Code of Practice 8 (COP8): Specialist Investigations (Fraud and Bespoke Avoidance)
On 28 August 2014, HMRC published an amended version of COP8. COP8 applies to all investigations where the Contractual Disclosure Facility (CDF) is not used. The new version of COP8 has been amended in the following main areas:
To account for the updated civil investigation of fraud rules in Code of Practice 9 (COP9)
To account for the Contractual Disclosure Facility
To include certificates of tax deposits (paying tax during enquiries)
The Fraud and Avoidance section of the Specialist Investigations directorate of HMRC carries out investigations under the COP8. COP8 is issued where HMRC suspect:
There has been a deliberate attempt to pay less than the correct amount of tax or
A deliberate attempt to take advantage of a scheme or device to reduce/eliminate a tax liability
Recently a high number of COP8 investigations have been instigated by HMRC in relation to tax planning schemes. HMRC may have a different interpretation of the law to that of the promoters of schemes; COP8 is issued to protect their position and obtain further information to ascertain the correct tax treatment. The technical nature of planning schemes that may utilise a loophole or pertain to circumvent complex anti avoidance legislation will require representation from an expert. The expert will have extensive technical knowledge of the planning undertaken, anti-avoidance legislation and managing COP8 investigations.
COP8 investigations can also arise where a person’s residence in the UK, or the tax implications of interests held in foreign entities, is being questioned.
HMRC is increasingly concentrating resources on tackling avoidance, including instigating raids and taking criminal prosecution action where it considers that avoidance activities may have strayed into the deliberate misrepresentation of facts or the falsification of supporting documents.
HMRC’s objective under COP8 is to enter into a settlement with the taxpayer to recover tax and collect interest. Unpaid tax will also attract penalties, which can be mitigated subject to circumstances and careful negotiation.
The potential range of such COP8 investigations is virtually unlimited. However, COP8 is not undertaken with the intention of escalating proceedings to criminal investigation. If HMRC suspect or find evidence of serious fraud, they may escalate the investigation to COP9 or instigate criminal proceedings.
HMRC and the professional bodies for accountancy, tax and law recommend that anyone subject to a COP8 investigation should consider instructing a specialist adviser.