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New fraud rules go live

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5th Sep 2005
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As of 1 September 2005 all cases where serious fraud is suspected now fall under HMRC's Code of Practice 9. This joins up the former Inland Revenue's and HM Customs' practice in this area of investigation work, and removes the anomalies of having both criminal and civil procedures as explained in It's not "Hansard" anymore.

The new practice of HM Revenue and Customs in cases of suspected serious tax fraud is as follows:
1. The Commissioners reserve complete discretion to pursue a criminal investigation with a view to prosecution where they consider it necessary and appropriate.
2. Where a criminal investigation is not considered necessary or appropriate, the Commissioners may decide to investigate using the Civil Investigation of Fraud procedure.
3. Where the Commissioners decide to investigate using the Civil Investigation of Fraud procedure they will not seek a prosecution for the tax fraud which is the subject of that investigation. The taxpayer will be given an opportunity to make a full and complete disclosure of all irregularities in their tax affairs.
4. However, where materially false statements are made or materially false documents are provided with intent to deceive in the course of a civil investigation, the Commissioners may conduct a criminal investigation with a view to a prosecution of that conduct.
5. If the Commissioners decide to investigate using the Civil Investigation of Fraud procedure the taxpayer will be given a copy of this statement by an authorised officer.

The main procedural change will impact on the former Inland Revenue Hansard policy. Under the new procedure, it will not be necessary to conduct interviews under caution or to tape record those meetings.

The formal questioning procedure remains. A tax-payer will, after digesting COP 9 and agreeing to assist with the investigation, be asked to respond to one or both of two sets of formal questions - one for direct taxes and one for VAT, as applicable to the circumstances of the case.

There is reference to the cost savings of having one meeting for both direct tax and VAT, and likewise the need for only one report to cover both types of tax. It is clear that tax investigation specialists will have to work on joining up their procedures too in order to achieve efficient handling of cases.

There is no change in policy in reference to the request by the ICEAW Tax Faculty in TaxRep38 that HMRC should disclose the reasons for their concerns at an early stage in the investigation. Revised COP 9 says: "We will not reveal to you the information we hold that has given rise to our concerns. This is because the aim of an investigation under this Code of Practice is to give you the opportunity to make a full and complete disclosure of all irregularities."
Fair play, COP 9 is designed to facilitate complete disclosure. Making HMRC show their hand at the outset might do the opposite if the stakes are high enough.

Nichola Ross Martin

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