29/01/24

UK: HMRC opened 1,091 of its most serious tax investigations in a year

As published on: ifamagazine.com, Monday 29 January, 2024.

HMRC opened 1,091 serious tax investigations in the last year (March 31, 2023), says multinational law firm Pinsent Masons. These probes – known as ‘COP8’ and ‘COP9’ investigations – provide an opportunity for taxpayers to avoid the heaviest penalties, including prison sentences, if they cooperate fully with HMRC.

417 investigations into the most serious suspected cases of tax evasion under ‘COP9’ were carried out in the year. Additionally, 674‘COP8’ civil investigations into those believed to be avoiding tax were also carried out. In total HMRC has 3,300 of these COP8 and COP9 investigations under way.

The scale of these most serious investigations forms part of a crackdown on major tax evasion and avoidance by HMRC.

The UK’s Tax Gap – the difference between the total amount of tax expected to be paid and the total amount of tax actually paid – specifically caused by tax evasion stood at £4.7bn for 2021/22, up by £1bn from 2020/21. Tax avoidance schemes added another £1.4bn in 2021/22.

In both COP8 and COP9 investigations, the scale of penalties levied by HMRC are behaviour based, depending on whether the taxpayer took reasonable care, was careless or deliberate. If the taxpayer is found to have deliberately concealed irregularities from HMRC, the penalty range imposed will be much higher and could be as much as 100% of the tax for UK matters. Penalties can be even higher still for offshore matters.

Penalties can however, be significantly reduced if the taxpayer cooperates fully with the investigation. This involves making a complete, accurate, open and honest disclosure of all their deliberate behaviour bringing about a loss of tax or duty and any other irregularities in their tax affairs. 

COP9 investigations are only opened for taxpayers suspected of committing tax fraud. Cooperation with a COP9 investigation means that irregularities disclosed to HMRC in the Outline Disclosure at the start of the investigation will remain under civil investigation with protection from criminal prosecution and prison sentences. HMRC reserves the right to commence a criminal investigation with a view to prosecution however, if materially false or misleading statements or documents are provided to HMRC.

Cooperation with a COP8 investigation – into those suspected of artificially lowering their tax bills through use of tax avoidance schemes – avoids the most serious civil financial penalties.

Former Formula 1 boss Bernie Ecclestone recently failed to cooperate in full with a COP9 investigation centred around £400m of overseas assets. He received a £650m fine and narrowly escaped prison with a 17-month sentence suspended for two years.  

Dominic Chappell, the former owner of BHS, was only released from prison in November 2023 after being sentenced to prison following a COP9 investigation in 2020. He is believed to have evaded around £600,000 in tax.

Sophie Warren, Tax Manager at Pinsent Masons, says: “The number of serious tax investigations opened by HMRC demonstrates the extent of HMRC’s crackdown on the most serious tax evasion and avoidance. The Bernie Ecclestone case was a great example of the kind of major tax fraud HMRC is now targeting.”

“A COP8 or COP9 investigation represents the ‘last chance saloon’ for people who have been involved in fraudulent evasion of tax or have partaken in tax avoidance schemes. It’s the final opportunity to come clean to HMRC. If they don’t, the scale of the penalties can be eye-watering – hundreds of millions in fines or even years in prison.”

“Both forms of investigations are still fraught with risk, and HMRC may commence an investigation which may ultimately be a criminal one if you do not cooperate with HMRC. Those facing an investigation are strongly advised to seek specialist legal advice from the moment they receive notice that they are under investigation. Even if they cooperate and avoid criminal penalties, the civil penalties can still be enormous.” 

COP9 investigations generated £89m for HMRC and the number of COP8 investigations generated £72.4m for HMRC in the 12 months to March 31, 2023. 

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UK HMRC Tax investigation Regulation