[2012] UKFTT 304 (TC)
TC01990
Appeal numbers TC/2010/05463
FIRST-TIER TRIBUNAL
TAX
S9 TMA – Appeals against Discovery Assessments –
argument that liability resolved under Confiscation Orders granted under POCA
2002 – Appeal Dismissed
JOHN
MARTIN Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS ("HMRC") Respondents
TRIBUNAL:
IAN WILLIAM HUDDLESTON, TRIBUNAL JUDGE
Sitting in public in Belfast on
23 August 2011
Mr. D. McNamee, Solicitor,
appearing on behalf of the Appellant
G. Forbes for HMRC
© CROWN COPYRIGHT
2011
DECISION
The Appeal
1. The
matters under appeal relate to discovery assessments raised by HMRC pursuant to
Section 29 of the Taxes Management Act 1970 against the Appellant in respect of
the tax years ending 5 April 2001 to 5 April 2008 inclusive. The assessments
are made to "best judgment" and amount to a total tax assessed of
£382,687.20. With surcharges and interest the total amount alleged due by HMRC
amounts to a figure in excess of £560,000.
2. The
assessments were all raised and issued on the 10 August 2009 and are the
subject of an appeal raised by the Appellant on the 20 November 2009. The
Appeal was raised as a result of reviews undertaken by HMRC, but which in each
case upheld the original assessment.
Factual Background
3. Mr.
Martin was arrested and questioned in relation to his involvement in the sale
of counterfeit / contraband cigarettes in 2005. He was subsequently charged
and, on the 26 March 2007, was convicted of a number of offences in relation to
breach of trademark and dealing in the proceeds of crime. He was given an 18
month sentence in relation to the offences. The Prosecution applied for a
Confiscation Order to be made under the Proceeds of Crime Act 2002
("POCA").
4. On
the 3 February 2009 a Confiscation Order was made in the amount of £55,316 in
relation to the offences of fraudulently using a trademark contrary to Section
92(1)(b) of the Trademarks Act 1994, the Court being then satisfied that Mr.
Martin had a criminal lifestyle.
5. That
Order was, on appeal, reduced to a figure of £35,116.
6. HMRC
wrote to Mr. Martin in February 2009 indicating that they were commencing an
investigation into his tax affairs.
7. There
followed a chain of correspondence leading up to a letter of the 3 August 2009
in which HMRC indicated that they were proposing to raise assessments on a
protective basis in respect of the tax years 2000 / 2001 to 2007 / 2008
inclusive.
8. After
the assessments were raised, Messrs. McNamee McDonnell & Duffy, Solicitors,
entered into correspondence with HMRC on behalf of the Appellant, indicating
that they felt that the assessments were incorrectly raised. The chain of
correspondence culminated in a meeting between Mr. McNamee of that firm and
HMRC on the 10 February 2010. Mr. Martin did not attend that meeting.
9. As
a follow up to that meeting, HMRC wrote to Mr. McNamee on the 18 February 2010
asking for the production of information as to the sources of Mr. Martin's
income and certain details in respect of his ownership of property.
10. At the same
time, HMRC sought a copy of the Confiscation Order.
11. Whilst a good
deal of correspondence appears to have passed between the parties, no
information was provided in response to these specific requests from HMRC.
Messrs. McNamee, McDonnell and Duffy have consistently throughout the
correspondence taken the position that satisfaction of the Confiscation Order
discharged the Appellant's tax liability and that, therefore, no further
liability arises.
12. That indeed is
(and remains) the Appellant's case.
The Discovery Assessments
13. HMRC take the
position that they have raised discovery assessments on the basis that they
believe that Mr. Martin has failed to return self employment income or trading profits
to HMRC. They have considered his lifestyle and his property holdings (largely
consisting of a family home) and formed the view that his declared and taxed
earnings would have been insufficient to maintain or achieve either.
14. It is accepted
that Mr. Martin, for the period from June 1994 to September 1999 was employed
by Armagh District Council, and that he was in receipt of PAYE income during
that period.
15. Following
cessation of his employment, it is also accepted that Mr. Martin appears to
have been in receipt of benefit in the form of disability living allowance,
incapacity benefit and income support. It appeared in evidence that the Social
Security Agency terminated Mr. Martin's benefit payments after he was
established to be guilty of benefit fraud during the period October to December
2004.
16. HMRC, clearly on
the back of the criminal prosecution, have undertaken an investigation into Mr.
Martin's tax affairs which has resulted in the discovery assessments which are
the subject of this Appeal.
17. Neither the Appellant,
nor his advisers, has sought to challenge the detail of those assessments but
have, as commented upon above, taken the stance that they have been incorrectly
raised on the basis that the Confiscation Order, as granted, covered all of the
Appellant's liabilities.
18. HMRC, contrary
to that position, and having undertaken an investigation of Mr. Martin's
ability to build and furnish a home a 71 Ballyards Road, Milford, Armagh, and
other items of expenditure, and have assessed him to undeclared taxable income.
19. The assessments
which have been raised have been based on what HMRC believed Mr. Martin's
profits to have been in order to build and furnish that home, as well as
maintaining that property and his lifestyle.
20. From HMRC's
statement of case, it is clear that they believe that Mr. Martin's income
during the periods covered by the tax assessments stemmed from the same of
counterfeit / non-uk duty paid cigarettes and tobacco products.
Appellant's Case
21. The Appellant's
case is, as indicated above, simply that the Confiscation Order covers all tax
liability arising out of the periods in question – on the basis that any
liability could only have arisen from the criminal conduct for which Mr. Martin
was convicted.
22. In their letter
of the 25 June 2010 (under which they enclosed their notice of appeal) it was
stated on behalf of the Appellant that the grounds of his appeal are:
"These assessments
are wrong as Mr. Martin was a PAYE worker for a large period of time covered by
the assessments. He was further subject to a Lifestyle Confiscation Order
under POCA 2002 which covered all his liability. He does not owe any tax."
23. In the
Appellant's statement of case the argument is advanced that:
"The criminal benefit
of Mr. Martin's conduct has already been calculated in the Crown Court and,
again, subsequently in her Majesty's Court of Appeal. The Confiscation Order
has been made in relation to that benefit and any further recovery of monies by
HMRC would be double recovery. There cannot be double recovery in relation to
monies previously recovered under the terms of the Proceeds of Crime Act 2002."
24. The Appellant's
bald assertion, therefore, is that all of the tax liability which arises on
foot of the assessments has been encompassed within the calculation of benefit
which resulted in the Confiscation Order. In support of that contention the
Appellant's representatives rely on the case of HMRC v Richard Alan Crossman
(Junior) [2007] EWHC 1585 (Ch).
HMRC'S CASE
25. HMRC accept that
the Confiscation Order was made in respect of a six year period from the 17
March 1999 to the 16 March 2005, but make the point that only the tax periods
2000 / 2001, 2001 / 2002, 2002 / 2003, 2003 / 2004 and 2004 / 2005 fall within
that six year period. Namely that the period through which benefit was
assessed is shorter than the tax periods through which the discovery
assessments have been raised.
26. They also assert
that based on the information which they have, they feel that Mr. Martin was
still involved in the purchasing and distribution and sale of non-UK paid /
counterfeit cigarettes in August 2005 (ie. after the period to which the
Confiscation Order relates). Equally they assert that Mr. Martin had been in
receipt of income prior to the benefit period in question, none of which he has
returned to HMRC.
27. HMRC accept that
the amounts assessed may need to be reduced, to the extent that tax has already
been received by the Crown on foot of the Confiscation Order – applying the
principles set out in Crossman.
28. Basing
themselves on that case, HMRC's position is as follows.
(1)
if HMRC were seeking to collect tax which has already been dealt with
and paid on foot of a Confiscation Order, then any collection of tax would
amount to double recovery;
(2)
where, however, a Confiscation Order does not cover the entirety of any
established tax debt, there is no basis for an argument that HMRC should be
prevented from seeking recovery of any such amounts;
(3)
where Confiscation Orders are computed on the basis of available assets,
there is nothing to prevent HMRC seeking to collect any excess amounts of
unpaid debts should further assets come to light or, indeed, by petitioning for
bankruptcy in respect of any such excess amounts.
29. As to the case
generally, HMRC say that Crossman deals only with the right to collect
tax, and that it has no impact on the obligations of HMRC to make assessments
of tax where it is apparent that taxpayers have not fulfilled their statutory
obligations, or to collect that tax where it has not been encompassed within a
Confiscation Order.
30. In short, HMRC
say that they have raised assessments to establish what is the
"proper" amount of tax which is due by Mr. Martin. In the absence of
his engagement on that issue, they have raised those assessments to best
judgment pursuant to Section 29 TMA 1970 and they now assert that unless
amended through this appeal, they will define the Appellant's tax liability.
31. Once that
liability is established, however, they would not propose seeking enforcement
in respect of amounts which have already been the subject of a Confiscation
Order but, subject only to that, would seek recovery of any "excess"
tax that may be due.
32. To the extent
that Mr. Martin and/or his advisers indicates that he has no responsibility to
deal with HMRC in relation to the assessments (based on the earlier
Confiscation Order) HMRC say that this view is wrong both in fact and in law.
Decision
33. There was
clearly confusion as to the interplay between the civil procedures leading to
the assessment of tax which is due and the criminal procedures which arise
under the Proceeds of Crime Act and how the two interrelate.
34. On first
principles, Section 29 of the Taxes Management Act allows HMRC quite wide
powers to issue discovery assessments upon taxpayers where they feel they have
not been appraised of the information upon which to raise a "proper"
assessment. It is well established law that where such an assessment is
raised, then the onus of proof falls upon the Appellant to set it aside – see (Jonas
v Banford (51TC1); Bio Flex Caribbean Limited (63TC515); Norman v
Golder (26TC293); Haythornwait & Sons Limited v Kelly (11TC657)
and Hurley v Taylor (71TC268)).
35. At this point it
should be said that the Appellant has not adduced any evidence to disprove or
otherwise challenge the assessments which have been raised in this case and has
sought, rather, to focus upon the effect of the Confiscation Order to ground
his argument that, fundamentally, the Confiscation Order "mops up"
any potential liability on the basis that a Lifestyle Confiscation Order was
both sought and granted.
36. Section 156 of
the Proceeds of Crime Act 2002 allows a criminal court the ability to assess
the benefit arising from "general criminal conduct".
37. In terms of
making such a Confiscation Order, the Court must first assess the benefit which
has been derived from the conduct (Sections 158 to 160) and if it finds that
benefit has occurred then assess the extent of the realisable property which is
available to discharge it.
38. In Crossman,
the Confiscation Order confirmed a benefit of circa £488,000 but, because of
the limited extent of available assets, the Order itself was limited in amount
to £55,000. This, in due course, led HMRC to seek recovery of the balance
leading to its application for a bankruptcy order against Mr. Crossman, which
was the subject of those particular proceedings and Rimer J in that case upheld
their entitlement to do so.
39. In the present
case, in the criminal proceedings, the Prosecutor's statement indicated that
the prosecutor was of the view that Mr. Martin had total realisable assets of circa
£350,890 – including his matrimonial home.
40. In his
supplemental report the Prosecutor attributed the amount of benefit derived by
the Appellant from his general criminal conduct to be between £55,516 and £89,291.
41. The original
Confiscation Order was for the lower amount which, on appeal, was then reduced
to £35,116. The Courts' finding, in both those proceedings, was limited to the assessment
of benefit derived by Mr. Martin and the amount available to discharge it. In
the view of this Tribunal that "benefit" does not equate (in the view
of this Tribunal) with the concept of a "liability". By its nature,
the concept of a liability – particularly one which is assessed to best
judgment such as in the case of discovery assessments – is one which is of a
much wider and more general application.
42. To the
Tribunal's mind, that particular concept was not in the mind of the Crown
Court, or indeed the Court of Appeal when assessing what benefit the Appellant
had derived from his criminal conduct. The two are separate jurisdictions and
the approaches adopted are different even if they arise out of the same or
similar facts.
43. We agree with
HMRC's proposition that one must first establish, through assessment and, if
not by that then dialogue with the taxpayer, and ultimately appeal to this
Tribunal, the tax which is properly due and payable. This Tribunal is
empowered to hear appeals specifically within that domain and, where
assessments are raised to best judgment, then this Tribunal often hears
evidence as to why the assessment should be reduced or, indeed, altered.
44. As indicated
above, the onus of proof in relation to those proceedings falls squarely upon
the Appellant.
45. Subsequent to
the settlement of what tax is properly due and payable, it then is logical that
one looks at the terms of any Confiscation Order which may be in existence (and
any payment made under it) to see to what extent that tax liability may already
have been met by payments made to the Crown to ensure that there is no double
recovery.
46. That, to this
Tribunal's mind, relates, however, to the question of enforcement rather than
to the calculation of tax. It is clear that the question of enforcement falls
outside the jurisdiction of this Tribunal, but it is accepted by HMRC that in
no circumstances can there be double recovery for the same amount. This is a
position which has been acknowledged by them and endorsed in the Crossman case.
47. Mr. McNamee
sought to rely on Crossman as authority for his proposition that
Confiscation Order identified the maximum liability which can arise.
48. With respect,
this Tribunal does not agree with that proposition or, indeed, his
interpretation of that case. In certain circumstances it may be the case that
the proceedings under the Proceeds of Crime Act does indeed encompass an
assessment of all of the tax liability which may or may not be due in
particular circumstances but that can only be determined after the assessment
process has been undertaken.
49. There is no
evidence before us, however, to indicate that that was the analysis carried out
by the Criminal Courts in this case. Indeed, the assessment periods cover a
much wider period than the six year period encompassed within the Confiscation
Order itself and it remains HMRC's position that the Appellant was carrying out
taxable activities throughout that wider period failing, for each of the
relevant tax years, to make the appropriate tax returns.
50. It is that which
has led them to issue the discovery assessments which are in point.
51. Had evidence
been adduced as to inaccuracies or other deficiencies in those assessments,
then this Tribunal would have taken that evidence into account. As it is, no
such evidence was produced and, therefore, as the onus of proof has not been
discharged by the Appellant, this Tribunal finds that the assessments must
stand.
52. The appeal is
dismissed.
53. No order as to
costs.
54. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to "Guidance to accompany a Decision from the First-tier
Tribunal (Tax Chamber)" which accompanies and forms part of this decision
notice.
IAN WILLIAM HUDDLESTON
TRIBUNAL JUDGE
RELEASE DATE: 4 May 2012
