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An Overview of COP8 Tax Avoidance and Compliance Measures
COP8 is a specific approach used by HMRC to deal with cases of suspected tax avoidance, it stands for “Code of Practice 8,” and provides guidance to HMRC officers on how to handle tax avoidance cases where there is uncertainty or disagreement in relation to a taxpayer’s intentions and whether they have used complex arrangements to reduce their tax liability.
- tax avoidance is the practice of mitigating ones tax liability within the confines of the law, using various tax planning strategies and legal mechanisms.
- while tax avoidance itself is not illegal, aggressive tax avoidance schemes, especially those that exploit loopholes or involve artificial and contrived structures to evade taxes, have been a growing concern for governments worldwide for a number of years.
When is a COP8 investigation used?
A COP8 investigation is reserved for cases that fall outside the scope of ordinary compliance checks and self-assessment investigations, and is designed to deal with situations where HMRC suspects that the taxpayer may have adopted a tax avoidance scheme, but there is insufficient evidence to launch a formal tax avoidance inquiry (under COP9) or a criminal prosecution.
The primary purpose of a COP8 investigation is to provide clarity and certainty to both taxpayers and HMRC regarding their tax affairs, it allows HMRC to gain a deeper understanding of the taxpayer’s intentions, motivations, and actions that led to the tax planning, while also providing taxpayers with an opportunity to explain their tax arrangements and demonstrate compliance with tax laws.
HMRC investigations and discussions
During an investigation, HMRC officers will engage in discussions with the taxpayer or their representatives to gather information and evidence related to the tax avoidance scheme. The process typically involves:
1. Issue identification
HMRC identifies potential issues with a tax planning arrangement, in particular the application of tax law and the taxpayers reasons for participation.
2. Provision of information
The taxpayer is then required to provide all relevant information, documents, and explanations related to the tax arrangements under scrutiny.
3. Examination and analysis
HMRC will then examine the information provided and conduct a thorough analysis of the tax planning arrangements.
4. Formal opinion
HMRC will then issue a formal decision on whether they believe the taxpayer’s actions were consistent with the tax law or whether they constituted tax avoidance.
5. Settlement discussions
If the investigation reveals tax avoidance, HMRC will initiate discussions with the taxpayer to agree on a settlement. This may involve paying the additional tax due, interest, and potential penalties. However, these decisions are appealable to the Finance and Tax Tribunal (FTT) is settlement cannot be reached.
Once the case is resolved, HMRC will close the investigation.
Is it a criminal investigation?
COP8 investigation is not a criminal investigation, nor does it carry the same level of severity as a COP9 investigation, which is reserved for cases where there is clear evidence of deliberate tax fraud. However, if a taxpayer fails to cooperate with the COP8 process or provides false information, it may lead to further investigations and potentially higher penalties.
In recent years, HMRC has significantly intensified its efforts to combat tax avoidance and aggressive tax planning, and various legislative measures have been introduced to close tax loopholes and strengthen HMRC’s powers to tackle tax evasion and avoidance more effectively.
A COP8 investigation is an important tool in HMRC’s armoury which helps deal with tax avoidance cases where there is uncertainty or complexity surrounding the taxpayer’s intentions.
How we can help you
Due to the complex nature of these investigations it is vital that tax payers seek professional help at the earliest opportunity. Our tax disputes team which includes qualified accountants and former HMRC investigators are highly experienced in handling this kind of investigation. Phone us today for a free consultation.
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