COP9 Tax Settlement

When a taxpayer adopts and submits a disclosure report prepared by the tax advisor as part of a Code of Practice 9 (COP9) investigation, HMRC will sift through the report. The investigating officer will review the report to ensure it is a complete disclosure of all tax irregularities and may request additional information or clarification if necessary. He may also ask for supporting documents to verify the disclosure. If he accepts the disclosure, a settlement negotiation will take place.

After submission of and acceptance of the disclosure report, HMRC will start settlement negotiations. It is an opportunity for the taxpayer to agree on a settlement amount for the unpaid tax and interest owed. Here’s how settlement negotiations take place under COP9 and what offers can be made to HMRC:

1. The Offer: The taxpayer’s disclosure report will form the basis for settlement negotiations. HMRC will use the information in the report to calculate the tax, interest, and penalties owed. The taxpayer can offer to settle the case based on this calculation and his circumstances.
2. The Negotiation: Once the offer is made, HMRC will review it and may make a counteroffer. The parties will negotiate until a settlement amount is agreed upon.
3. The Contractual Settlement Agreement (CSA): A contractual Settlement Agreement (CSA) will be drafted once the settlement amount is agreed upon. The CSA is a legally binding document that outlines the settlement terms, including the amount of tax owed, any interest and penalties, and the payment schedule.
4. Payment of the Settlement Amount: The taxpayer is required to pay the settlement amount as outlined in the CSA. HMRC may accept payment in full or may agree to a payment plan.

The taxpayer may negotiate a lower amount of tax than what is owed. However, the settlement amount must reflect the position of the taxpayer to pay and if any extra payments can be made in the future. These are called substandard offers and can be negotiated with HMRC.