Prosecution and Code 9

Unlike proceedings which can be taken against a Company or against an individual business, which are largely civil in nature, there also exist powers of prosecution, where there is evidence of deliberate or fraudulent behaviour.

Director Disqualification proceedings are sometimes referred to as “quasi-criminal”, as they restrict the individual’s liberty, although there is no opportunity to seek committal of a Disqualified Director.

Acting as a Director whilst disqualified can result in investigations and subsequent prosecution, as can any act (as a Director) where fraudulent behaviour is suspected.  However, where tax fraud is suspected, HMRC have the power to instigate investigations into such suspected fraud and ultimately apply a financial penalty or seek a prosecution of the offender.

What is Tax Fraud?

In respect of non-disclosure of taxes that may be due to HMRC, “fraud” is defined by HMRC as any behaviour that led to or was intending to lead to the loss of taxes due to HMRC.

However, it is the deliberate avoidance of tax that HMRC are most concerned about and they define this as deliberately:

  1. Concealing or withholding relevant facts; or
  2. Failing to disclose a tax liability; or
  3. Misrepresenting your tax affairs.

With regard to tax schemes and tax arrangements generally, there exists tax disclosure facilities for such schemes and additionally they may fall under the anti-abuse provisions.  But, if such disclosure is not entered into and neither is any cooperation offered, then a tax payer may be liable to prosecution for tax fraud.

Code 9 Enquiries

“Code 9” refers to HMRC’s Code of Practice which sets out the procedure where tax fraud is suspected. 

Initially, as with all suspicions of criminal conduct (including money laundering and proceeds of crime investigations), no steps will be taken to “tip-off” the party subject to the enquiries. 

However, enquiries will continue and routine tax inspections may be used for the purpose of the gathering information on the suspected fraud, at a point where the tax payer is unaware of the secondary purpose of such inspections.

Once sufficient information has been obtained, this may lead to assessments being raised for unpaid tax and thereafter a Statutory Demand may be served or, where statutory assessments or arrears exist, a Bankruptcy Petition may be presented against you.

Where necessary or appropriate, particularly where there is evidence of deliberate behaviour to avoid tax and all other options have been exhausted or rejected, steps may be taken to prosecute an offender.

Offer of Disclosure

After investigations have been concluded, and dependant on the nature of the default, HMRC may write to you with an offer to disclose such tax losses with a specified limited period of time.

This facility is likely available where full disclosure has not yet been made but for which there may be evidence (the extent of which will be undisclosed) of such default.

The tax payer may reject the offer made and set out why HMRC is mistaken or the loss of tax did not arise through your deliberate misconduct.  If such an offer is rejected, and HMRC continue to be of the belief that taxes were lost through the tax payer’s deliberate misconduct, then a criminal investigation may be commenced.

Need for Negotiation

It cannot be overemphasised how important it is to continue corresponding and negotiate with HMRC on such matters.  It is not inconceivable that innocent arrangements or mistakes may be made by HMRC, but without communication of this they will never know.

At Francis Wilks & Jones we regularly correspond with HMRC on various claims for unpaid tax and can provide assistance to protect you or your company from enforcement by HMRC.

Please call any member of our Tax Disputes Team for your consultation now on 0207 841 0390. Alternatively email us with your query at info@franciswilksandjones.co.uk and we will call you back at a time convenient for you.