What is a Code of Practice 8 ?
A Code Of Practice 8 (COP 8) is where HMRC believe that you may have taken part in a tax avoidance or arrangement scheme to pay less tax. It is issued by the (FIS) HMRC Fraud Investigation Service. They may issue you with a leaflet in cases where they do not suspect you of any criminal misconduct. It is not therefore issued in cases where a person partook in an illegal activity where HMRC may suspect tax fraud or UK tax evasion. They simply suspect that all taxes have not been paid.
HMRC are now using COP 8s where they suspect people of having offshore interests. In the past HMRC only used them where they suspected aggressive tax planning which may have included:
Income Planning (Loans Used Instead of Income from a company))
Film Partnership Schemes
Trusts used as part of inheritance tax planning.
Employee Benefit Trusts
Stamp Duty Land Tax Planning (SDLP).
Other planning where the law requires that a Disclosure of tax avoidance schemes (DOTAS) number be issued.
One further definition of COP 8 is:
‘A situation where less tax is paid than Parliament intended. Or more tax would have been paid, if Parliament turned its mind to the specific issue in question’.
Over the past few years, the number of uses of COP 8 has reduced considerably. It is not hard to see why when HMRC have been using retrospective legislation to recover any underpaid tax they believe is due. They have also introduced strict penalties against professional bodies such as Lawyers and Accountants where tax planning is provided as part of their service.
This highlights an important issue. All fiscal authorities are becoming less and less concerned with the fine distinctions between tax planning and avoidance and more and more concerned with the effect on the yield to the Exchequer.
That said, inspectors need to have, in simple terms, a working concept of it in order to properly identify cases which can be worked under the code.
The starting point should be that one would normally expect taxpayers to pay tax on their income or profits. Although in Ramsay v CIR (54TC101) Lord Wilberforce reaffirmed that taxpayers are entitled to arrange their affairs to effect reductions in their tax liabilities. It is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot and a COP 8 may be the result.
Tax planning and Avoidance
Tax planning and avoidance are legitimate and arrangements to avoid specific charging is acceptable. Such as sections or to maximise tax allowances, reliefs or exemptions. However, it does not follow that this planning always works. An example of an unsuccessful attempt to gain an advantage is to be seen in the case of Magnavox Electronics Company Limited v Hall at 59TC610. The taxpayer sought to ensure that a chargeable gain was made in the same accounting period as a gain on sale on the original contract.
In relation to a planning scheme, Tucker J approved the HMRC challenge (in the Roux case) saying;
The taxpayer entered into these schemes presumably after taking professional advice. In the full knowledge of what was involved and with the sole object of avoiding payment of tax. He must have known or must be presumed to have known, of the risks of Revenue disapproval. [of the Pension Scheme]. And of all that involved, but he must have considered the fiscal advantages sufficiently attractive to warrant the taking of the risk.’
HMRC is now switching its attention to Offshore tax. People may not technically reside or be domiciled in the UK
In late 2018 the Common Reporting Standard (AEOI) or Automatic Exchange of information rule which the OECD developed in 2014 came into force. This is the death knell for those involved in hiding money offshore as it meant the sharing of information on an international scale.
HMRC now collects information from banks, building societies and other financial institutions. If it finds a link to anyone in another country then alarm bells ring! This results in information flying around the world alerting the relevant tax authority.
The Risk and Intelligence section of HMRC sends out many letters already, asking individuals if they have declared all their income.
What are the COP8 penalties?
Penalties are high where individuals with accounts offshore get their sums wrong (whether this is on purpose or accidentally).
HMRC will issue Code of Practice 8 if they suspect that an individual has overseas links. The rationale being that they have undertaken elaborate tax planning in order to reduce the amount of tax they pay in the UK. Very often what was considered perfectly legitimate tax planning may now be deemed illegal and the individual has been caught out by the change in legislation. What may have been legitimate, may now not be! People are advised in the COP 8 notice to get professional advice as huge sums may be at stake!
Call 0800 471 4546 NOW for professional advice and representation for your COP 8 investigation.
Whatever HMRC are not above the law and they must follow strict guidelines when issuing a COP 8.
The Code’s leaflet says all the information they require must be presented to HMRC. A meeting with they may also be required. To discuss the situation early on. However, we do not advise that you meet with HMRC. Speak with us before you speak with the. Go it alone and you could face a long and drawn out investigation which may not go your way However reasonable they may sound on the phone their sole purpose is to collect extra tax from you, not to be nice!
What Are The Reasons For a COP 8?
HMRC may present a very vague reason for starting a COP 8 enquiry, even though they are bound to give a good reason. It is up to the individual to show caution before sharing any information with them. This is where we come in. Do not speak with them before speaking with us. We are professionals and we do this every day – you presumably are not! This is true but the explanation is usually very vague and open to interpretation.
HMRC may well trip up the individual into revealing far more than they should. If they determine that the person has deliberately submitted returns which they knew were incorrect then the whole thing could blow up and far from a simple COP 8 enquiry, it could result in a full-on Code of Practice 9 case where the person is then suspected of something far more dangerous; tax fraud!
Kinsella Tax are Code of Practice 8 Experts.
Our approach at Kinsella Tax is to when there is an investigation is to speak with you and assemble all the facts together before deciding on a course of action. This process is completely confidential. We DO NOT share information with HMRC – we are completely independent!
In doing so, we will decide what is provided to HMRC and whether a meeting is required. If a meeting is necessary, we will attend it with you. This leads to a much easier situation for you to handle and ultimately a quicker and probably more favourable settlement. Why go through the pain of this on your own. Pointless questioning by HMRC can unnerve and individual and mistakes can cost serious money! Let us handle your enquiry. Speak with us in confidence today.
If you have taken part in a scheme then HMRC may send you an Accelerated Payment Notice. If you receive one of these then call us right away!