An unexpected COP9 letter
Out of the blue a brown envelope arrives with a portcullis logo. It’s an unexpected letter from HMRC and its mentions COP9 and CDF; why?
A COP9 (or correctly Code of Practice 9) letter is issued to taxpayers who HMRC suspect have undertaken activity that it believes amounts to tax fraud.
What do I do about it?
It’s easy to say but harder to do: don’t panic.
HMRC is fallible and on occasions wrong. However, HMRC does do it’s homework before issuing such a communication, it will believe the challenge is warranted.
The letter should therefore not be ignored.
The issuance of a COP9 letter suggests HMRC will initially seek a civil (money) settlement. However, if HMRC is ignored, that position may not prevail. Matters can, and occasionally do, escalate into a tax prosecution.
Speak with an experienced professional.
HMRC will expect the taxpayer to co-operate. In return, the taxpayer may receive significantly reduced penalties and a guarantee that they will not be prosecuted.
A taxpayer can decline to co-operate with HMRC, but that is an option that should not be taken lightly and should only be taken after seeking professional guidance.
Are there time limits?
Yes. If taxpayer chooses to co-operate, HMRC will expect to receive an outline disclosure indicating the inaccuracies in previously filed tax returns within 60 days.
HMRC will also expect an estimate of tax at stake.
Do I have to make a payment immediately?
No. BUT, HMRC will expect a payment on account towards any outstanding tax in line with the outline disclosure.
A paucity of funds may mean only a modest payment can be made, however, it is always better to demonstrate co-operation.
If the outline disclosure is accepted, HMRC will normally want to meet with the taxpayer (the “opening meeting”) to hear what he/she believes is inaccurate.
HMRC can conduct an “opening meeting” by correspondence rather than face to face and are experimenting with conference calls. Progressing matters in this manner is dependant on a number of factors, a key aspect being the thoroughness of the outline disclosure.
HMRC will then expect the taxpayer to commission a comprehensive Report, setting out all the inaccuracies, evidenced as much as possible.
HMRC will set out the scope of what it expects to be covered in the Report. Again this can be via correspondence, although the norm is for HMRC to meet with the Report preparer.
It is unlikely HMRC will seek to meet with the taxpayer from this point unless there is a specific reason to do so or HMRC perceives cooperation is wavering.
Possibly. HMRC may accept the Report as the end of the matter, other than payment, although HMRC often stress tests the Report via questions, once it has reviewed the content and supporting evidence.
When questions have been satisfactorily addressed and the tax, late payment interest and financial penalty agreed, HMRC will seek to close matters by a formal contractual agreement with the taxpayer.
Payment arrangements can be agreed with HMRC. It is always better to agree extended terms at this stage rather than seek to agree with the Collector (Debt Management).
Don’t ignore the communication.
Don’t become convinced prosecution will happen, it is rare.
Do seek experienced professional assistance.
Remember, matters will get resolved.