With some 5,500 new investigative officers promised in recent Budgets and the Spending Review, the general public still expects HMRC to ‘do more, with more’. Amit Puri said it seems the shackles have still not come off in the case of HMRC’s most aggressive civil tax investigations which are carried out by HMRC’s Fraud Investigation Service (‘FIS’), where large amounts of tax are believed to be at risk and/or suspicions of tax fraud are alleged at the outset.
“Notably, over the 2024-2025 period, only 450 new such investigations were commenced (down from 480 in the 2023-2024 period), although FIS still managed to secure almost £190 million in revenue.”
Despite this impressive responsibility, Amit said their staff numbers have stayed stubbornly close to or below 5,000 across the country. So it’s no surprise that anecdotal evidence shows that people are not afraid of FIS civil investigations and seldom know a person that has been subjected to one – hence a poor deterrence effect.
Why are these investigations ‘serious’?
These civil investigations are a lot more intensive and resource hungry, which is why FIS investigators typically manage no more than 10 at any time. Other front-line HMRC officers e.g. in Wealthy & Mid-sized Business Compliance (‘WMBC’) and in Individuals & Small Business Compliance (‘ISBC’), have much higher numbers of cases, typically 30 – 40. So more time, attention and experience is required by tax investigation specialists supporting their clients.
HMRC have two distinct “Codes of Practice” under which they investigate what they perceive to be much more serious and/or deliberate tax irregularities. These are known as code of practice 8(COP8) and Code of Pracice 9 (COP9). To be clear, these are distinct from a tax investigation / tax enquiry and compliance check. They are much more intrusive and in-depth, and likely to run on for much longer.
HMRC are looking for a financial recovery, i.e. taxes, late payment interest and typically large penalties, for failing to submit correct tax returns or failing to notify HMRC that taxes were payable. Also, allegations of having acted deliberately / dishonestly are typical, with HMRC seeking to publicly name and shame people too.
Code of Practice 9 (COP 9) investigations
A code of practice 9 (‘COP9’) is a civil investigation of suspected tax fraud, where clients are explicitly challenged from the outset as having acted dishonestly/with fraudulent intent. They are given an opportunity to admit tax fraud within 60 days (at high-level) in return for being able to disclose everything in much more detail later. They must disclose the background and reasons for their deliberate actions, compute the additional income, profits, gains, taxes, late payment interest and penalties; all at their own cost.
HMRC expect clients to commission comprehensive disclosure reports, usually prepared by seasoned & suitably experienced tax investigations specialists. In return, lengthy, in-depth and intrusive investigations by HMRC are avoided, and which can otherwise run on for many years. If you or your client receive a COP9 Notification letter, it is extremely important that you consult with a specialist as there are very strict time lines which must be adhered to in order to ensure that you/your client are best protected.
Code of Practice 8 (COP 8) investigations
A Code of Practice of 8 (‘COP8’) is a civil investigation into large amounts of tax at risk, but not necessarily due to tax fraud (but can include that). It’s not unusual for these to be used against marketed avoidance schemes/arrangements and bespoke tax planning, where HMRC are likely to have made a discovery about historic tax risks.
The investigators are well prepared to argue they have identified new information and culpability; triggering penalties too. They investigate from the outset so there is little possibility of dissuading them in favour of a COP9 style disclosure report. These investigations also typically span some years due to their in-depth nature. It is important to take any notification of HMRC proceeding on this basis seriously as, unlike under the COP9 process, there is no protection from a criminal tax investigation / prosecution.
COP 9 and COP 8 similarities
- Carried out by HMRC’s FIS.
- Not routine HMRC compliance check which are into a single tax year or accounting period.
- FIS confidently threaten their ability to (and do) approach third parties for information.
- Typically looking at several years/periods and habitually beyond the normal 4 years back.
- FIS investigators are equipped to identify and challenge “careless” and “deliberate” actions which support their reasons for looking at older periods, and making tax assessments by arguing having made “discoveries”.
COP 9 and COP 8 differences
In practice, COP9 investigations scare most clients given the unambiguous allegations of suspected tax fraud. But, one can secure immunity from a criminal tax investigation and potential prosecution by admitting tax fraud and accepting HMRC’s offer of commissioning a detailed disclosure report, to explain what happened, when, why, how, with whom, plus evidence and comprehensive figures. To be clear, HMRC prefer to recover the tax on a civil basis rather than pursue a criminal tax investigation with a view to prosecution.
HMRC will invite the person to engage with them under the Contractual Disclosure Facility (CDF) process as part of the COP9. It is important that people who receive a Notice from HMRC offering them “CDF” understand the complex process and implications of being offered the contractual disclosure facility. They only have that 60 days to respond to HMRC, to accept or reject the CDF offer. Specialist advice should therefore be sought immediately.
If the person accepts the Contractual Disclosure Facility offer then they must formally admit that they have been complicit in tax fraud and provide an outline disclosure of the irregularities caused deliberately by them. This needs to include all fraudulent defalcations as HMRC may still criminally investigate if additional risks are identified during the course of the tax fraud investigation.
What Happens During a Code of Practice 9 Tax Investigation?
Receiving a COP9 notice signals that HMRC suspects serious tax fraud. If accepted, the taxpayer must prepare a disclosure report that outlines:
- What happened
- When and how it occurred
- Why it happened
- With whom
- Supporting documentation and evidence
If HMRC believes the outline disclosure or full report is incomplete, they may still pursue prosecution.
Rejection of the Contractual Disclosure Facility process will cause HMRC to consider whether they investigate on a criminal basis or civil basis. The person’s rejection letter can be used as evidence in criminal proceedings. Specialist advice should, therefore, be sought to manage HMRC’s heightened expectations properly in such an investigation.
Failure to respond within the 60-day time limit will be considered to be a rejection of the HMRC’s disclosure offer, leaving them exposed in the investigation process.
In practice, COP8 investigations are comparatively underrated, because HMRC don’t allege tax fraud immediately and sometimes they don’t explain what their interest is in. They might appear similar to routine enquiries at first, but as the cases progress, clients realise that the FIS investigators are looking at older transactions and are ready to use formal Information Notices to gather the facts and evidence from them and third-parties.
Why Did I Receive a COP8 Letter From HMRC?
If HMRC’s FIS unit are investigating you, or your client, under COP8 rather than opening a compliance check, it means that they believe the tax affairs are serious, complex and, most likely, that the tax at stake is significant.
Before issuing the COP8 investigation Notice, HMRC will have undertaken substantial work to verify the data they hold. HMRC will believe that there has been an underpayment of tax and that this underpayment would have either arisen due to avoidance tax arrangements, or tax fraud / evasion.
Due to the seriousness of such a civil investigation and the lack of protection from becoming a criminal tax investigation, specialist tax advice is highly recommended upon receipt of the COP8 Notice to ensure that the process is managed carefully.
Key Risks of a COP 8 Investigation
HMRC’s investigators may contact third parties (employers, banks, customers) to collect information if they feel you are not fully cooperating. This can lead to:
- Reputational damage
- More aggressive information notices
- HMRC invoking powers to escalate the matter into a criminal tax investigation
What Happens During the COP8 Investigation Process?
HMRC’s Fraud Investigation Service will request:
- Access to your full business records and financial records
- Details of any tax planning arrangements
- Explanations for unusual transactions / tax treatment
They will often request a face-to-face meeting and may even seek to visit your home or office. These meetings should never be attended without qualified representation.
- Unlike COP9, a COP8 investigation does not protect the taxpayer from prosecution at any stage. This is why engaging with a tax investigations specialist adviser early is critical.
- In a COP9, the client and their adviser should take control of the case by securing the disclosure process for tax frauds & other irregularities, agreeing to investigate all matters in detail themselves. This includes approaching third parties for information/records, e.g. suppliers, customers, banks etc. They should manage HMRC’s expectations: material progress updates, disclosure report submission timeframes, and making payments on account.
- In a COP8, the client is the subject of an investigation, so HMRC are asking the questions and verifying the information, to test & confirm their tax risks. A COP8 is comparatively more difficult to manage due to the uncertainties including their willingness to approach third-parties directly causing clients distress e.g. reputational damage.
COP9 and COP8 statistics
- Overall in 2024/25, there were only 30 fewer cases:
- but much fewer COP8 cases opened,
- in favour of more COP9 investigations opened,
- and the continuing trend of less FIS civil investigations opening.
- Perhaps this is due to decreasing resources in FIS’ civil unit and/or newer ways of working with other HMRC teams.
- HMRC’s focus appears to remain on concluding older COP9 cases as in recent years. They are regularly criticised for not settling enquiries and investigations sooner.
- Penalties charged in COP9 cases were almost double, averaging £25,719 per case, compared to £13,585 in COP8 cases. This is unsurprising, because COP9 cases are about tax fraud, whereas COP8 cases focus on tax planning where a client might not be culpable too.
- Total revenues secured in 2024/25 more than halved to £187.5m (856 settlements), from 2023/24’s higher total of £421.60m (886 settlements). However, 2023/24 seems to be an anomaly year.
Tax practitioners consider that there is a clear case for more such investigations, given the yields and deterrence effect that would be secure, but HMRC seems to disagree.
Amit Puri is the Managing Director at Pure Tax Investigations, and can be contacted at info@pure-tax.com and +44 (0) 203 7575 669
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