UK Tax Investigations – Latest Statistics

Posted On: 12 Sep 2019

The latest statistics for serious civil tax investigations were recently obtained by Lancaster Knox’s Amit Puri, in response to a Freedom of Information Act 2000 request to HM Revenue & Customs (HMRC).  Prior to joining the team at Lancaster Knox, Amit spent almost 11 years working as a senior tax inspector with HMRC. In this article he shares his thoughts and latest insights with regards to serious civil tax investigations.

As a qualified senior Inspector of Taxes with HMRC, it is crucial to my current role to keep up to date regarding HMRC’s structure, projects and activities.  With this in mind my focus recently turned to the subject of serious civil tax investigations, specifically, the number of Code of Practice 9 (COP9) and Code of Practice 8 (COP8) cases currently being investigated.

A COP9 is a civil investigation of tax fraud, whereby recipients of such investigations are challenged as to having acted with deliberate/fraudulent intent. Recipients of these Notices are then given an opportunity to admit tax fraud at the outset as part of voluntarily disclosing. 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, in lieu of lengthy, in-depth and intrusive investigations by HMRC, which can run on for many years.

I 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 or bespoke tax avoidance or 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, business partners, domestic banks or foreign banks). These investigations 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 with a view to prosecution). FIS inspectors are often referred to as the ‘elite’ of HMRC investigators, due to the amounts of tax involved, the number of years and/or accounting periods involved, in addition to sometimes 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 the investigations to swift conclusions. The investigations are much more involving, because HMRC invests significant time preparing such investigations, carrying out internal and sometimes third party checks well in advance. There are also comparatively fewer of these specialised 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.

Coming back to FIS and serious civil tax investigations (COP9 and COP8) –

2016-17 2017-18 2018-19
CoP8
Cases opened 297 369 258
Cases closed 218 249 380
Yield recorded £70,063,729 £73,691,338 £118,473,279
CoP9
Cases opened 549 486 438
Cases closed 340 375 512
Yield recorded £161,101,906 £91,132,829 £95,829,887

 

The statistics paint a mixed picture of priorities at HMRC. For example, the man on the street reasonably expects that more specialist resources in areas like FIS result in increased tax revenues collected through action taken. However, it is clear that over the last three tax 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, or are being encouraged to retire early to assist HMRC meet lingering austerity budget cuts. It is equally possible that secondary key performance indicators such as Average Age of Open Cases and Average Elapsed Times have taken some precedence over new investigations.

While the average level of “yield” for HMRC seems to be consistent in closed COP8 investigations, at approximately £296,000 – £321,000, the results differ considerably for closed COP9 investigations. In the latter, the approximate average yield went from £474,000 to £243,000, and then to £187,000. Perhaps as a result of COP9 investigations being closed more quickly where suspicions of tax fraud have not been proven, or maybe this points to HMRC’s policy for identifying COP9 cases weakening as a result of fewer experienced and seasoned investigators.

Here at Lancaster Knox, we are mindful that HMRC also reported that the numbers of opened and closed cases are actually higher, with the statistics referring only to cases where compliance yield figures were only recorded against cases with positive outcomes.

We should also highlight that the financial yield figures exclude results from all the cases being worked elsewhere within HMRC (e.g. WMBC & ISBC), where FIS investigators were still involved with leading and project managing those interventions.

In summary, we could assume that going forward the stats seem to indicate that people and businesses are less likely to be the subject of a COP8 and COP9 civil tax investigation.  However, with HMRC increasing their resources into FIS, one might suggest that their primary focus will be to help close long running investigations first.  Either way, with a reported 4,500 employees now working in FIS, it would be safe to say we can definitely expect them to be noticeably more active going forward!

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

Amit’s article has also been published by Taxation magazine.  You can find the online version here