If you have received Code of Practice 9/Contractual Disclosure Facility ("CoP9") from HMRC you are being given notice that the taxman suspects you of committing tax fraud/tax evasion. This is HMRCs most serious civil investigation and so getting specialist advice at any early stage is critical in ensuring that the risks involved in this process are properly managed.

While there is a risk of criminal investigation this can be effectively managed by dealing with the CoP9 process properly from the very start. Having on side a specialist experienced in these matters can help to ensure that you make the right decisions and properly understand the risks and consequences.

It can be tempting to ignore HMRCs letter and hope it goes away, but this is unlikely to be a sensible way forward. Decisions on the most appropriate option and, if necessary, initial disclosure to HMRC will need to be made within 60 days of receipt of the Code of Practice. It is imperative that your response and subsequent actions are carefully considered.

Although this is a significant and serious issue, seeking the guidance of an experienced adviser can be instrumental in navigating the process. Typically, these cases are resolved through a civil settlement, which includes paying tax, interest, and, if appropriate, a penalty, thus allowing you and your business to move forward with a clean slate.

CoP9 presents you with a set of initial options, each requiring important decisions. Ensuring you understand the options, decisions, and consequences of any potential action at this initial stage is vital.

If your tax affairs (current or historic) necessitate a disclosure to HMRC, it is prudent to opt for full disclosure. Alternatively, if you are certain that there are no issues which could be considered as constituting tax evasion, it is still critical to communicate this position to HMRC so that their reaction to your denial is effectively managed and the risk of any criminal action mitigated, as far as possible. HMRC will have already undertaken initial research before issuing CoP9, and so your choices at this juncture should be informed and well-considered.

By choosing to disclose, you are guaranteed by HMRC that you will not face criminal investigation and prosecution for the issues disclosed. However, should you choose not to disclose and HMRC subsequently uncovers issues that constitute tax evasion, then the risk of a criminal investigation increases significantly.

Should you decide to disclose, it is incumbent upon you to submit an outline disclosure to HMRC within 60 days of receiving CoP9. This document must be meticulously prepared to ensure that it aligns with HMRC's information regarding your tax affairs and seeks to address the inspector’s suspicions.

If your outline disclosure is consistent with HMRC's records and evidence, you will receive immunity from criminal investigation and prosecution for the disclosed issues. However, any material discrepancy or inaccuracy in the disclosure could have serious consequences, underscoring the importance of precision and thoroughness in this step.

Once HMRC accepts your outline disclosure, the next step involves discussions to agree on the content and scope of the full disclosure report. This report should provide a comprehensive account of the relevant tax issues. While your advisers can assist in preparing the report, you must review and approve it before submission to HMRC.

Following the submission, HMRC will review the report for accuracy and completeness. If the report is found to be both credible and complete, this phase should progress efficiently.

• To put together a credible outline disclosure, your advisor will need to understand the tax inspector’s likely questions and be able to deal with them proactively. This ensures that the tax inspector’s reaction and next steps are properly influenced and managed.
• Once your initial disclosure is submitted, the tax inspector will check your information against the information held on file, together with the evidence which led to the original decision to issue the CoP9.
• If the inspector is satisfied that you have disclosed all material tax issues, you will be notified of this in writing. If HMRC cannot accept your initial disclosure, you will likely be notified of this in writing. If the inspector cannot accept your disclosure, the prospect of HMRC commencing its own investigation - on either a civil or criminal basis - increases significantly.
• If the initial disclosure is accepted, the next stage is for your advisor to prepare a disclosure report on your behalf. This should include details of why, how and when the irregularities arose, the amounts involved, and provide comfort to HMRC that no further issues need to be disclosed.
• Preparing a credible disclosure report that is capable of standing up to HMRC scrutiny and simultaneously seeks to mitigate, where appropriate, the tax issues can be a difficult balance. Getting this right requires accurately predicting HMRC’s questions and areas of review and proactively responding to them in the final document. If the submitted disclosure report is credible and provides the tax inspector with sufficient comfort that it is accurate and complete, it should be accepted with little further review.
• The final stage is to negotiate the amount to be paid to HMRC in a settlement. Most settlements will include the additional tax due, interest (on the additional tax due), and a penalty. The penalty will likely make up a significant part of the final amount payable to HMRC. However, this is where the benefits of providing full initial disclosure and submitting a credible and supportable disclosure report can pay dividends, as it can help to significantly reduce the penalty being sought by HMRC. Understanding, in detail, HMRC’s assessing powers and negotiation parameters is key in ensuring you can achieve the best possible outcome.
• The nature and amount of the penalty can also have much wider, non-financial consequences. HMRC has the ability to publicly ‘name and shame’ taxpayers in certain circumstances. These circumstances include situations where there has been a lack of cooperation with the investigation. So, as well as reducing the amount payable, ensuring that any penalty is mitigated as far as possible is also crucial in ensuring that the prospect of being ‘named and shamed’ is avoided.
• Ultimately, the final amount payable to HMRC is down to negotiation, so you need to be comfortable that you have an advisor on your side who is experienced and able to negotiate with HMRC effectively.