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Special Compliance Office
SPECIAL COMPLIANCE OFFICE INVESTIGATIONS |
SCO is the senior investigation arm of the Inland Revenue who deal with the most serious cases of fraud and suspected fraud and have the power to make criminal prosecutions. However, the majority of cases are finalized by way of a contract settlement requiring payment of tax, interest and penalties. The penalties are frequently at the heavy end of the spectrum where the maximum penalty is 100 percent of the tax lost. This can be mitigated if disclosure and co-operation are good and professional advice can help here -- no case that we have been involved with has ever had a penalty exceeding 50%...
There are essentially three categories of SCO investigation: --
 | Cases other than suspected serious fraud. These are the least serious cases where SCO believe that considerable sums of tax are at stake either because a taxpayer's affairs are complex and the tax being paid into the Exchequer seems less than would be expected in the circumstances or because complex legislation applies, for example where complicated tax planning has been executed and SCO believe there could be weaknesses which are vulnerable to attack. In this situation the opening request for an interview or further information would be accompanied by Code of Practice 8 which makes no mention of prosecution. Prosecution would only follow if SCO enquiries subsequently uncovered a fraud or dishonesty. Professional advice is needed before responding to SCO, so that the taxpayer's affairs can be reviewed and the appropriate response/strategy can be determined.
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| Cases of suspected serious fraud -- no prosecution intended. Something in excess of 90 percent of serious fraud cases are finalized by contract settlement rather than prosecution. The SCO opening letter will include Code of Practice 9 and will make reference to opening the investigation within the "Hansard Policy". This refers to the Inland Revenue's right to prosecute in such cases but makes it clear that a full disclosure will positively influence them to accept a money settlement instead of instituting criminal proceedings. An opening meeting becomes a rather formal environment where specific questions are put requiring an outline of tax irregularities and an undertaking to co-operate and employ accountants to report into any such irregularities. Professional representation at such a meeting (and preparing for it) is strongly recommended to avoid unwittingly falling within the prosecution category and to minimize both the extent of further SCO enquiries and the final level of penalties charged.
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| Cases of suspected serious fraud -- prosecution intended. In these cases SCO will frequently have done a lot of background investigation before contact with their target. The first indication of their interest might be an invitation to interview from SCO without either of the Codes of Practice referred to above or with mention of an interview under caution. Professional representation is essential here. The taxpayer will need both an investigation specialist and a lawyer to deal with the legal aspects of the Police and Criminal Evidence Act. Alternatively, a Section 20 "raid" might be the first contact, and again, the taxpayer will have the right to obtain urgent representation and advice before, during and after the raid. Thereafter very careful handling is required as quite frequently there is the opportunity to downgrade the enquiry to a monetary settlement case from the criminal prosecution status. |
The above is a brief summary of the likely scenarios to be faced in an SCO enquiry. Full texts of the Codes of Practice can be found on the Inland Revenue web site. It is essential that top-quality advice is obtained at the outset and Spencer Fellows will always be pleased to discuss the initial circumstances direct with the taxpayer or their accountant. This enables the decision as to which advisers are required to be made at the right time, so that the best strategy can be followed throughout. As with many things in life, timing is everything, and both money and worry can be saved if the best course of action is followed from an early stage.
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