When HM Revenue & Customs (“HMRC”) suspect tax fraud, the matter can be investigated by either a criminal or civil investigation. The objective of the civil fraud investigation is to deal with fraud in a cost effective manner where appropriate. Criminal investigations remain reserved for cases “where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate”.

However, it is important to note that HMRC has complete discretion to conduct a criminal investigation with a view to prosecution in any case and even where a civil investigation may seem appropriate, it is by no means guaranteed. Furthermore, where a civil investigation is commenced, subject to your conduct a criminal investigation may still follow.

Code of Practice 9

When a civil fraud investigation is deemed appropriate, it is implemented under Code of Practice 9 (“COP 9”).

The recipient of a COP 9 is given the opportunity to make a complete and accurate disclosure of all their deliberate and non-deliberate conduct that has led to irregularities in their tax affairs. HMRC will not usually tell you what their suspicions are but will simply provide you with an opportunity to disclose any conduct.

The disclosure is made under a Contractual Disclosure Facility (“CDF”) and is a contractual agreement between you and the Revenue. You have 60 days to respond once an offer is made by HMRC under the CDF.  The terms of the CDF are fixed and non-negotiable.

During its civil investigation, HMRC may still commence a criminal investigation with a view to prosecution, if:

• You have failed to make a full disclosure of all irregularities;
• You reject or fail to respond to the terms of the CDF within 60 days;
• You fail to co-operate with the investigation.

Full disclosure of tax irregularities under the terms of the CDF is the only way you can be certain that a criminal investigation will not be carried out.

By complying with the terms of the CDF, you will be admitting that tax has been lost because of your deliberate conduct. HMRC will then seek to recover any tax, interest and associated penalties from evasion as far back as 20 years. Co-operating fully with the investigation will normally mean a greater reduction in any penalty and potentially avoiding further civil sanctions such as insolvency and publication.

Failure to comply with any of the terms under the CDF and strict time limits will mean the likelihood of prosecution will be increased.  It is important you seek professional advice in order to fully comply with any investigation and HMRC can deal directly with your appointed adviser during the course of the investigation.

If you require assistance complying with a HMRC civil fraud investigation or you are subject to a criminal investigation, please feel free to get in touch with a member of JMW’s Business Crime & Regulatory team on 0345 872 6666. ​​​​​