HMRC has published far-reaching updates to its Code of Practice 9 (COP9) procedures for investigating suspected tax fraud. COP9 sets out voluntary disclosure rules for taxpayers wishing to cooperate in exchange for HMRC not pursuing criminal prosecution. The extensive 2023 guidance overhaul aims to strengthen HMRC’s hand in the COP9 process significantly. This article examines the major shifts in policy and the implications of HMRC’s toughened stance.

Notable Enhancements in 2023 COP9 Guidance

The updated 66-page document provides more detailed instructions than the previous 10-page version. Several impactful policy enhancements stand out:

Stronger Emphasis on Tax Fraud

Terminology has changed from generic “fraud” to “tax fraud” to reflect an organizational focus on tackling evasion. The guidance includes an expanded tax fraud definition and examples like false statements and illegal claims. This hardened language reinforces the need for COP9 as an alternative to criminal prosecution.

More Structured CDF Process

The revamped COP9 guidance imposes a tighter structure around the voluntary disclosure facility (CDF) process:

• 60-day deadline: Taxpayers have just 60 days to accept or reject the CDF offer rather than an open-ended timeframe. This boosts HMRC’s control.
• Mandatory disclosures: The initial Outline Disclosure must cover deliberate and non-deliberate issues, not just deliberate behaviour.
• Certified documents: The Final Disclosure requires submitting mandatory certified statements about worldwide assets, accounts, and cards to enhance transparency.
• Consequences for non-compliance: False statements during the CDF may prompt criminal investigation – a powerful deterrent against abusing the process.

These changes hold taxpayers more accountable through the process while curtailing opportunities for obstruction that could warrant criminal charges.

More Robust Outline Disclosure

The upfront Outline Disclosure demands much more detail than previously:

• Non-deliberate issues can be disclosed immediately, closing a reporting gap where only deliberate actions exist.
• HMRC now mandates specifics like entities used, timing of issues, estimated amounts, records status, and other relevant information.
• If the Outline is incomplete, HMRC can criminally investigate undeclared aspects, preventing partial disclosures.

HMRC slashes the chances of follow-up surprises undermining the CDF by requiring comprehensive initial Outlines. Taxpayers must now map all non-compliance concerns right away.

Enhanced Disclosure Reporting

Where major irregularities necessitate a Full Disclosure Report, HMRC has increased its control over the reporting process:

• Report requirements are expanded, including business background, reconciliation of calculations, and taxpayer certification. This enables closer HMRC scrutiny.
• HMRC now expects regular progress meetings during preparation to keep apprised of investigations.
• Inaccurate reporting can result in criminal prosecution, ensuring accountability to HMRC for truthfulness.

These changes grant HMRC stronger oversight and verification powers while delving into taxpayer activities more deeply via expanded Disclosure Reports.

More Emphasis on Ongoing Compliance

The updated COP9 manual underscores taxpayers’ continuing compliance obligations during CDFs:

• It highlights that deliberate misconduct must cease immediately, allowing HMRC to monitor violations.
• Stricter compliance is presented as a tactic to mitigate penalties potentially.
• HMRC can publish non-compliant taxpayers’ names or impose enhanced monitoring, new potential repercussions.

Underscoring compliance adherence throughout COP9 reduces taxpayers’ latitude for further infractions during sensitive probes and gives HMRC clearer behavioural benchmarks.

Increased Process Transparency

Beyond structural adjustments, the new guidance offers far more visibility into HMRC’s civil investigation capabilities and CDF protocols:

• HMRC details protective actions like asset freeze and insolvency filings, signalling the gravity of non-cooperation.
• The guidance covers appointing advisors, making payments, publishing details, and taxpayers’ rights and complaint options.

Shedding light on CDF’s full implications curbs potential taxpayer misunderstandings about inflexible expectations and procedures, facilitating cooperation.

Together these multiple procedure clarifications aim to deliver higher accountability and transparency around HMRC’s COP9 approach.

Why Does HMRC Want a Tougher COP9 Model?

HMRC’s extensive revamp creates a more rigorous CDF regime likely to reduce participation, at least initially. But the far-reaching enhancements strongly serve HMRC’s policy interests:

• For HMRC investigations: Stricter control, compliance, and transparency equips tax investigators with potent new levers to secure comprehensive civil settlements.
• For compliant taxpayers: Law-abiding taxpayers gain assurance that expanded rules deter abuse of the CDF privilege by non-cooperative defrauders.
• For the tax system: Toughening CDF procedures signals that non-compliance carries severe consequences, supporting voluntary compliance principles. It also increases consistency in CDF case outcomes.
• For criminal courts: HMRC alleviates pressure on the criminal justice system by revitalizing its primary alternative resolution process for appropriate tax fraud cases. This preserves courts for more extreme evasion.

While raising the bar, these wide-ranging benefits for stakeholders indicate HMRC’s fixation on continuously refining voluntary disclosure programs like COP9. The CDF tightening also demonstrates HMRC’s strong commitment to tackling tax non-compliance in its most harmful forms.

HMRC portrays its redesigned COP9 procedures as a policy achievement balancing stakeholder interests. But the voluntary disclosure concept remains divisive:

Criticisms of the CDF Approach : Taxpayer representatives have highlighted COP9 dynamics:

• Inflexible terms: Some argue CDF’s non-negotiable terms unfairly favour HMRC, forcing cornered taxpayers into raw deals.
• Disclosure uncertainty: Vague satisfaction standards may enable moving targets for disclosure, undermining the COP9 bargain.
• Inconsistent application: Differing evidence thresholds for CDF offers, reporting requirements, and rigour applied can lead to an arbitrary, biased process.

These concerns contend that, in practice, the model can pressure even cooperative taxpayers into excessive settlements due to opacity and HMRC overextension.

HMRC’s Perspectives: HMRC defends the CDF model and its objectives:

• Key voluntary program: COP9 remains a core component of HMRC’s progressive compliance strategy promoting disclosure over prosecution. This maintains a fair enforcement regime.
• Unique taxpayer flexibility: COP9 offers unusual conditional flexibility to taxpayers facing criminal tax evasion evidence – an option rarely available elsewhere.
• Efficient dispute resolution: CDF delivers structured settlements of complex civil tax fraud cases that could otherwise expend significant criminal resources and time.
• Incentivizes cooperation: HMRC argues that CDF’s design motivates transparency from taxpayers and maximizes cost recovery with minimal litigation.

The merits continue to be debated, but CDFs appear entrenched as a key HMRC method for resolving major tax fraud cases without prosecution. HMRC maintains that improving CDF’s consistency and equitability through ongoing reforms is imperative.

Implications of HMRC’s CDF Power Grab

HMRC seems committed to the considerably tougher disclosure regime introduced in its 2023 updates. Several implications appear likely from this pivot to a more stringent disclosure environment:

• Fewer, higher-quality CDFs: With the bar raised for satisfactory compliance, HMRC may tighten criteria for cases deemed suitable for civil resolution, yielding fewer but higher-value CDFs.
• Increased civil penalties: Given the expansive reporting now required, HMRC may feel empowered to impose sterner financial penalties for disclosed offences, no longer restrained by cooperation doubts.
• More rejected CDF offers: Some taxpayers may dislike the amplified burdens and prefer to take their chances with criminal prosecution. Outside settlement may rise too.
• Greater reliance on advisors: Specialist counsel may become more common, given heightened complexity. Advisor costs seem set to climb.
• Ongoing non-compliance risks: Aggressive monitoring could incentivize some taxpayers to go fully undeclared. However, HMRC appears well-armed to pursue such egregious evaders.

While fewer cases may be settled by CDF initially, HMRC likely views this trade-off as acceptable to cement disclosures’ accountability and comprehensiveness. But if non-compliance escalates due to the more draconian environment, some future CDF relaxation can’t be ruled out.

Our Advice: The extensive new COP9 guidelines exemplify HMRC’s hardened stance against tax evasion through a more stringent voluntary disclosure regime. Although CDF participation may fall short-term as taxpayers grapple with the tough new demands, bolstering accountability aligns with HMRC’s strategic priorities.

Stakeholders will monitor how these untested measures perform. But HMRC’s sweeping CDF enhancements underscore its steeliness to equip investigators with all levers necessary to pursue undeclared billions in dodged taxes zealously – even for taxpayers afforded CDF privileges. HMRC appears fully committed to its bold new CDF strictness gamble.

For COP9 Tax Investigations, tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.