10 things to consider if you receive a letter from HMRC’s Fraud Investigation Service

HMRC’s Fraud Investigation Service (FIS) is a large team with a wide remit covering everything from aggressive tax avoidance, fraud investigations across all taxes and criminal prosecution work alongside the Crown Prosecution Service. It is an elite team with a wide range of powers, so there are a lot of things to think about if you are contacted by them.

1. Firstly, don’t panic.
   However, do treat the issue with the utmost seriousness and urgency. Given the FIS team’s remit is primarily to investigate tax evasion or where significant amounts of tax are thought to be due, it is highly likely that HMRC will have done a lot of homework behind the scenes before contacting you. They will not approach a taxpayer in the mere hope that something is unearthed, rather there will be an expectation that a significant amount of additional tax, interest and penalties is due.
2. Take specialist advice without delay.
   Dealing with the FIS is not a regular occurrence for a general practitioner tax advisor or accountant, but it is something that an experienced Tax Resolutions specialist deals with every day. There are many complexities and nuances around matters such as strategy, behaviours, rights, powers, safeguards, assessments, penalties and disclosures that a tax investigations specialist will be able to guide you through as well as potential mitigation of penalties and the number of years to be covered. Also, while HMRC has a huge armoury of investigatory powers, they are not open-ended or unfettered just because FIS is involved. An experienced specialist whose day job is dealing with these matters will again be well versed in those powers, as well as their limitations and boundaries.

3. Is a formal information notice included with the letter?
   HMRC often initially requests information and documents on an informal basis, meaning there is not necessarily a legal obligation for the taxpayer to provide the data demanded. The request may also go beyond what could be requested in a formal notice as an informal notice is not subject to the statutory safeguards and boundaries. If a formal notice is included, consider the type of notice. There are various different types of formal notice, the most common being first-party notices issued directly to the taxpayer and third-party notices asking the recipient to provide data about the tax position of another person. The distinction is important as there are different rules applicable to each different type of notice including underlying conditions which must be satisfied before any such notice can be validly issued.

4. How much data has been requested?
   Irrespective of the type of notice, it may be that the letter is somewhat open-ended, referring to concerns about any and all taxes across the recipient’s personal and business affairs generally, without reference to a time limit. The data is also subject to a condition in that it must be ‘reasonably required’ to check the recipient’s tax position but notices sometimes seek to gather personal or financial data outside that scope. It can be a fine line so careful consideration should be given to the extent of HMRC’s powers as well as exercising judgement on any aspects to challenge or comply with, perhaps voluntarily.

5. Consider how many years the data requested relates to.
   As already noted, it may be that the letter makes no reference to a time limit. There are, however, strict time limits for HMRC to assess past taxes so if any data requested is more than four years old it may be worth exploring further given that HMRC cannot ordinarily assess tax periods longer ago than that, although there are various exceptions. If reference is made to periods more than six years previously, this suggests that HMRC believes that any irregularities found are more serious than simple human error or carelessness, they are potentially deliberate or fraudulent errors. In addition, there are further rules concerning requests for such old documents meaning that the notice itself may not be valid.

6. Consider the justification given, if any, for HMRC’s enquiries.
   Under the Litigation & Settlements Strategy HMRC ought to share the risks that they have identified. It should also be remembered that an overriding condition is that any data requested in a formal information notice must be ‘reasonably required’ for the purposes of checking the recipient’s (or someone else’s if it is a third-party notice) tax position.

7. Is any Code of Practice included with or referred to in the letter?
   The FIS team often deal with cases under either a Code of Practice (COP), either COP8 or COP9, the latter being linked to the Contractual Disclosure Facility (CDF) concerning cases of suspected tax fraud. Whether or not anything is included with the initial letter will shape an experienced advisor’s initial thinking about HMRC’s concerns and how best to handle the case from the outset.

8. Consider the justification given, if any, for HMRC’s enquiries.
   Under the Litigation & Settlements Strategy HMRC ought to share the risks that they have identified. It should also be remembered that an overriding condition is that any data requested in a formal information notice must be ‘reasonably required’ for the purposes of checking the recipient’s (or someone else’s if it is a third-party notice) tax position.

9. If relevant, discuss COP9 and the CDF with the appointed specialist advisor whether or not the letter from FIS refers to it.
   The CDF is a very good place to be if tax fraud needs to be rectified as it guarantees immunity from prosecution for that fraud. The CDF is a very thorough process and is therefore onerous and complex, but an experienced Tax Resolutions specialist will be able to manage the case, provide a buffer between you and HMRC and guide you smoothly through it. This will end with a settlement covering any tax, interest and penalties, thereby closing the whole matter once and for all without any criminal trial.

10. Make a full disclosure.
    As already noted, the CDF is a very good place to be in tax fraud cases, but  only if a full and frank disclosure is made. Anything less is self-defeating as it means the past is not fully closed and leaves the taxpayer open to prosecution for the issues not fully declared. Again, an experienced Tax Resolutions specialist will undertake a thorough examination of all the relevant issues and will discuss any concerns or gaps identified that arise during that process as well as liaising closely with HMRC to make sure that all their concerns are properly and thoroughly addressed.

11. If appropriate, so not be afraid to resist!
    Having said all of the above, if there is genuinely nothing to disclose then it is not appropriate to try and shoehorn something into a disclosure position. It may be that, on occasion, HMRC’s initial concerns are misguided and are capable of explanation.

The Fraud Investigation Service team does not undertake projects lightly and so any letter from them must be taken seriously. The opening letter can seem daunting but can also provide an experienced Tax Resolutions specialist with a lot of useful intelligence about the nature of the challenge, and how to progress the case giving the taxpayer appropriate protection. Dealing with the FIS and HMRC’s powers is complex with many potential intricacies to consider, and any such case should be progressed with expert input from a specialist in tax investigation and disclosure matters.

For more information, or to discuss your position, please get in touch with John Cassidy or your usual Crowe contact.