It's the first thing many people worry about when an HMRC letter arrives. The honest answer is reassuring for almost everyone. HMRC deal with the great majority of tax problems, including deliberate ones, through civil settlement: tax, interest and a penalty. Not prosecution.
For the overwhelming majority of people, no. HMRC's published policy is to use civil investigation to settle most cases and to reserve criminal investigation for a small minority, typically where they want to send a strong deterrent message or where the behaviour involves things like organised fraud, false documents or lying during an investigation. Honesty and co-operation are your strongest protection.
A civil investigation aims to recover the tax that should have been paid, with interest and a penalty. It ends in a settlement: usually a contract or an agreed assessment. Almost every enquiry, compliance check, COP8 and COP9 case runs on the civil side. A criminal investigation aims to prosecute. It is run differently: you are interviewed under caution, and the process follows criminal procedure. If you were in a criminal investigation you would normally know, because HMRC would tell you and would not simply send a compliance check letter.
HMRC's criminal investigation policy on GOV.UK lists the kinds of case where they may choose a criminal route. Examples include: organised or systematic fraud, including by criminal gangs the use of false documents or false identities deliberately misleading HMRC during an enquiry, for example by lying or giving false information cases where HMRC want a public deterrent in a particular area repeat behaviour after an earlier settlement
Code of Practice 9 is HMRC's process for suspected tax fraud. Under the Contractual Disclosure Facility (CDF), HMRC offer not to open a criminal investigation into the fraud you disclose, as long as you make a full and honest disclosure. You have 60 days to accept or reject the offer. Receiving a COP9 letter is serious, but it is designed as a route away from prosecution. What puts people at risk is rejecting the offer without advice, or making an incomplete disclosure. This is the moment to take specialist advice.
If you know something wasn't declared and HMRC haven't written to you about it, an unprompted voluntary disclosure is the strongest position you can be in. Penalties are lower, you control how the story is told, and HMRC treat people who come forward very differently from people they have to find.
In practice, most cases end with you paying the tax due, interest for late payment, and a penalty that depends on your behaviour and how helpful you were. Penalties can be reduced substantially for telling HMRC, helping them and giving them access to records, and careless penalties can sometimes be suspended. If the total is more than you can pay at once, a Time to Pay arrangement is often possible.
No. Genuine mistakes and careless errors are dealt with through the civil system: tax, interest and sometimes a penalty. Prosecution is reserved for a small minority of serious cases.
No. COP9 is a civil investigation. The Contractual Disclosure Facility offers immunity from criminal investigation for the fraud you fully disclose. Get specialist advice before deciding within the 60 days.
In a criminal investigation you would normally be interviewed under caution and told you are suspected of an offence. A compliance check, nudge letter or COP8 letter is a civil matter.
Yes. A full, unprompted disclosure is the single best way to keep a case civil and minimise penalties.