Tax investigations and disclosures

Sometimes things go awry in tax. Where deliberate understatement is involved or alleged matters can become stressful. But having an experienced adviser on your side can make a huge difference. We particularly specialize in enquiries involving serious tax fraud is alleged – so-called “Code 9” enquiries – and advising clients who are considering making voluntary disclosures.

Code 9 enquiries

“Code 9” enquiries (so called from the HMRC Code of Practice under which they are conducted) are cases where HMRC suspect tax fraud involving substantial tax loss. Sometimes a “Code 9 challenge” will come out of the blue, direct from one of HMRC’s specialist tax investigation units, usually as a result of some information held by HMRC. In other cases a local compliance office will have concerns that a routine check has started to uncover evidence of serious fraud which is beyond the remit of the local office.

Regardless of the source, HMRC’s first action on designating a “Code 9” case will normally be to write a “challenge letter” saying that they suspect you of committing tax fraud. At the same time they will offer the “Contractual Disclosure Facility” (“CDF”). The temptation to ignore such a letter is great but you must resist it: burying your head in the sand is the worst thing to do: if you fail to respond within 60 days you lose all effective control over the enquiry. HMRC have published a helpful and detailed CDF guide which is well worth looking at. The key point to focus on is that offer of the CDF is to some extent good news: settling with HMRC may cost you money but you are not going to face prosecution.

HMRC will always need to be satisfied that any disclosure made under the CDF is complete and reliable. This is where experience counts. Our team includes consultants with experience of working on the “other side” who are well-placed to negotiate with HMRC what needs to be included; what are the “risk areas” to be reported on; what audit tests are appropriate to satisfy HMRC; how many years need to be covered in detail; and so on. All of this is with a view to presenting a report which meets HMRC’s requirements and is not thrown back at you; while at the same time containing as far as possible the impact of the investigation on your life and your business in terms of stress and financial cost.

Some advisers positively boast of their confrontational and aggressive approach to HMRC. We don’t. We firmly believe that such an approach is never in the client’s best interests. Of course, there are many cases in which widely varying conclusions can be drawn from the factual matrix of an investigation report. We are no soft touch and we will fight our corner with the best of them: but one of our strengths is the reputation and credibility we have built up over many years with HMRC. We don’t “play games” with your investigation: we aim to address with you on a frank and open basis the matters which need to be addressed, to build a relationship of mutual respect with the HMRC Case Director assigned to the investigation and to close the enquiry in the most favourable way possible for you.

Other investigation work

Most tax enquiries do not reach SCI but are settled at district level. That is not to say that they are unimportant or that they can be lightly dismissed: even a local enquiry can cause immense disruption to the business and great personal worries. It’s not helped by the fact that local investigators are less well trained than the experts within the higher-level investigation units and not uncommonly try to overstep their powers or simply don’t know what the law is. We will be with you every step of the way in resisting unreasonable demands and, if something has to be conceded, in negotiating the best possible deal. If we think that an enquiry has run its course and should be closed we will seek a formal notice requiring HMRC to give up. If HMRC demands are not justified we will advise on taking a case to tribunal, presenting it ourselves or (if necessary and appropriate) instructing Counsel on your behalf. And above all we will help you keep to the enquiry in perspective, to get you through it and out the other side with the minimum impact on your business and your life.

Disclosures

Not all of our work arises from tax investigations initiated by HMRC. Sometimes people seek our advice on the best way to “come clean” in disclosing past irregularities to HMRC. This may involve voluntary use of the CDF or any of the confusing number of disclosure facilities which HMRC have offered in recent years to encourage voluntary disclosures, each with its own different target audience. If you have something on your mind, we are able to advise you confidentially and without commitment on the options which are open to you and the legal and practical consequences of each; to assist in the disclosure process should you decide to disclose; and, equally important, to dispel myths and ensure that you go on your way fully appraised of the position should disclosure not be your chosen course of action.