HM Revenue and Customs opened 1,091 serious tax investigations in the past year, according to law firm Pinsent Masons.
These probes – known as ‘COP8’ and ‘COP9’ investigations – allow taxpayers to avoid the heaviest penalties, including prison sentences, if they cooperate fully with HMRC.
The law firm revealed that 417 investigations into the most serious suspected cases of tax evasion under ‘COP9’ were carried out in the 12 months to March 31, 2023.
Additionally, 674 ‘COP8’ civil investigations into those believed to be avoiding tax were also carried out.
In total, HMRC has 3,300 of these COP8 and COP9 investigations under way.
Pinsent Masons said the scale of these most serious investigations forms part of a crackdown on major tax evasion and avoidance by HMRC.
One example was Former Formula 1 boss Bernie Ecclestone who recently failed to cooperate in full with a COP9 investigation centred around £400mn of overseas assets, the law firm explained.
He received a £650mn fine and was handed a 17-month sentence suspended for two years.
Sophie Warren, tax manager at Pinsent Masons, said: “The number of serious tax investigations opened by HMRC demonstrates the extent of HMRC’s crackdown on the most serious tax evasion and avoidance.
“A COP8 or COP9 investigation represents the ‘last chance saloon’ for people who have been involved in fraudulent evasion of tax or have partaken in tax avoidance schemes.
“It’s the final opportunity to come clean to HMRC. If they don’t, the scale of the penalties can be eye-watering – hundreds of millions in fines or even years in prison.”
The UK’s tax gap - the difference between the total amount of tax expected to be paid and the total amount of tax actually paid – specifically caused by tax evasion stood at £4.7bn for 2021/22, up by £1bn from 2020/21.
Tax avoidance schemes added another £1.4bn in 2021/22.
In both COP8 and COP9 investigations, the firm said the scale of penalties levied by HMRC are behaviour based, depending on whether the taxpayer took reasonable care, was careless or deliberate.
If the taxpayer is found to have deliberately concealed irregularities from HMRC, the penalty range imposed is much higher and could be as much as 100 per cent of the tax for UK matters.
However, penalties can be significantly reduced if the taxpayer cooperates fully with the investigation.
This involves disclosing all their deliberate behaviour bringing about a loss of tax and any other irregularities in their tax affairs.
Warren said: “Both forms of investigations are still fraught with risk, and HMRC may commence an investigation which may ultimately be a criminal one if you do not cooperate with HMRC.
“Those facing an investigation are strongly advised to seek specialist legal advice from the moment they receive notice that they are under investigation.
“Even if they cooperate and avoid criminal penalties, the civil penalties can still be enormous.”
Pinsent Masons said COP9 investigations generated £89mn for HMRC and the number of COP8 investigations generated £72.4mn in the 12 months to March 31, 2023.
A HMRC spokesperson said: “The majority of individuals and businesses pay the tax that is due, but there remains a determined minority who refuse to play by the rules.
“COP9 and COP8 are valuable tools in an approach that has seen us secure and protect more than £31.5bn since the launch of our Fraud Investigation Service in 2016/17.”
sonia.rach@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
