What is the difference between COP8 and COP9?

COP8 is used for suspected tax avoidance (civil, no prosecution risk). COP9 is used for suspected serious fraud (carries criminal prosecution risk). COP9 offers the Contractual Disclosure Facility (CDF) for immunity from prosecution in exchange for full disclosure. The key difference between COP8 and COP9 is the nature of the suspected behaviour: (1) COP8 — used when HMRC suspects tax avoidance (the use of artificial arrangements to reduce tax). Tax avoidance is legal but may be challenged by HMRC. COP8 is a civil investigation — HMRC is seeking to recover tax and charge penalties, not to prosecute. There is no risk of criminal prosecution under COP8 (unless fraud is discovered, in which case the investigation may be escalated to COP9). (2) COP9 — used when HMRC suspects serious tax fraud (illegal evasion of tax). COP9 is a criminal investigation, but HMRC offers the Contractual Disclosure Facility (CDF) — if the taxpayer makes a full and complete disclosure of all tax irregularities, HMRC will not pursue criminal prosecution (in exchange for civil penalties and tax recovery). The CDF is the only route to immunity from prosecution. If the taxpayer does not accept the CDF, HMRC may pursue a criminal investigation. (3) Escalation — if a COP8 investigation discovers evidence of fraud, the investigation may be escalated to COP9. This is a significant risk, as it introduces the possibility of criminal prosecution. The taxpayer should be aware of the distinction and ensure that their behaviour does not cross the line from avoidance (COP8) to evasion (COP9). Relevant legislation: COP8 (HMRC Code of Practice 8 — tax avoidance); COP9 (HMRC Code of Practice 9 — suspected serious fraud); FA 2007, Schedule 24 (penalties). Example: A taxpayer used a tax scheme that exploits a loophole in the law — HMRC opens a COP8 investigation (civil, no prosecution risk). A taxpayer deliberately failed to declare £500,000 of offshore income — HMRC opens a COP9 investigation (carries prosecution risk, but the CDF offers immunity in exchange for full disclosure). Common mistake: Confusing tax avoidance with tax evasion. Tax avoidance (using artificial arrangements) is handled under COP8 (civil). Tax evasion (illegal non-payment) is handled under COP9 (criminal risk). The distinction is crucial for the taxpayer's strategy.

How far back can HMRC investigate under COP8?

HMRC can assess up to 20 years of tax under COP8 for deliberate behaviour. For careless behaviour, the limit is 6 years. For innocent errors, the limit is 4 years. The assessment period depends on the taxpayer's behaviour. The assessment period for COP8 (and general tax assessments) depends on the taxpayer's behaviour: (1) Deliberate behaviour — if the taxpayer deliberately understated their tax liability, HMRC can assess up to 20 years after the end of the tax year. This is the longest assessment period and reflects the seriousness of deliberate behaviour. (2) Deliberate and concealed behaviour — same as deliberate: 20 years. (3) Careless behaviour — if the taxpayer made a careless error (not taking reasonable care), HMRC can assess up to 6 years after the end of the tax year. (4) Innocent error — if the taxpayer made an innocent error (taking reasonable care but making a mistake), HMRC can assess up to 4 years after the end of the tax year. (5) No error — if no error is found, no assessment is made. The assessment period is determined by the nature of the error, not the type of investigation. Under COP8, if HMRC determines that the taxpayer's behaviour was deliberate (e.g., they knowingly entered into a tax avoidance scheme), the 20-year assessment period applies. This can result in significant tax assessments, covering many years of tax. The taxpayer should seek specialist advice to understand the potential assessment period and to negotiate the best outcome. Relevant legislation: TMA 1970, Section 34 (4-year time limit); Section 36 (20-year time limit for deliberate behaviour); FA 2007, Schedule 24 (behaviour-based assessments). Example: A taxpayer entered into a tax avoidance scheme in 2010 and HMRC opens a COP8 investigation in 2026. If HMRC determines that the taxpayer's behaviour was deliberate (they knowingly entered into the scheme to avoid tax), the 20-year assessment period applies, and HMRC can assess tax from 2006 onwards. If the behaviour was careless, the 6-year period applies, and HMRC can assess from 2020 onwards. Common mistake: Assuming that HMRC can only go back 6 years regardless of the behaviour. For deliberate behaviour, the 20-year assessment period applies, which can cover a significant period of time.

What penalties can HMRC charge under COP8?

Penalties under COP8 range from 0% (for unprompted disclosure of careless errors) to 100% of the additional tax (for deliberate and concealed errors). The penalty percentage depends on the taxpayer's behaviour and whether the disclosure was prompted or unprompted. Penalties under COP8 (and generally for tax errors) are behaviour-based and depend on the nature of the error and whether the disclosure was prompted or unprompted: (1) Behaviour categories — (a) Deliberate and concealed: the taxpayer deliberately understated tax and took steps to conceal it. (b) Deliberate: the taxpayer deliberately understated tax but did not conceal it. (c) Careless: the taxpayer did not take reasonable care. (d) Innocent: no error (no penalty). (2) Penalty ranges — (a) Deliberate and concealed: 35-100% (prompted) or 20-100% (unprompted). (b) Deliberate: 20-70% (prompted) or 20-100% (unprompted). (c) Careless: 0-30% (prompted) or 0-30% (unprompted). (3) Reduction for disclosure — the penalty is reduced for the quality of the disclosure: telling HMRC about the error, giving reasonable help, allowing access to records. A full, unprompted disclosure can reduce the penalty to the bottom of the range. (4) Example — a taxpayer who deliberately entered into a tax avoidance scheme and concealed it (prompted disclosure) faces a penalty of 35-100% of the additional tax. With a full disclosure, the penalty may be reduced to around 35-50%. The penalties can be substantial — on additional tax of £200,000, a 50% penalty would be £100,000. Specialist advice is essential to negotiate the lowest possible penalty. Relevant legislation: FA 2007, Schedule 24 (penalty provisions); HMRC Penalty Manual. Example: A taxpayer under COP8 has additional tax of £200,000. HMRC determines the behaviour was deliberate (the taxpayer knowingly entered into a tax scheme). The penalty range is 20-70% (prompted). With a full disclosure and cooperation, the penalty may be reduced to 30% = £60,000. Without cooperation, the penalty could be 70% = £140,000. Common mistake: Not cooperating with HMRC during the investigation. Non-cooperation can result in the penalty being at the top of the range, significantly increasing the amount payable.

Should I accept a COP8 settlement or litigate?

It depends on the strength of your case. If HMRC's position is strong and the tax is likely due, settling may be the best option (reducing penalties and avoiding litigation costs). If your position is strong and the tax is not due, litigating may be appropriate. Specialist advice is essential. The decision to accept a COP8 settlement or litigate depends on several factors: (1) Strength of HMRC's case — if HMRC's legal and factual position is strong (e.g., the tax scheme has been litigated and found not to work), settling may be the best option. Settling can reduce penalties (through cooperation and disclosure) and avoid the costs and uncertainty of litigation. (2) Strength of your case — if your legal and factual position is strong (e.g., the scheme has not been litigated, or you have a strong defence), litigating may be appropriate. Litigation can result in no tax being due if you win, but carries the risk of costs and higher penalties if you lose. (3) Costs — litigation can be expensive (legal fees, expert witnesses, Tribunal costs). Settling avoids these costs but may result in tax, interest, and penalties being payable. (4) Time — litigation can take years to resolve, while settling can be quicker. (5) Risk tolerance — the taxpayer's appetite for risk and uncertainty. (6) Specialist advice — a tax adviser experienced in COP8 and litigation can assess the strength of the case and recommend the best approach. In many cases, a negotiated settlement is the best outcome — it provides certainty, reduces penalties, and avoids the costs and risks of litigation. However, if the taxpayer has a strong case, litigating can result in no tax being due. Relevant legislation: TMA 1970 (assessment and appeal provisions); COP8 (settlement process); Tribunal procedure rules. Example: A taxpayer under COP8 has additional tax of £300,000. HMRC offers a settlement with a 35% penalty (£105,000), total payable £405,000 plus interest. The taxpayer's adviser assesses the case and determines that HMRC's legal position is strong (the scheme has been found not to work in similar cases). Settling is the best option — it provides certainty and avoids the risk of higher penalties and litigation costs. If the taxpayer's case was strong (the scheme has not been litigated and the taxpayer has a good defence), litigating might be appropriate. Common mistake: Litigating without assessing the strength of the case. If HMRC's position is strong, litigating can result in higher penalties, costs, and interest. Specialist advice is essential before deciding to litigate.

Tax Disputes › Investigations

Code of Practice 8 (COP8) Investigations

COP8 is used by HMRC for suspected tax avoidance. Understand when it applies, the investigation process, the risks, and how to achieve the best outcome with specialist representation.

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Code of Practice 8 (COP8) is used by HMRC's Fraud Investigation Service when they suspect tax avoidance — the use of artificial arrangements to reduce tax liability. COP8 is a civil (not criminal) investigation, but it is serious and can result in significant tax assessments, penalties, and interest. Understanding the COP8 process and having specialist representation is essential for achieving the best outcome.

When COP8 Applies

COP8 is used when HMRC suspects tax avoidance — the use of artificial arrangements, schemes, or structures to reduce tax liability. This includes tax schemes, offshore structures, and artificial transactions. COP8 is a civil investigation, meaning HMRC is seeking to recover tax and charge penalties, not to prosecute criminally. However, if HMRC discovers evidence of fraud, the investigation may be escalated to COP9.

The COP8 Process

The COP8 process typically involves: (1) Opening letter — HMRC sends a letter stating that the taxpayer is under COP8 investigation. (2) Information requests — HMRC requests extensive information and documents about the taxpayer's affairs and the arrangements under investigation. (3) Review — HMRC reviews the information and assesses the tax position. (4) Discussion — HMRC discusses the findings with the taxpayer or their adviser. (5) Settlement — if tax is due, HMRC seeks a settlement (additional tax, interest, and penalties). (6) Litigation — if no settlement is reached, HMRC may litigate (e.g., through the Tribunal or courts).

The Risks

COP8 investigations can result in: (1) Significant tax assessments — HMRC can assess up to 20 years of tax (for deliberate behaviour). (2) Penalties — up to 100% of the additional tax for deliberate behaviour. (3) Interest — on the additional tax from the original due dates. (4) Reputational damage — being involved in a tax avoidance investigation can damage the taxpayer's reputation. (5) Escalation to COP9 — if HMRC discovers evidence of fraud, the investigation may be escalated to COP9 (suspected serious fraud), which carries criminal prosecution risk.

Achieving the Best Outcome

To achieve the best outcome in a COP8 investigation: (1) Seek specialist representation — engage a tax adviser experienced in COP8 investigations. (2) Respond promptly — respond to information requests promptly and thoroughly. (3) Be transparent — be open and transparent with HMRC. (4) Negotiate — negotiate a settlement that is fair and reasonable. (5) Consider ADR — alternative dispute resolution can help resolve disputes without litigation. (6) Avoid escalation — take steps to avoid the investigation being escalated to COP9.

Key Points

What You Need to Know

COP8 is used for suspected tax avoidance (not fraud)
HMRC can assess up to 20 years of tax for deliberate behaviour
Penalties can be up to 100% of the additional tax
If fraud is discovered, the investigation may escalate to COP9
Specialist representation is essential for achieving the best outcome

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HMRC Self-Assessment Enquiries Code of Practice 8 (COP8)Code of Practice 9 (COP9)HMRC Penalties Statutory Reviews of HMRC Decisions First-tier Tribunal (Tax Chamber)Alternative Dispute Resolution (ADR)Worldwide Disclosure Facility (WDF)HMRC Nudge Letters HMRC Offshore Disclosure Campaigns HMRC Discovery Assessments HMRC Information Notices Corporate Criminal Offence: Failure to Prevent Tax Facilitation VAT Disputes & Tribunals IR35 & Off-Payroll Working Disputes Transfer Pricing Disputes

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