidence, conducting interviews, and examining your financial records in greater detail.
2. Acceptance of rejection: In some cases, HMRC may accept your rejection of the CDF offer and issue a confirmation that they no longer suspect you of tax fraud. This means that they will not pursue the matter further in terms of criminal investigation or prosecution related to the allegations outlined in the CDF offer.
3. Pursuing non-disclosed irregularities: If you rejected the CDF offer without making a full disclosure of non-deliberate irregularities that were required to be disclosed, HMRC FIS will likely continue their investigation. The scope and timeline for disclosure will depend on relevant time limits and regulations.
4. Criminal investigation and prosecution: If HMRC FIS believes that a disclosure of deliberate irregularities should have been made with an acceptance of the CDF offer, they may decide to commence a criminal investigation with the intention of pursuing prosecution. This can have serious legal consequences and lead to prison sentence.

It’s important to note that rejecting the CDF offer does not automatically guarantee immunity from criminal investigation or prosecution. HMRC has the authority to initiate further actions if they believe there is sufficient evidence of deliberate tax fraud.

When making a decision to reject the CDF offer, it is highly recommended to seek professional advice from tax specialists or experts who can assess the specific circumstances of your case and guide you through the potential implications and risks involved.

If you do nothing and fail to respond to the CDF offer or engage with HMRC FIS, the following outcomes may occur:

1. Continued investigation: HMRC FIS will continue its investigation into your tax affairs. They will gather information, examine records, and pursue leads to assess whether tax fraud or irregularities have taken place.
2. Potential criminal prosecution: If HMRC FIS uncovers evidence of tax fraud during their investigation, they may decide to initiate criminal proceedings against you. This can result in legal action, potential fines, penalties, and even imprisonment if convicted.
3. Civil penalties: Even if HMRC FIS does not pursue criminal prosecution, they can still impose civil penalties for non-compliance, including the failure to cooperate with their investigation. These penalties can be significantly higher due to your lack of engagement.
4. Loss of opportunities for resolution: By not responding to the CDF offer or engaging with HMRC, you may miss out on the opportunity to resolve the matter through disclosure, cooperation, and negotiation. This can result in more severe consequences and limited options for mitigating penalties.

It is crucial to take the CDF offer seriously and respond appropriately within the given timeframe. Ignoring the offer or failing to engage with HMRC can have serious legal and financial consequences. It is advisable to seek professional advice from tax specialists or experts who can guide you through the process, assess your options, and help you navigate the investigation to ensure the best possible outcome.

Yes, specialist professional representation is highly recommended in the case of a COP9 tax investigation or when considering the CDF offer. Here are a few reasons why it is important to have specialist representation:

1. Expertise in tax investigations: Specialists in tax investigations, such as tax advisors or tax lawyers, have in-depth knowledge and experience in dealing with HMRC investigations. They understand the complexities of tax laws, regulations, and procedures, as well as the nuances of COP9 investigations and the CDF process.
2. Access to information and evidence: HMRC FIS does not disclose the evidence it holds against you at the beginning of the investigation. Without specialist representation, it can be challenging to assess the strength of the case against you or make informed decisions about accepting or rejecting the CDF offer. Specialists have access to resources, contacts, and expertise that can help evaluate the evidence and provide accurate advice.
3. Protection of your interests: Specialist advisors are focused on protecting your interests throughout the investigation. They can provide guidance on the potential consequences of your actions, help you navigate the investigation process, and ensure that your rights are upheld. They act as your advocate and can represent you in discussions and negotiations with HMRC.
4. Mitigating risks and reducing penalties: Specialists can identify potential risks, advise on the best strategies for disclosure and cooperation, and help minimise penalties. They have experience in preparing accurate and comprehensive disclosures, ensuring that all relevant irregularities are covered. With their expertise, they can work towards securing the lowest possible financial penalties for you.
5. Handling meetings and communication with HMRC: Specialist representation can assist in managing meetings with HMRC FIS. These meetings can be stressful and confrontational, but with professional representation, you can navigate them more effectively. Specialists understand the dynamics of such meetings and can ensure that your rights are protected and that communication with HMRC is conducted in a constructive and productive manner.

Engaging a specialist advisor familiar with the and experienced in handling COP9 investigations can provide you with the necessary guidance, support, and protection during the process, ultimately leading to better outcomes and reduced costs overall.

Tax fraud is indeed a serious crime, and in certain cases, it can carry the potential for a custodial sentence. However, if you accept the CDF offer and make a full and accurate disclosure of deliberate irregularities, HMRC guarantees immunity from criminal prosecution for those disclosed irregularities. This is a significant benefit of accepting the CDF offer.

By engaging specialist advisers, such as tax advisors or tax lawyers, who are experienced in dealing with tax investigations and the CDF process, you can take proactive steps to mitigate the risk of criminal prosecution. They can help you navigate the process, ensure that all relevant irregularities are disclosed, and assist in preparing a comprehensive and accurate disclosure.

Specialist advisers can also provide guidance on how to demonstrate cooperation with HMRC, which is crucial in securing immunity from criminal prosecution. They will work to protect your interests and minimise the potential for criminal consequences.

It is important to note that the specific circumstances of each case can influence the potential for criminal prosecution. By seeking professional advice and cooperating fully with HMRC, you can greatly reduce the risk of facing prison time for tax fraud.

The penalties involved in a tax investigation can vary depending on the nature and severity of the irregularities, as well as the level of cooperation and disclosure made by the taxpayer. Here are some key points regarding penalties:

1. Reasonable care: If you can demonstrate that you took reasonable care when completing your tax returns, HMRC generally will not impose penalties. Taking reasonable care means taking appropriate steps to ensure the accuracy of your tax affairs.
2. Careless irregularities: If HMRC determines that the irregularities were due to carelessness, penalties may be imposed. The amount of the penalty will depend on factors such as the severity of the carelessness, the amount of tax underpaid, and the taxpayer’s cooperation. Penalties for careless irregularities can be suspended under certain circumstances.
3. Deliberate irregularities: Deliberate irregularities involve knowingly providing false information or intentionally failing to disclose relevant information. If the disclosure of deliberate irregularities is prompted by HMRC action for onshore or offshore non-compliance, penalties can be significant. For onshore non-compliance, penalties can range from a minimum of 35% up to 100% of the unpaid tax. For offshore non-compliance, penalties can range from a minimum of 35% up to 300% of the unpaid tax.
4. Culpability and cooperation: The level of the taxpayer’s culpability and cooperation can influence the penalties imposed. Demonstrating full cooperation with HMRC, making a comprehensive disclosure, and actively working to rectify the irregularities can potentially lead to lower penalties.
5. Specialist representation: Engaging specialist advisers who have expertise in tax investigations can help minimise penalties from the outset. They can assess the specific circumstances of your case, advise on the best approach for disclosure and cooperation, and work towards securing the lowest reasonable penalty.

It’s important to note that penalties are assessed on a case-by-case basis, and the specific circumstances of your situation will be taken into account. Seeking professional advice and cooperation with HMRC are key factors in mitigating penalties.