The 278 civil investigations, which were opened between 1 April 2020 and 31 January 2021, were otherwise known as Code of Practice 9 enquiries (COP9).
These are opened into the affairs of taxpayers who are suspected of committing serious tax fraud. This includes deliberately paying less tax than is due, overclaiming tax reliefs or misclaiming government grants.
Under a COP9 enquiry, HMRC has the right to seek recovery of tax, interest and penalties for as far back as 20 years. Despite these far-reaching investigatory powers, many will see this as a far preferable alternative to a criminal investigation.
Taxpayers will be required to provide details of the amount of tax they have evaded which saves HMRC from using its resources to investigate such matters. HMRC sees Cop9 enquiries as a much quicker and less costly process than having to enter criminal proceedings.
The accountancy firm expects that HMRC may use the COP9 tool to encourage more suspected furlough fraudsters to come forward.
Sheila Berry, partner at UHY Hacker Young, says: ‘HMRC is throwing taxpayers a lifeline by issuing these COP9 enquiries. It’s an opportunity for those who know that there are serious misgivings within their tax affairs to bring this to light and avoid the possibility of a substantial prison sentence.
‘HMRC’s offer of a COP9 deal doesn’t last forever, so tax evaders who receive an offer shouldn’t ignore it. If they do spurn the approach from HMRC then they could find themselves facing a full-blown criminal prosecution.’
Dependent on the severity of the tax evasion that has been engaged in, the financial penalties imposed under the COP9 investigations can be up to 200% of the tax HRMC believes is owed.
If the individual chooses to fully cooperate with the investigation they will receive immunity from criminal prosecution. Taxpayers can also avoid the possibility of prison by requesting to make a disclosure and voluntary entering into a COP9 agreement with HMRC. This is known as a contractual disclosure facility (CDF).
Berry continued: ‘Given the severity of the financial penalties under COP9 enquiries, including the possibility of being publicly named and shamed, they are most definitely not an amnesty nor an easy route out.
‘However, taxpayers who have deliberately misrepresented their affairs are likely to have a more favourable outcome if they fully cooperate with HMRC and own up to committing tax fraud.’