HMRC Serious Tax Investigations – latest statistics

Posted On: 15 Jul 2020

In September 2019, Amit Puri shared an article regarding HMRC’s serious civil tax investigations’ statistics. Following a further Freedom of Information Act 2000 request to HMRC, Amit now shares an updated version of his article which includes the latest Codes of Practice 8 and 9 tax investigations statistics from HMRC. This is perhaps even more poignant currently as HMRC targets covid-19/furlough related frauds.

Introduction:

Entrepreneurs and businesses know full well how exhausting and nerve-wracking it is to be under HMRC’s microscope. Even routine looking enquiries can pile on the pressure, but HMRC’s most serious investigations dig deep and often rattle clients. As experienced tax investigations specialists, we fully understand this. We make it our mission to keep up to date with the latest statistics and approaches being taken by HMRC to reduce the uncertainty and worry for our clients – offering them peace of mind and of course being their trusted ‘buffer’.

Background:

As previously outlined in my original article, HMRC’s investigations carried out under their Codes of Practice 8 and 9 are intensive and resource hungry. Without careful and experienced handling a client’s interests cannot be fully protected and the processes managed with more certainty. HMRC are looking for lost taxes, interest for the late payment of those taxes, and typically penalties for failing to submit correct tax returns or failing to notify HMRC that taxes were payable. In addition to this, HMRC will usually seek to name and shame clients publicly – their non-financial weapon.

Last September, I examined the statistics and gave an overview of these types of investigations – and I am pleased here to offer updated figures following a further Freedom of Information Act 2000 request to HMRC.

Serious Tax Investigations – latest statistics

As a qualified former Senior Inspector of Taxes with HMRC, it is crucial to my current role at Lancaster Knox to keep up to date regarding HMRC’s structure, projects and current activities as well as policy intentions. With this in mind, my focus recently returned to the statistics for HMRC’s serious civil tax investigations, specifically those cases under Code of Practice 9 (COP9) and Code of Practice 8 (COP8).

A COP9 is a civil investigation of suspected tax fraud, where recipients of such investigation notices are challenged as to having acted with deliberate/fraudulent intent. They are then given an opportunity to admit tax fraud at the outset (at high-level) as part of being able to voluntarily disclose the details. They must disclose all the background and history, compute the taxes payable, the late payment interest and penalties payable thereon, and all at their own cost. HMRC’s framework in these circumstances allows people and businesses to commission suitably comprehensive disclosure reports, usually prepared by seasoned tax investigations specialists, instead of lengthy, in-depth and intrusive investigations by HMRC in correspondence and meetings, which can run on for many years.

I have also queried statistics relating to COP8 investigations, where large amounts of tax are considered to be at stake but not necessarily due to tax fraud. These are usually reserved for cases of mass-marketed avoidance and/or bespoke tax planning, where HMRC is likely to have made a discovery of historic tax risks as a result of uncovering new information. It may also be the case that HMRC are acting on intelligence received (e.g. from unhappy family members, (ex) business partners, domestic or foreign banks). These investigations also typically span numerous tax years and accounting periods for businesses.

COP9 and COP8 investigations are carried out exclusively by HMRC’s Fraud Investigation Service (FIS), formerly Specialist Investigations. These are non-routine civil interventions, with a view to financial recovery (as opposed to Criminal Investigations where the objective is a prosecution). FIS investigators are often referred to as the ‘elite’ of HMRC inspectors due to the amounts of tax involved, the number of years and accounting periods involved, sometimes in addition to the number and calibre of the professional advisers representing individuals and businesses.

Certainly, one cannot usually expect to reply to these investigators once or twice to bring about swift conclusions. The investigations are usually much more involving, because HMRC invest significant time in preparation, carrying out internal and sometimes third party checks well in advance.

There are comparatively fewer of these specialist investigators up and down the country compared to the number of non-specialist inspectors (for example, those operating in other front-line directorates like Wealthy & Mid-sized Business Compliance (WMBC) and Individuals & Small Business Compliance (ISBC). The latter parts make up the vast majority of HMRC’s investigative personnel.

An overview of the serious civil tax investigations (COP8 and COP9) statistics.

CoP8 2016-17 2017-18 2018-19 2019-20
Cases opened 297 369 258 271
Cases closed 218 249 380 328
Yield recorded £70,063,729 £73,691,338 £118,473,279 £115,179,253

 

CoP9 2016-17 2017-18 2018-19 2019-20
Cases opened 549 486 438 425
Cases closed 340 375 512 528
Yield recorded £161,101,906 £91,132,829 £95,829,887 £121,282,884

 

What the Statistics Mean?

The statistics previously painted a mixed picture of priorities at HMRC and I covered them in detail in my previous article (please see here). I’ll avoid repeating most of those considerations here for the sake of brevity, but some things need to be re-said!

For example, the man on the street can reasonably expect that more specialist resources in areas like FIS, do and will, result in increased tax revenues collected through this specialist action. However, it is clear that over the years HMRC have managed to open fewer COP8 and COP9 investigations. Perhaps this is owing to the fact that a considerable number of experienced and older investigators have retired and are being encouraged to retire early to assist HMRC meet lingering austerity budget cuts.

Notably, HMRC still seem to prefer launching COP9 cases over COP8. Perhaps this is because COP9 Notices of Investigation tend to send shivers down the spines of recipients given the clear allegation of suspected tax fraud. Usually, if the person has not sought out the COP9 process voluntarily (to secure immunity from a criminal investigation and potential prosecution), then after exploratory conversations with their advisers they normally accept HMRC’s offer which is that they confirm the tax frauds at high-level and then commission a detailed report (at their own cost) to bring out what happened, when, why, how, with whom, plus evidence and figures etc. From my experience, most tend to opt to make full disclosures to safeguard their positions – which is what HMRC bank on!

COP8 Notices of Investigation are comparatively underrated because HMRC don’t always explain what their interest is at the outset. So in many cases, they appear similar to more routine looking enquiries. However, as things progress clients and accountants tend to realise that HMRC’s investigators are looking at transactions/matters concerning periods that are several years old and are ready to force their hand by using formal Information Notices to gather facts and evidence. They even approach third parties with relatively less discourse. These investigators are well equipped to suspect/allege careless behaviour and sometimes even deliberate actions/fraud, so as to confirm their reasoning for looking at older periods and any intentions to raise assessments if their investigations are resisted, or delayed etc.

Those with experience of carrying out these types of investigations and others who have witnessed them will be familiar with the two completely different approaches. It follows that in a COP9, a client and their advisers can and should take control of the case by securing the disclosure process, that is, investigating matters in detail themselves and approaching third parties themselves, e.g. suppliers, customers, banks etc. if necessary. They can and should manage HMRC’s expectations regarding timeframes, progress, and the making of payments on account. Conversely, in a COP8, HMRC are investigating from the outset, that is, they are asking the questions to confirm the risks they’ve identified and identifying evidence to support that (or sometimes to support clients’ arguments/contentions). From experience, I would say that a COP8 is more difficult to manage. Due to the uncertainty in not always knowing what HMRC are thinking and doing and why add to this, their ability to investigate using third-parties directly – the outcome of which can result in reputational damage.

Turning back to the new statistics, I don’t consider the changes in the number of cases opened, cases closed and the yield secured by HMRC regarding COP8 investigations to suggest anything material or meaningful for us. However, in the case of COP9, where only a few less cases were opened and a few more were closed, the yields secured rose sharply from £95,829,887 to £121,282,884 – that is some feat. It would seem that HMRC’s suspicions of tax fraud have been proven increasingly or maybe HMRC’s policy for identifying COP9 cases has been improving. With there being far fewer experienced and seasoned investigators around nowadays I believe it’s the latter; projects’ criteria seems to be proving fruitful. Alternatively, perhaps a small number of large/high-yielding cases have been concluded which have skewed these figures.

 Ancillary statistics

Previously, we highlighted that the financial yield figures excluded results from other cases being worked elsewhere within HMRC (e.g. WMBC & ISBC) where FIS investigators were involved with leading and project managing those. Interestingly HMRC have this time provided some “experimental statistics representing FIS led investigations that feature joint working where compliance yield has been recorded by the other business area”. We can confirm that the yield figures quoted above included corresponding £2,976,639 and £1,930,388 amounts respectively from COP8 and COP9 cases…

These figures are curious because we have never seen such before. We know only FIS carry out such serious civil investigations and are aware that COP8 cases are used sometimes to project manage many similar cases, risks, groups of clients. Also, both COP8 and COP9 cases lead to information about other persons which is then shared within HMRC to commence appropriate action, i.e. spin-offs inside and outside of FIS as appropriate. We have the corresponding number of such cases opened and closed too (included in the totals given above) but we cannot currently conclude on the value these bring so we don’t comment on them here further.

HMRC are increasing their resources in FIS regularly, with a reported c. 4,500 employees working there. It’s safe to say we expect FIS to be increasingly more active going forward.

Also, the media is currently full of news about businesses being accused of fraudulent financial claims under the covid-19/furlough schemes. We can assist in examining those allegations and identifying, gathering and considering evidence to support struggling businesses being incorrectly targeted.

 How we can help?

We are experts at resolving contentious tax issues accurately and efficiently; highly adept at managing our clients’ interactions with HMRC to ensure processes run smoothly and that our clients’ interests are best protected at all times.

Importantly, we deliver that all-important and trusted ‘buffer’ between our client and HMRC during their in-depth and intrusive investigations and in voluntary disclosures.

We believe it’s in a client’s best interest to discuss these types of matters with an ‘independent specialist’ even if there are no discrepancies to disclose. The right help at the right time ensures that HMRC are effectively managed and enquiries are concluded expeditiously.

Get in touch to learn more about how Amit and the team have successfully guided clients through the COP9 or COP8 investigation processes.

Learn more about how we have helped our clients through their kind feedback here.