If HMRC suspects that there has been a “serious” loss of tax but they do not suspect that this arises as a result of tax fraud then they will open the tax investigation under Code of Practice 8 (COP8). In most cases these enquiries will be into the tax affairs of taxpayers who have participated in a tax planning structure or tax avoidance scheme. Cases under Code of Practice 8 are carried out by HMRC’s Fraud Investigation Service teams.
HMRC may disagree with the interpretation of the tax legislation that has been adopted and on which the success of the scheme depends or the way in which the scheme has been implemented. Challenges by HMRC of this type may involve a detailed technical argument on the correct interpretation of tax legislation. If HMRC suspect this, they will investigate under COP 8 to establish the facts to recover any tax, interest and penalties due.
COP8 investigations often focus on the gathering of large amounts of information so it is vital to understand the limitations of HMRC’s powers and which documents have the protection of privilege. There is no standardised format to a COP8 investigation – unlike COP9.