Code of Practice 8 and other non-fraud investigations

HMRC’s Specialist Investigations directorate (SI) undertakes the most serious or complex investigations, whether involving suspected serious fraud or legal avoidance not involving fraud. Whichever approach they take, a letter from SI is never good news. On this page we discuss civil investigations not involving suspected fraud.

Code of Practice 8 (COP 8)

Investigations under COP 8 are carried out by the Fraud and Avoidance section of SI but do not involve an allegation of suspected serious fraud at the outset. However, it is possible for such investigations to be converted into COP9 investigations, or even criminal investigations, if evidence of fraud is revealed by the investigation. Therefore investigations under COP8 should always be treated with the utmost seriousness.

Investigations under COP8 would normally involve a potential minimum of £500,000 extra tax, interest and penalties, and would usually involve complex technical matters. Most investigations into tax avoidance arrangements are dealt with under COP8.

COP8 investigations do not follow the standardised formality of Civil Investigation of Fraud investigations undertaken under COP9 and it is rarely appropriate for them to involve the preparation of a report. Instead, the investigation is likely to focus on the gathering of large amounts of information, including copies of communications between the parties involved in the arrangements. In such situations, knowledge of the boundaries of HMRC’s powers and the protections of privilege becomes particularly vital.

Investigations under COP8 can be very long and drawn-out, often spanning many years. This problem is increasing as the number of tax avoidance cases disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) regulations and HMRC’s uncompromising approach under its Litigation and Settlement Strategy have combined to produce a huge backlog of cases which are proceeding slowly towards litigation.

In these circumstances it is essential that the professional advisor takes a pro-active approach to the investigation, seeking wherever possible to curtail the volume of information requested and if necessary applying to the Tribunal for a closure notice if HMRC’s enquiries are unjustifiable or if their delays in dealing with correspondence become unacceptable. We have experience in all these aspects and have successfully applied for closure notices in complex cases.

The possibility of litigation

Because investigations under COP8 involve by definition high value and technically complex issues, the possibility of litigation must always be borne in mind. HMRC’s approach to dispute resolution is contained in its published Litigation and Settlement Strategy (LSS), which requires HMRC to seek non-confrontational solutions wherever possible, but at the same time not to compromise if they believe their case to be strong (which in our experience they invariably do!). Litigating complex issues in the Tax Tribunal (or higher courts) has to be regarded as the absolute last resort. We have very wide experience in all forms of tax litigation (see our pages on Appeals, Dispute Resolution and Litigation), but the objective must always be to secure a settlement without recourse to the Tax Tribunal if at all possible.

In our experience, being prepared for the worst case is usually the best guarantee that things will not come to that. However, it takes two parties to reach an agreement, and if HMRC are unwilling to compromise, then recourse to the Tax Tribunal may be the only option.

By working with Covertax you will have the reassurance that if litigation is inevitable, we have the expertise to let you know what to expect and to guide you through the process with the best chance of success.

Other SI investigations

HMRC Specialist Investigations directorate has a number of smaller specialist teams within it. We have recently dealt with cases involving the Insolvency and Securities team and the Labour Provider Unit. These usually conduct investigations outside COP 8 and often take over investigations initiated by local compliance teams.