Code of Practice 9 (COP9) and Contractual Disclosure Facility (CDF)

Code of Practice 9 (COP9) is the investigative framework used where HMRC has reasonable grounds to suspect tax fraud but elects not to immediately open a criminal investigation. This approach is in line with HMRC’s published policy of seeking to reach civil rather than criminal resolutions where appropriate.

The cornerstone of Code of Practice 9 is the Contractual Disclosure Facility (CDF). A taxpayer who is invited to use the Contractual Disclosure Facility is given the opportunity to make a disclosure of all deliberate conduct that has resulted in a loss of tax. A taxpayer can also proactively request that HMRC offer the Contractual Disclosure Facility, in order to disclose matters of which HMRC is not already aware.

In exchange, HMRC will not instigate a criminal investigation or prosecution in respect of the conduct disclosed, provided that the taxpayer goes on to pay the related liability, together with penalties (which are calculated by reference to the tax loss and can be significant) and interest.

Benefits and risks

Code of Practice 9 and the Contractual Disclosure Facility can be a valuable opportunity to deal with potentially very serious misconduct. A resolution will inevitably involve a significant financial settlement and perhaps ‘naming and shaming’ through publication on HMRC’s list of Deliberate Defaulters. However, such an outcome is almost inevitably more favourable than a prolonged criminal investigation – which is likely to take years to conclude – and the risk of criminal conviction, imprisonment and confiscation proceedings.

With those high stakes in mind, it is important that the process is treated with respect and entered into after careful consideration and with the right advice.

Some of the common challenges arising from COP9/CDF invitations include:

• On receipt of a CDF invitation, the taxpayer has a strict 60-day deadline in which to accept the offer by making an ‘outline disclosure’ of the deliberate conduct.
• The protection applies only to the conduct included in the outline disclosure. If other matters subsequently come to HMRC’s attention, then there is no restriction on pursuing a criminal investigation or prosecution in respect of those new matters. In recent years, HMRC have been increasingly quick to withdraw the COP9 process where they believe a taxpayer is not making full disclosure of all misconduct.
• The taxpayer is likely to be required to commission a report into all of their tax affairs, and make a declaration confirming that the report covers all irregularities of which they are aware. If HMRC later discover undeclared liabilities or misconduct, the inaccurate declaration is likely to be used against the taxpayer.
• CDF can only be used where the taxpayer is admitting to deliberate misconduct (i.e. tax fraud). It cannot be used to obtain protection against criminal investigation where the taxpayer is only willing to admit to a non-deliberate error.

Corker Binning regularly advises client who have been invited to enter into the Contractual Disclosure Facility, or are considering whether to request an invitation. We also have experience of guiding HMRC criminal tax fraud investigations back to the civil COP9 procedure. In such cases, we work closely with the client’s tax advisors to ensure the best outcome with respect of both criminal and tax liability.