Involved in Fraud ? – Yes or No

Have you been involved in Fraud – only two answers possible:

By: Andrew Stephenson

Code of Practice 9

HM Revenue & Customs enquiries HMRC regularly conduct routine enquiries into taxpayers’ affairs but occasionally they will instigate an enquiry using the Civil Investigation of Fraud procedures, also known as a ‘Code of Practice 9’  (“CoP9”) enquiry.

Fortunately we don’t often see clients on the receiving end of a HMRC CoP9 enquiry but HMRC see this as a major part of their armoury in combatting tax avoidance. Part of the opening procedure in such an enquiry is for HMRC to ask the taxpayer to declare whether they have been involved in a fraud.

Have you been involved in a Fraud?

In HMRC’s view there used to be only three possible answers to this.

  1. Firstly, an admission of fraud.
  2. Secondly a denial of acting fraudulently whilst agreeing to cooperate with HMRC in their enquiry by commissioning a report (at the taxpayer’s expense) into their taxation affairs.
  3. The final alternative would be a flat denial – in which case HMRC would undertake their own enquiry and could proceed to prosecute the taxpayer if a fraud was discovered.

In a rather worrying development HMRC have withdrawn the second option for taxpayers to deny acting fraudulently whilst agreeing to cooperate with them.

I say ‘worrying’ as until now although only the first option gave immunity from prosecution: the second denial option could also do so provided that a full disclosure was made to HMRC in the Report.

As a result of the change taxpayers can now only admit to a fraud or alternatively deny everything and risk prosecution.

A typical HMRC ‘black or white’ approach and a presumption of guilt. This is, in my view, a dangerous development: there now appears to be no facility open to a taxpayer to admit getting something wrong or doing something that falls short of constituting a fraud or of acting in a fraudulent manner, when challenged by HMRC using the CoP9 procedure.