From the outset, most clients will feel that there is very little difference between any type of tax investigation whether it’s called an enquiry, or a “check on tax position”, under Code of Practice 8 (CoP8) or under Code of Practice 9 (CoP9). Any form of tax investigation comes with a measure of uncertainty about the future (as much as the past) and a whole lot of stress until matters are resolved.
Very few people can live through an investigation without undergoing a degree of stress – and I include seasoned tax specialists in that group as well. How that stress is managed at different times during process will vary, with some coping better than others. For most people though, a tax investigation is bad news. Moreover, it is a process rarely a short process as it can take weeks, months even years to be resolved.
Are there any similarities between both Codes of Practice?
Both Codes of Practice are undertaken on a civil basis, not a criminal basis and by HMRC’s Fraud Investigation Service (FIS). FIS will issue either code to the taxpayer at the beginning of the process. Both Codes of Practice will result in an in-depth examination of all the relevant facts spanning a number of years. In doing so, HMRC believes there has been serious failings in a taxpayer’s past tax affairs. That said, at the other end of the spectrum of investigations, it is possible that either can be used where there has only been a single transaction.
What is CoP9?
The Fraud Investigation Service uses CoP9 where they suspect serious fraud. A simple, working definition of fraud is “the intention to deceive.” For example, where a false document has been used such as gaining a tax advantage by processing a purchase invoice and seeking an invalid tax deduction as a result.
Readers should note that HMRC will have a suspicion of fraud. The ensuing investigation will either prove or disprove that suspicion by an examination of all the relevant facts.
What is CoP8?
The only other type of investigation by FIS is under CoP8 and is where FIS does not operate CoP9. For example, CoP8 is often used in cases of tax avoidance and where significant sums of tax have been avoided over a number of years rather than just a single year.
CoP8 is sometimes regarded as a “fishing exercise” as HMRC may not know all the facts but sufficient to ask more questions.
Which is worse?
It depends how a person may define “worse.” Neither Code of Practice result in a quick outcome by say answering a single letter or having a single meeting with HMRC. Both are more likely to result in the commissioning of a lengthy Report to be written by a tax investigation specialist for the taxpayer(s). Ultimately, the Report will be submitted to HMRC.
The cost of writing such a Report can be the same as it is likely to cover numerous tax years, a plethora of matters and taxes. The amounts of potential lost revenue to the Exchequer may be the same, any resulting tax, interest and penalties can also be the same under either Code of Practice.
CoP9 is very much more formal process as set out under the terms of the Contractual Disclosure Facility (the CDF). The CDF requires an Outline Disclosure in the initial stages in which fraud is admitted.
By contrast CoP8 matters can be resolved by a succession of more informal meeting(s), letter(s) etc.
Can either Code of Practice be withdrawn and replace?
CoP8 can be withdrawn during the process and replaced by CoP9. But CoP9 is not replaced by CoP8. In that scenario, CoP9 may regarded as an escalation up from a CoP8.
It is possible that both CoP8 and CoP9 are simply withdrawn and not replaced. This is done where HMRC can escalate matters into being criminal in nature. Prosecution is HMRC’s ultimate sanction.
It is vital to establish if either CoP8 or CoP9 has been issued or contemplated by HMRC from the outset. Specialist advice should be sought to secure the best position for the taxpayer and minimise the overall cost. An experienced tax specialist in such areas will be able to anticipate the next steps and guide the taxpayer through.