HMRC Rejecting COP9 Applications: What to Do if Your CDF Outline Disclosure Is Refused

HMRC Rejecting COP9 Applications at Outline Disclosure Stage: What Taxpayers Need to Know

A New Trend in COP9 and CDF Applications?

CTM is seeing an increasingly concerning trend in HMRC Code of Practice 9 cases: voluntary COP9 applications being rejected at the Outline Disclosure stage on the basis that HMRC does not accept that deliberate conduct, dishonesty or tax fraud has occurred.

This is particularly surprising where the facts clearly indicate deliberate behaviour.

In our experience, this issue appears to be arising most often in smaller-value cases. That raises an important question: is HMRC becoming more selective about the COP9 cases it is willing to accept, especially where the tax at stake may not justify the resources required for a full Fraud Investigation Service process?

Whatever the reason, taxpayers and advisers need to understand the consequences. If a COP9 application is rejected, it is not simply a matter of asking HMRC to reinstate it. In most cases, the taxpayer must apply again.

What Is COP9?

Code of Practice 9, commonly known as COP9, is HMRC’s civil investigation procedure for suspected tax fraud.

It operates through the Contractual Disclosure Facility, or CDF. Under the CDF, a taxpayer is given the opportunity to make a full, accurate and honest disclosure of deliberate behaviour that has led to a loss of tax. In return, HMRC agrees not to open a criminal investigation into the disclosed conduct, provided the taxpayer complies fully with the process.

COP9 is therefore not designed for careless errors, innocent mistakes or technical misunderstandings. It is specifically intended for cases involving deliberate conduct.

Examples may include:

• Deliberately omitted income
• False expenses
• Suppressed takings
• Undeclared offshore income
• Misleading VAT returns
• Deliberate PAYE or CIS irregularities
• Fraudulent claims or repayments
• Dishonest conduct involving company or personal tax affairs

Where deliberate behaviour has occurred, COP9 can be an important route to regularising the position while reducing the risk of criminal investigation.

The Outline Disclosure Stage

The Outline Disclosure is a critical stage in any voluntary COP9 application.

It must explain, clearly and honestly, the deliberate conduct that has taken place. It should identify the taxes affected, the periods involved, the nature of the behaviour and the broad circumstances that led to the tax loss.

This is not the same as a full disclosure report. However, it must contain enough detail for HMRC to understand why the case is suitable for COP9.

A weak or vague Outline Disclosure can create serious problems.

If HMRC does not accept that deliberate behaviour has been properly disclosed, it may reject the application.

Why Are HMRC Rejecting Some COP9 Applications?

HMRC will usually say that the case does not appear suitable for COP9 because it does not believe the facts show deliberate conduct or fraud.

That may be understandable in some cases. COP9 is not appropriate where the issue is genuinely careless or accidental.

However, we are seeing cases where the rejection appears difficult to reconcile with the facts. In some matters, the conduct described plainly appears deliberate, yet HMRC still refuses to accept the application.

There may be several possible explanations:

• HMRC may be trying to reduce the number of smaller COP9 cases.
• HMRC may be applying a higher threshold before accepting voluntary CDF applications.
• HMRC may be prioritising larger or more serious suspected fraud cases.
• HMRC may consider some cases better suited to standard disclosure routes.
• HMRC may be scrutinising Outline Disclosures more aggressively than before.

The result is uncertainty for taxpayers who are attempting to come forward voluntarily.

The Problem for Smaller Cases

The pattern appears most noticeable in lower-value cases.

This is important because smaller tax fraud cases still involve serious risk. A lower tax value does not necessarily mean the conduct was not deliberate. A taxpayer may have acted dishonestly even where the overall tax loss is modest.

If HMRC refuses COP9 in these cases, taxpayers may be left in a difficult position. They may have attempted to make a full fraud disclosure, but HMRC may then push them towards another disclosure route that does not offer the same contractual protection.

That can leave taxpayers exposed, particularly if the facts later develop in a way that causes HMRC to revisit the question of deliberate conduct.

Can You Ask HMRC to Reinstate a Rejected COP9 Application?

This is one of the most important practical points.

If HMRC rejects a COP9 application at the Outline Disclosure stage, taxpayers should not assume they can simply ask HMRC to reinstate the rejected application.

In practice, the correct route will often be to make a fresh application.

That means the first application must be treated seriously. The Outline Disclosure should be carefully prepared from the outset. It should not be rushed, minimised or drafted in vague terms.

A poor first application can damage credibility and create avoidable complications.

Why the Outline Disclosure Must Be Prepared Carefully

A successful COP9 application requires more than simply saying “there has been deliberate conduct”.

The Outline Disclosure should explain:

• What happened
• Why the behaviour was deliberate
• Who was involved
• Which taxes were affected
• Which years or periods are involved
• How the tax loss arose
• Whether any records were withheld, altered or incorrectly prepared
• Whether HMRC was misled
• Whether the taxpayer personally knew the position was wrong

HMRC needs to see a clear admission of deliberate behaviour. If the disclosure reads more like carelessness, misunderstanding or poor administration, HMRC may decide that COP9 is not appropriate.

This is where specialist advice is essential.

The Risk of Using the Wrong Disclosure Route

Taxpayers sometimes assume that any disclosure to HMRC is better than no disclosure. While early disclosure is usually important, choosing the wrong route can create risk.

Where there has been deliberate behaviour, a standard disclosure may not provide the same level of protection as COP9.

The taxpayer may still face:

• Higher penalties
• Wider HMRC enquiries
• Allegations of dishonesty
• Increased risk of criminal investigation
• Greater scrutiny of personal and business records
• Reputational damage

COP9 exists for a reason. If the facts involve fraud or deliberate conduct, taxpayers should consider whether COP9 is the correct route before making any disclosure.

What Should You Do If HMRC Rejects Your COP9 Application?

If HMRC rejects a COP9 application, the taxpayer should take immediate specialist advice.

The next steps may include:

• Reviewing the rejected Outline Disclosure
• Identifying why HMRC refused the application
• Considering whether the deliberate conduct was explained clearly enough
• Preparing a stronger fresh COP9 application
• Assessing alternative disclosure routes
• Managing the risk of HMRC opening a compliance check or fraud investigation
• Ensuring the taxpayer does not make inconsistent statements

The key point is that rejection does not necessarily mean there was no fraud or deliberate conduct. It may mean that the application was not presented in a way that satisfied HMRC’s threshold.

CTM’s View

CTM’s view is that HMRC appears to be becoming more selective in accepting voluntary COP9 applications, particularly in smaller-value cases.

That does not mean taxpayers should avoid COP9. On the contrary, where deliberate conduct has occurred, COP9 may still be the most appropriate and protective route.

However, the quality of the application now matters more than ever.

A taxpayer should not assume that HMRC will accept a COP9 application simply because they have admitted deliberate behaviour. The Outline Disclosure must be carefully structured, factually accurate and sufficiently detailed to demonstrate why the case falls within COP9.

Speak to CTM About COP9 and HMRC Fraud Disclosure

CTM advises taxpayers, directors and businesses facing HMRC fraud concerns, COP9 applications, Contractual Disclosure Facility issues and rejected Outline Disclosures.

If HMRC has rejected your COP9 application, or if you are considering making a voluntary disclosure involving deliberate conduct, it is important to obtain specialist advice before taking the next step.

A rejected COP9 application can create serious consequences. A properly prepared application can make all the difference.