HMRC is issuing Code of Practice 9 ('CoP9') to scheme users

News Article

Our last update regarding the Clavis Trust/Herald Employment & Recruitment Services Ltd ('HERS') Employee Benefit Trusts, set out our concerns and suspicions for what the ongoing HMRC 'internal review' could mean for clients who had implemented these arrangements. We now appear to have an answer and unfortunately it looks as though our suspicions were correct; HMRC is issuing Code of Practice 9 ('CoP9') to scheme users. If you have clients who implemented these arrangements, please read this update.

In issuing CoP9 HMRC is making clear its belief that clients who entered into these schemes committed tax fraud or were involved in deliberate behaviour. As a result, HMRC is issuing CoP 9 to scheme users inviting them to make a disclosure.

What does receiving CoP9 mean for my clients?

In issuing Cop 9 HMRC suspect that the tax scheme entered into involved some element of deliberate behaviour or dishonesty. So, for example, in the context of these particular arrangements HMRC may believe that there was knowledge on behalf of the client that the advice received from the HR company was just part of the overall tax scheme and lacked any real substance. If so, the claim subsequently made in the company’s tax return to seek a deduction for the contribution to the EBT was, HMRC may argue, made in the knowledge that it was not due. If there was no discussion between a representative of the HR company and your client on their specific facts and circumstances (or a limited discussion) HMRC could argue that this adds further weight to its view.

While we do not necessarily agree with HMRCs decision or this potential interpretation of the facts, care needs to be taken in how your clients respond.

What should my clents do if they receive CoP9?

The initial stage of a CoP9 investigation requires your clients to respond to the 'contract' offered by HMRC within 60 days of receipt of the notice. In a nutshell, this involves your client either accepting that there was 'dishonest' conduct and providing an outline disclosure or rejecting HMRCs offer to make a full disclosure. Given the complex nature of the arrangements and the issues involved, deciding on the best course of action requires consideration of the facts and careful discussion with your client because the risks involved in getting it wrong can be significant.

It is also worth noting that in issuing CoP9, HMRC are challenging your client to disclose any tax irregularities without limit of time (usually the last 20 years per HMRCs assessing powers). These could have nothing to do with the tax scheme on which the CoP9 may have been issued. Again, it's important that clients understand the issues and obligations before signing any of the documents requested by HMRC.

If you would like more information or would like to arrange a meeting, please get in touch. We are currently advising a number of clients involved in these specific arrangements.

Please also visit the CoP9 page for further information on how to respond to this type of investigation.

If you have clients who might benefit from a review of their arrangements or believe they may have historic tax issues please contact us.

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