There are various levels of HMRC investigation ranging from a simple phone call telling your client that they have miscalculated their tax liability all the way to a criminal prosecution. Right near the top is COP9, explains Thomas Adcock of CBW.
A COP9 is where HMRC writes to your client and tells them that HMRC has information which suggests that at some point in the last 20 years your client has committed tax fraud. If your client tells HMRC everything they promise not to criminally prosecute your client – which is a fair compromise; money and honesty in exchange for freedom.
Just because clients receive a COP9 letter does not mean that they have committed tax fraud – HMRC may have misinterpreted the information that they have.
Until recently clients had the following three options:
- Admit to having committed fraud and provide all of the details to HMRC
- Reject the offer of a COP9 stating that they have nothing to declare
- Reject the assertion that they have committed tax fraud but admit that they do have undeclared income and/or gains that they would like to disclose
By choosing option one your clients will avoid prosecution; assuming of course HMRC believes them. Choosing option two, HMRC will then consider if they wish to prosecute. They have no time limit for this and so it is a risky choice. If clients are able to choose option three – after all fraud cannot be carried out unknowingly – then this is the best of both worlds as clients could avoid criminal prosecution, regularising past errors while not having to admit to fraud which does of course have a knock on effect elsewhere in life.
Due to recent changes option three no longer exists. HMRC has in its ‘wisdom’ taken it away. This is worrying indeed because if clients receive a COP9 letter but have not committed fraud they cannot get any assurance that HMRC will not prosecute. HMRC says that if clients have not committed fraud they do not need immunity from prosecution as there is nothing to prosecute. That may be true, but it leaves the taxpayer in a precarious position as his view of fraud may not necessarily conform to HMRC’s.
If clients do receive a COP9 letter, the first thing to do is to make sure they don’t panic. Just make sure you double check the new developments around option three before advising your clients on the next step.
Thomas Adcock is a tax partner at mid-tier accountancy firm Carter Backer Winter (CBW).