Investigations under Code of Practice 8 (COP 8) – cases other than suspected tax fraud

HM Revenue and Customs (HMRC) uses COP 8 as a means of gathering further information and documentation either in preparation for an investigation (either criminal or civil) or during a civil investigation. COP 8 is regularly used where there may be an offshore connection. COP 8 is also used where a tax avoidance scheme has been used by a taxpayer.

Code of Practice 8 explains how the Fraud Investigation Service (FIS) or the Counter Avoidance Directorate (CAD) at HMRC carries out civil investigations in certain cases where the Code of Practice 9 is not used.

When is COP 8 used?

Most taxpayers pay what is due but some deliberately try to pay less tax than the correct amount. Taxpayers may have taken advantage of a scheme or arrangement to reduce their tax liability. If HMRC suspect this, HMRC will investigate under
COP 8 to establish the facts to recover any tax, interest and penalties due.

Can COP 8 escalate to another Code of Practice or even prosecution?

Yes, both are possible.

However, it is rare occurrence.

If HMRC suspects or finds evidence of fraud at any time during an investigation, HMRC may then continue to deal with the investigation under Code of Practice 9. Or, if it is being conducted with a view to criminal prosecution, HMRC will investigate under the Police and Criminal Evidence Act 1984 and the Criminal Procedure and Investigation Act 1996 and their respective Codes of Practice. In Scotland and Northern Ireland criminal investigations are carried out under the law applicable in those parts of the UK.

In short, COP 8 is often seen as a fishing exercise by HMRC.

Who determines which Code of Practice is used?

HMRC.

That said, HMRC’s decision can be influenced (and sometimes reversed) at any stage of the process if a counter explanation(s) can be proffered and supported by information or documentation can be supplied.

Will additional tax become payable?

Not necessarily.

COP8 is used to obtain a better understanding of events or transactions that is not a tax irregularity. For example, a lot of information is automatically provided to HMRC each year under the Common Reporting Standard (CRS). The fact that a taxpayer has an offshore financial account does not per se mean that there is any undeclared income or gains leading to an underpayment of tax.

Help is at hand

If you would like to discuss this matter further, please contact me at paul@pmc.tax or on 07979 313 010.

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