HMRC launches over 1,000 Serious tax investigations in Major Crackdown

In the fiscal year ending March 31, 2023, Her Majesty's Revenue and Customs (HMRC) launched a significant crackdown on tax evasion and avoidance, initiating 1,091 serious tax investigations, according to multinational law firm Pinsent Masons. These investigations, known as 'COP8' and 'COP9,' offer taxpayers the opportunity to mitigate penalties, including potential prison sentences, by fully cooperating with HMRC.

The investigations comprised 417 'COP9' inquiries into the most serious suspected cases of tax evasion and 674 'COP8' civil investigations into individuals believed to be avoiding taxes. Overall, HMRC currently has 3,300 ongoing 'COP8' and 'COP9' investigations as part of its effort to tackle major tax evasion and avoidance.

The Tax Gap, representing the shortfall between expected and actual tax payments, attributable to tax evasion, reached £4.7 billion in 2021/22, witnessing a £1 billion increase from the previous fiscal year. Additionally, tax avoidance schemes contributed an additional £1.4 billion in 2021/22.

Penalties in both 'COP8' and 'COP9' investigations are behavior-based, varying depending on whether the taxpayer's actions were reasonable, careless, or deliberate. Deliberate concealment of irregularities may result in penalties of up to 100% of the tax for UK matters, with even higher penalties for offshore matters. However, cooperation can significantly reduce penalties, requiring a complete, accurate, open, and honest disclosure of all deliberate behaviors affecting tax.

'COP9' investigations are exclusively opened for taxpayers suspected of committing tax fraud. Full cooperation provides protection from criminal prosecution and prison sentences, with HMRC retaining the right to pursue criminal investigations if false statements or documents are provided. 'COP8' investigations, focusing on those suspected of artificially lowering tax bills through avoidance schemes, offer an opportunity to avoid severe civil financial penalties.

Prominent figures like Bernie Ecclestone and Dominic Chappell have faced consequences for non-compliance. Ecclestone, subject to a 'COP9' investigation, received a £650 million fine for failing to cooperate fully. Chappell, following a 'COP9' investigation in 2020, was released from prison in November 2023 after evading approximately £600,000 in taxes.

Sophie Warren, Tax Manager at Pinsent Masons, emphasized the gravity of 'COP8' and 'COP9' investigations, stating they represent the "last chance saloon" for those involved in fraudulent tax evasion or avoidance. While the investigations provide an opportunity to come clean to HMRC, failure to cooperate can lead to substantial fines or imprisonment.

'COP9' investigations generated £89 million for HMRC, and 'COP8' investigations contributed £72.4 million in the 12 months leading to March 31, 2023. The outcomes highlight the significant financial impact of these investigations in the government's pursuit of tax compliance.