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A crucial withdrawal as HMRC cuts out the "Denial" option from COP 9 Investigations 

The Contractual Disclosure Facility is used by HMRC to investigate suspected cases of tax fraud. All such enquiries are dealt with under Code of Practice 9. From 1 July 2014, HMRC is withdrawing the "denial" option from its Code of Practice (COP) 9 cases, so what might this mean?

Scenario

Say that one day you receive a COP 9 letter from HMRC to say that you are suspected of fraud. You had no previous knowledge that you were even being investigated. Before 1 July 2014, you had three options from which to choose and sixty days to work out what to do and collate all the information, before HMRC took any action:

  1. CDF route: where you admit fraud and agree to cooperate with HMRC’s investigation. Using this option, you may escape prosecution if fraud is disclosed, but you will pay a fine for the irregularity, and be asked to pay any tax due.
  2. The denial route: where you deny fraud but agree to cooperate with the investigation. You might still be prosecuted if fraud is disclosed, but you did have an opportunity to state your case to HMRC and often, following this, a resolution between HMRC and the taxpayer was reached.
  3. The non-cooperation route: where you deny fraud and refuse to cooperate. Using this option, a criminal investigation is highly likely as is a higher penalty.

What does the change mean?

You receive the COP 9 letter and you want to admit to irregularities, but not fraud. From 1 July 2014, you can no longer do that without refusing to cooperate: either you take Option 1, where you admit fraud and agree to cooperate, or take Option 3, where you deny fraud and refuse to cooperate. You will now find yourself in what is termed "a rock and a hard place", because the one route that afforded you the right to say, "I admit to irregularity but not fraud and agree to cooperate", thereby minimising the fallout, has now been removed.

What will this mean for HMRC investigations?

According to HMRC, many people were confused by the "denial route": "customers were confused about what they were denying—the offer, tax fraud or irregularities", an HMRC said. Removal of the "denial route", therefore, is as seen as "simplifying" the disclosure procedure.

Will the change adversely affect the outcome? HMRC’s view

The tax authority insists that that change does not adversely affect the outcome: "Removal of the denial option does not adversely impact anyone who believes they have nothing to disclose to HMRC. This is about streamlining our approach to evasion and making the tax system more transparent. It makes things simpler for those who want to bring their affairs up to date while making things harder for committed tax cheats."

Will the change adversely affect the outcome? The taxpayers’ view

Some taxpayers, when faced with the dread of being investigated, will feel forced into admitting fraud in order to take advantage of the immunity from prosecution, even if they genuinely feel they have not committed fraud.

However, when you consider a significant number of people have been issued with COP 9 letters who have not in any way, shape, or form committed fraud, and consider that that fines escalate once fraud has been admitted, the view from the taxpayer’s perspective looks bleak.

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