HMRC update – an insight into HMRC’s current priorities and strategies

Nudge letters

  • Fast becoming one of HMRC’s most common method of communication, this is where a standard communication is sent to many taxpayers who HMRC believes may have a tax issue to disclose, based on specific information they hold.
  • Nudge letters are much more cost effective for HMRC than opening full enquiries, as has traditionally been done. However, we expect HMRC to open enquiries into those who do not respond or make a full disclosure.
  • We are seeing these letters being issued for increasingly specific matters, most recently into Research and Development (R&D) claims and Electronic Sales Suppression (ESS) being used in businesses.
  • Should you receive a nudge letter, please send a copy to your haysmacintyre contact, as we do not always receive copies of all HMRC communications.

Code of Practice 9 (COP9) fraud enquiries

  • COP9 is HMRC’s most serious civil investigation type, where HMRC alleges fraud against a taxpayer. We are seeing an increase in such enquiries being opened, as HMRC focuses its compliance resource on those who have made the biggest mistakes.
  • COP9 provides immunity from prosecution but only for matters which are fully disclosed, so it is crucial to act quickly, make a full disclosure and adhere to the process.

Time to Pay (TTP) arrangements

Due to the ongoing cost of living crisis, many are finding themselves unable to pay tax bills outright and requiring a TTP arrangement. HMRC may agree to this but, in our experience, they are being much tougher in agreeing payment arrangements lasting more than six months, requiring sight of financial information to determine what may be possible.  Approaching HMRC and agreeing a TTP arrangement before a liability becomes due, reduces penalty charges and is favourable in the eyes of HMRC.

Notices of requirement to give security

Applicable to owner-managed businesses, such formal notices can require a business, or its directors, to provide funds as a deposit against current and future tax liabilities. It is usually issued where HMRC has concerns the business may not pay the tax liability and demand significant sums of money from directors personally. We have seen increased use of security notices and have succeeded in assisting clients overturn the demands of these notices by agreeing alternative terms with HMRC.

Settlements and enquiries into investments HMRC now consider to be avoidance schemes

These matters can often run over many years whilst HMRC seeks to defeat schemes in the courts, but with the increases in interest rates recently (HMRC’s late payment rate is currently 6.75%), interest charges can add up over the course of an enquiry. Seeking settlement with HMRC is possible, or even making an advance payment of the tax, where possible, to mitigate overall interest charges.

We are seeing HMRC amendments to earlier years’ tax returns following the conclusion of long-running enquiries.

It is vitally important to seek experienced professional advice and thoroughly check HMRC’s settlement calculations. We are regularly identifying errors in such calculations, usually in HMRC’s favour.

Please also note that payment of an Accelerated Payment Notice (APN) or Partner Payment Notice (PPN) are only advance payments of the tax and do not represent settlement in HMRC’s eyes. Such payments do not conclude open enquiries and interest will be payable from the original tax payment due date, until payment was made to HMRC.

Penalties issued by HMRC, including late filing and late payment

We strongly recommend seeking professional advice in relation to any HMRC penalties issued. There is a defined appeal process in relation to HMRC’s penalty regimes and it may be that penalties could be appealed, mitigated or, in some cases, suspended.

Our Tax Disputes & Resolutions team have a wealth of experience dealing with all HMRC matters. If you would like to discuss any of the above in more detail, or have an HMRC enquiry, dispute or appeal that we may be able to assist with, please get in touch your usual haysmacintyre contact, Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

Pandora Papers: HMRC sends ‘nudge letters’ to taxpayers

Two years after the announcement in October 2021 that HMRC were to consider an investigation, HMRC has started issuing letters to some of the taxpayers named, requesting they review their tax affairs. Letters will be sent to hundreds of taxpayers, and they will have 30 days to respond to the letter.

Should updates to their tax affairs be necessary, HMRC is recommending  that taxpayers go to the GOV.UK website and search ‘tell HMRC about underpaid tax from previous years’. There are three disclosure options, two of which are potentially relevant here – the Contract Disclose Facility (CDF) or the Digital Disclosure Service (DDS). Care must be taken, as owing to the nature of HMRC’s enquiries, the DDS may not be the most suitable method of disclosure to HMRC as fraud could be suspected. The alternative method is the Contractual Disclosure Facility (CDF), under Code of Practice 9 (COP9), which offers protection from criminal prosecution for any issues disclosed. There are similarities to the Euro Pacific Bank case, where HMRC encouraged taxpayers with connections to the now liquidated bank to use the Worldwide Disclosure Facility (WDF), although HMRC should have included reference to the CDF.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter or opens an enquiry will lead to the most favourable outcome. Following receipt of an HMRC letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than unprompted penalties rates. For example, an offshore omission can result in the maximum prompted penalty of 200%. In addition, a further penalty of 50% of the tax could be levied for an ‘asset move’; this is where assets have been moved from the UK or other jurisdictions and therefore is considered to be a method to avoid UK tax or to disguise non-compliance with UK tax legislation.

Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter in comparison to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC under the CDF and WDF, achieving the most favourable outcome for clients, bringing closure to their earlier years’ tax affairs and allowing them to move forward.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Code of Practice 9 enquiries – football agents

What is COP9?

Code of Practice 9 is HMRC’s most serious civil investigation type, which carries an allegation by HMRC of fraud or deliberate behaviour leading to a tax loss.

COP9 is one step away from criminal prosecution and is seen as the ‘last chance’ by HMRC – make a full disclosure and pay the tax, in exchange for avoiding criminal prosecution.

The COP9 process invites a disclosure under the Contractual Disclosure Facility (CDF) where all tax matters are fully disclosed. HMRC can still open a criminal prosecution into any matters which are not disclosed or if the disclosure is incomplete.

We strongly recommend seeking specialist advice as soon as the CDF is issued, as most accountants do not have the expertise to deal with COP9, or the insurance to undertake such work. In addition, you have 60 days within which to respond and make an initial disclosure, which cannot be extended, and it is this initial disclosure which offers the protection from criminal investigation.

What are the issues HMRC is looking at?

We understand the recent COP9 enquiries have been issued in relation to commission payments.

HMRC is likely to hold concrete information on such transactions and must believe they have strong evidence of deliberate behaviour for them to allege tax fraud.

We also understand HMRC has been looking into ‘dual representation contracts’ in the Premier League. This is where the same agent represents both the player and the club in transfers, negotiations, or new contracts.

Dual representation is prohibited by FA rules, however, it can be allowed if all parties provide written consent. Under this practice, the portion of the fee relating to work for the club avoids VAT, Income Tax and National Insurance.

In 2021, HMRC updated its guidance on this issue and tightened the rules by stating clubs need to keep records of evidence that they are legitimately working on both sides of the contract, as well as showing the extent to which they represent the club and the player, rather than just splitting it 50/50.

It is clear HMRC is taking a keen interest in the tax affairs of the football industry and it has shown it is willing to use its most powerful tools available to investigate any errors.

HMRC is regularly scrutinising football and associated stakeholders due to the amount of money in the game at the top level, and therefore the tax potentially lost if a mistake is made.

If you believe there are any irregularities in relation to your tax affairs, it is strongly recommended to seek professional advice. Making a voluntary disclosure, before HMRC contacts you, will result in the most favourable outcome, both in terms of the lowest possible penalties and the shortest possible timeframe to resolution, compared to an HMRC enquiry.

Should you require any assistance, please contact Danielle Ford, Partner and Head of Tax Disputes and Resolutions or Riocard Hoye, Senior Manager.

COP9 top 9 – How to deal with a COP9 enquiry

1. Do not bury your head in the sand.

The Contractual Disclosure Facility (CDF) offer has a deadline of 60 days which cannot be extended. We cover what the CDF is here.

2. Seek appropriate professional advice!

An experienced COP9 professional adviser is essential. There are fine margins in the investigation which could lead to a criminal prosecution for an incomplete or incorrect disclosure.

3. Be open and honest from the start.

Build a trusting relationship with your adviser and provide as much detail as possible to identify issues to resolve sooner. These issues may otherwise be missed and could ultimately lead to criminal prosecution.

4. Collate information and documents which may be relevant.

Doing so as early as possible will assist greatly with the outline disclosure report (ODR) and CDF reports. This may also help to reduce your adviser’s time and therefore your fees. The ODR needs to contain as much detail as possible about all deliberate and non-deliberate tax irregularities. Correct completion of this document is critical, as only disclosed irregularities will be immune from criminal prosecution.

5. Do not destroy any records or documents.

This impedes the preparation of the ODR, may result in a higher penalty being charged and could lead to criminal prosecution.

6. Prepare for the opening meeting.

A meeting will be scheduled between HMRC, yourself and your advisors. This meeting is in-depth and can last for more than five hours. The meeting can shape HMRC’s perception of your engagement with the process and unanswered questions may lengthen the overall COP9 investigation. Your professional adviser can help you to prepare for possible questions which may be asked.

7. Engage with the preparation of the disclosure report.  

Following the meeting, a full disclosure report will be commissioned, in which all irregularities will need to be fully explained with supporting evidence and disclosed to HMRC.

8. Consider how you will fund the settlement.

Whilst a COP9 enquiry can be lengthy, any agreed liabilities need to be settled at the end. Consider your cash flow and asset position early to ensure HMRC do not push for the sale of assets or bankruptcy to fund the settlement. Make payments on account where possible – late payment interest is due on unpaid tax and payments on account will stop further interest accruing. It is also viewed as a positive step by HMRC.

9. Ensure you take appropriate professional advice going forward to get things right.

Following the successful resolution of a COP9 enquiry, you will go forward with a clean slate, however future mistakes will be viewed dimly by HMRC.

COP9 professional advisers

At haysmacintyre, we have a wealth of experience in dealing with COP9 investigations. We have a proven track record in obtaining favourable results for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.

Should you require professional advice, please contact Danielle Ford, Head of Tax Disputes and Resolutions.


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