The tax fraud code

Code of Practice 9 changes published on 14 June 2023

HMRC picks and chooses those cases involving tax fraud which proceed to prosecution very carefully.  However, the majority of cases involving serious tax fraud do not proceed criminally at all.  Instead, those suspected of deliberately falsifying their tax positions or who wish to make spontaneous disclosures of their deliberate tax irregularities may be invited to enter into a contractual arrangement with HMRC known as the CDF (the Contractual Disclosure Facility). 

The premise is simple; disclose all tax irregularities and pay over the tax due, interest (because the tax is late) and a penalty.  In return, HMRC won’t pursue criminal charges.

Where HMRC investigate cases of tax fraud on a civil rather than criminal basis, it does so under the provisions of Code of Practice 9 or COP9 as it is commonly referred.  On the 14^th of June, the terms of COP9 were substantially rewritten. 

In isolation “substantially rewritten” might suggest radical changes to the COP9 process but in truth that is not the case.  Rather, the wording of the statement has been updated and refreshed but for the most part it’s business as usual.  There is certainly no change to the fundamental principles where taxpayers proceed via CDF, i.e. come clean and cooperate fully to secure immunity from prosecution.

However, HMRC’s Agent Update (Issue 109) highlighted that the new COP9:

1. Restates the Code of Practice, so that the COP9 recipient fully understands that the Contractual Disclosure Facility (CDF) is an opportunity offered to them as an alternative to a criminal investigation; and it
2. Resets the terms of the CDF contract to make sure the recipient is clear on exactly what they are signing up to, HMRC’s expectations throughout the investigation, and the serious consequences of their non-compliance.

Regarding the second aspect, some commentators have raised concerns over the requirement that taxpayers personally attend meetings with HMRC; HMRC cannot compel meeting attendance.  However, in our experience, there has always been a general expectation by HMRC that persons wishing to take advantage of CDF do attend an opening meeting, not only to engage with the formality of the CDF process but also to answer questions about their tax affairs including the outline disclosures they may have made. 

The concerns expressed regard instances where taxpayers may be suffering from physical or mental health conditions which could impact their ability to attend or participate effectively in meetings with HMRC.  In those circumstances one would hope, new COP9 wording or not, that HMRC forego meeting taxpayers (who would be expected to provide evidence of their health conditions) and proceed accordingly.  It would be wrong for HMRC to interpret such non-attendance as non-cooperation.

Also notable from the COP 9 rewrite is the clarification given of the circumstances which could lead to HMRC commencing a criminal prosecution.  They comprise the following;

• A taxpayer does not respond to or rejects an offer to proceed via CDF;
• A taxpayer fails to provide or makes an incomplete outline disclosure;
• A taxpayer makes a false statement or submits false documents during the investigation; or
• A taxpayer withdraws their admission of deliberate behaviour “in the absence of a good reason”.

Again, we see no fundamental changes in HMRC’s policies regarding the above.  Perhaps, therefore, the COP9 update was seen to be necessary because of increasing instances of taxpayers not having a clear understanding of HMC’s expectations before signing up to the CDF.  If so, it further underlines an absolute fundamental: if you are being investigated by HMRC, take professional advice immediately.