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Cite as: [2005] UKSC SPC00459, [2005] UKSC SPC459

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Sharkey v HM Inspector of Taxes [2005] UKSC SPC00459 (26 January 2005)

SPC00459

Penalty – Failure to produce documents and information specified in Notice – Whether penalty contrary to Human Rights Convention – No – Penalty not criminal within Art 6.1 – TMA 1970 s.19A, 97AA(1)(a) – Appeal dismissed

THE SPECIAL COMMISSIONERS

HARVARD MARTIN SHARKEY Appellant

- and -

BOB DE CROOS

(HM INSPECTOR OF TAXES) Respondents

Special Commissioner: THEODORE WALLACE

Sitting in London on 24 November 2004

Terence Sharkey, the father of the Appellant, represented him

Jane Hodge, HM Inspector of Taxes, Southern England Regional Appeals Unit, for the Inspector

© CROWN COPYRIGHT 2004

DECISION

This appeal was against a fixed penalty of £50 under section 97AA (1)(a) of the Taxes Management Act ("TMA") 1970 for failing to produce documents and information specified in a notice under section 19A of the same Act.

It was agreed that an officer gave notice of an enquiry into the Appellant's 2001 Tax Return, that a notice was issued under section 19A, that the Appellant did not appeal against the notice and that the Appellant did not comply with the notice. It was also agreed that on 24 March 2003 the Revenue appropriated £50 of a payment of £654.21 in satisfaction of the penalty.

Put very broadly, the Appellant's grounds of appeal were that the imposition of the penalty and other matters connected therewith were in breach of his rights under the European Convention on Human Rights.

Both representatives submitted skeleton arguments citing a considerable number of cases, including six decisions of the European Court of Human Rights and two of the European Commission of Human Rights.

Appellant's submissions

The Appellant's contentions were that the enquiry, the imposition of the penalty and the threat of further penalties of £150 a day involved criminal charges within Article 6.1 of the Convention; that his inability to obtain Criminal Defence Service funding for professional representation was a breach of his rights under Article 6; that the delay by the Revenue in answering his concerns that the enquiry breached his right under Article 6 to a fair and public hearing within a reasonable time; that the claim by the Revenue that penalty was not ultra vires but that evidence obtained might be inadmissible was misleading and inaccurate and that the unilateral collection of the penalty was contrary to his rights under Article 6. The Appellant also complained of the difference in procedure between enquiries by the Special Compliance Office and by other offices.

Mr Sharkey submitted that the decision of the European Court in J B v Switzerland [2001] EHRR 320 showed that the imposition of a fine for a failure to provide information to the tax authorities could be in breach of Article 6.1 as a violation of the right not to incriminate oneself.

He said that in Smith v United Kingdom (1995) Appn.25373/94 where a 10 per cent surcharge for failure to pay the community charge was held not to be criminal, there was no threat of a graver penalty: here there was the threat of a daily penalty of £150 for further defaults.

Mr Sharkey said that in Lauko v Slovakia [1998] EHRR 82 a conviction for accusing without justification his neighbours of causing a nuisance was held to be criminal in nature although the penalty was only 300 Slovakian Korunas.

He said that in the present case the enquiries were not at random but directed at the possibility of deliberate understatement. He said that the Inspector had denied that the enquiry was random. From this he contended that the enquiry was focussed and part of a criminal procedure. He cited Heaney and McGuinness v Ireland [2000] EHHR 675 where the charge of failing to account for their movements and actions between specified times was held to be a violation of the right to silence and the right not to incriminate themselves under Article 6.1; he relied on paragraphs 40 to 46 and 51. He said that in Funcke v France [1993] 1 CMLR 897 the compulsion to hand material over was held to be in breach of Article 6.1. He cited R v Gill [2004] 1 WLR 469 where it was said that the appellants who were convicted of cheating the public revenue should have been cautioned when questioned under the Hansard procedure. He said that the declared purpose of random enquiries was to stop "the non-compliant slipping through the net", see the Tax Bulletin on self-assessment.

Mr Sharkey said that the revenue did not have any proper grounds to suspect that the Appellant's return was incorrect but that there was an ongoing enquiry into his fiancée's return. He said that the inference was that the inspector suspected the Appellant of something. In the circumstances the penalty was ultra vires because it infringed the Appellant's right to silence.

Respondent's submissions

Miss Hodge said that this was not a case where the inspector held information suggesting a possible penalty. It was not correct that the inspector had said that the enquiry was not random, however the Appellant had been told in a letter that he had not been advised that it was random.

She submitted that the tribunal had no jurisdiction to consider in these proceedings the Appellant's ability to obtain legal assistance, any potential daily penalty or the application of the Police and Criminal Evidence Act 1984 ("PACE") to the enquiry.

She said that the Appellant was not relying on civil rights but that he contended that the proceedings involved a criminal charge. She said that whereas tax geared penalties under section 95 of the TMA 1970 involved a criminal charge within Article 6, see King v Walden (2001) 74 TC 45; [2001] STC 822, small fixed penalties are not criminal within Article 6. The penalty here was designed to ensure compliance with a regulatory requirement. She said that in both Funcke and J B v Switzerland the applicants faced criminal prosecution under domestic law for offences allegedly committed before the information was requested; in J B v Switzerland tax evasion proceedings had already been instituted, see paragraphs 65 and 66.

Miss Hodge said that Smith was very similar to this case. In Lauko although the fine was small the nature of the offence was criminal and the penalty had a punitive and deterrent purpose, see paragraph 58.

She said that TMA 1970 s.9A empowered an officer to enquire into a return. It was not the policy of the Revenue to inform a taxpayer whether an enquiry is at random or to disclose the reason. She denied any connection with the enquiry into the Appellant's fiancée's return. There were no grounds to suspect an offence.

She said that the imposition of the penalty did not involve a criminal charge and the enquiry was not a criminal charge. An enquiry is not the same as an investigation. In Heaney and McGuinness a criminal charge was being investigated.

Miss Hodge said that even if the fixed penalty involved a criminal charge that did not make it ultra vires. She said that evidence obtained without warning the Appellant of his right to silence might be held to be inadmissible in an appeal against a penalty based on that evidence. That did not arise here.

Other cases cited

The following cases were also cited during argument or referred to in the written submissions :

Ali and Begum v Customs and Excise Commissioners [2002] V&DR 71

Customs and Excise Commissioners v Han & Yau [2001] STC 1188

Ferrazzini v Italy [2001] STC 1314

C B and A M v Switzerland (1994) Appln 17443/90

Quinn v Ireland (2000) Appln 36887/97

Bancroft v Crutchfield [2002] STC (SCD) 347 and

Gladders v Prior [2003] STC (SCD) 245

Conclusions

As is apparent from the preceding paragraphs the submissions were far ranging and both advocates had carried out considerable research.

I consider first whether the imposition of the fixed penalty involved a criminal charge within Article 6.1. The criteria laid down in Engel and Others v Netherlands (No.1) [1976] EHHR 647, which were applied by the Court of Appeal in Han and Yau, were (1) the classification of the proceedings in domestic law, (2) the nature of the offence and (3) the nature and degree of the severity of the penalty that can be imposed.

The domestic classification of the fixed penalty is civil; the nature of the offence is regulatory involving no imputation of dishonesty and the penalty which is pecuniary is in no sense severe. The possibility of daily penalties in the future under section 97AA(1)(b) cannot in my judgment affect the classification of the fixed penalty under sub-section (1)(a).

Although the possible penalty under subsection (1)(b) is much heavier it does not seem to me that its severity is such as to make it criminal within Article 6.

It follows that the matter of non-availability of Criminal Defence Service funding does not arise even if within the Tribunal's jurisdiction, which it is not.

The delay in answering the Appellant's concerns under Article 6 within a reasonable time is not within the Tribunal's jurisdiction. The Tribunal itself has a duty to determine any matter within its jurisdiction without unreasonable delay, however the delay of which the Appellant complains was before the reference to the Special Commissioners.

I turn next to the submission that the imposition of a penalty for failure to comply with the requirement under section 19A infringed the Appellant's right to silence and the right not to incriminate himself under Article 6.1.

Although not specifically mentioned in Article 6 the right to silence and the right against self-incrimination are implicit in Article 6 being generally recognised international standards, see Heaney and McGuinness [2000] EHHR 675 at paragraph 40.

Notices under section 20 of the TMA were considered in R v Allen [2002] 1 AC 509 in relation to the right to silence. In that case during an investigation a section 20 notice was served on the taxpayer requiring a certified statement of all his assets and liabilities and a summons was issued under section 98 for penalty proceedings. Following a meeting under the Hansard procedure the taxpayer provided a schedule. One of the counts on which he was convicted was that the schedule was false. The taxpayer relied on Saunders v UK (1996) 23 EHHR 313 where the European Court of Human Rights upheld the complaint that the use at Mr Saunders' trial of statements to DTI inspectors given under legal compulsion deprived him of a fair hearing under Article 6.1

At paragraph 30 Lord Hutton said this,

"… viewed against the background that the state, for the purpose of collecting tax, is entitled to require a citizen to inform it of his income and to enforce penalties for failure to do so, the section 20(1) notice requiring information cannot constitute a violation of the right against self-incrimination."

Lord Hutton pointed out that Mr Allen was charged with giving false information and the prosecution had not relied on an induced confession as being true. At paragraph 35 Lord Hutton (in a passage cited in R v Gill at paragraph 25) said this,

"If, in response to the Hansard statement, the appellant had given true and accurate information which disclosed that he had earlier cheated the revenue and had then been prosecuted for that earlier dishonesty, he would have had a strong argument that the criminal proceedings were unfair and an even stronger argument that the Crown could not rely on evidence of his admission, but that is the reverse of what actually occurred."

Mr Allen took his complaint to the European Court of Human Rights but his application was dismissed in Allen v United Kingdom (2002) Appln 76574/01. In its judgment (cited in R v Gill at paragraph 26) the Court said this,

"However, the privilege against self-incrimination cannot be interpreted as giving a general immunity to actions motivated by the desire to evade investigation by the revenue authorities."

It is relevant to note that in R v Allen the Hansard procedure referring to possible criminal proceedings had been invoked before the taxpayer produced the statement of assets.

In the present case there was no evidence that prosecution or evasion penalties were under consideration or that the revenue was in possession of information indicating that the Appellant's return was wrong. Miss Hodge stated that it was not the revenue's policy to state reasons for enquiries or whether they are random. In her skeleton argument she said that no evidence at all had been gathered.

The Appellant relied on Funcke in particular on paragraph 44. In that case acting on information that the taxpayer had assets abroad, the tax authorities required the production of certain documents. When he did not produce them, the tax authorities prosecuted him in the Strasbourg Police Court which imposed a fine of 1200 francs and a penalty of 20 francs per day's delay. In his application to the Court of Human Rights, it was claimed that the authorities had violated his right not to give evidence against himself, as, although they had not alleged an offence against the regulations governing overseas financial dealings, "they had brought criminal proceedings calculated to compel Mr Funcke to co-operate in the prosecution mounted against him."

The Court said this at paragraph 44,

"The Court notes that the Customs secured Mr Funcke's conviction in order to obtain certain documents which they believed must exist, although they were not certain of the fact. Being unable or unwilling to secure them by some other means, they attempted to compel the applicant himself to provide the evidence of offences he had allegedly committed. The special features of customs law … cannot justify such an infringement of the right of anyone 'charged with a criminal offence', within the autonomous meaning of this expression in Article 6, to remain silent and not to contribute to incriminating himself."

The criminal offence referred to must be the matters being investigated when the documents were required. It is clear from King v United Kingdom (No 2) [2004] STC 911 at 921 that "criminal charge" is much wider than its meaning in English usage and applies when enquiries substantially affect a person's position; in King it was held that Article 6 applied from 1987 although the penalty was not imposed until 1994.

It is also to be noted that in Funcke a criminal sanction was used to compel the production of the documents. Funcke thus had similarities to Heaney and McGuinness and was indeed cited in that case.

In the present case there was no evidence and no suggestion by either party that any prosecution was being considered or that any penalties involving criminal proceedings within Article 6.1 were contemplated.

To avoid any misunderstanding I should make it clear that even if I had concluded that the fixed penalty conflicted with the Appellant's right to silence, there is no remedy which I could have given in this appeal.

The Appellant also complained that the collection of the penalty before the appeal was heard was contrary to his Convention rights.

This again is not a matter when the jurisdiction of the Tribunal however I shall deal with it briefly. The penalty was in fact collected by deduction from a credit on the Appellant's account. A penalty determined under section 100, which includes a penalty under section 97AA(1)(a), is treated under section 100A(3) as tax charged in an assessment. It would have been open to the Appellant to apply for postponement pending determination of the appeal, however he did not do so.

Since submissions based on the rights under the Convention were considered by Mr Justice Moses, on 25 October 2004 in the High Court in R (Murat) v Inland Revenue [2004] EWHC 3123 (Admin) in relation to similar penalties and also daily penalties, I deferred releasing this decision until I had obtained a transcript of the judgment.

The Convention rights relied on in that case included Articles 3, 4 and 14 which were not in issue in the present case. Mr Murat also raised an argument based on self-incrimination based on Article 6. Moses J dismissed that submission saying that the purpose of requiring Mr Murat to produce a balance sheet was merely in pursuance of his obligation to provide figures as a taxpayer so that his liability could be correctly assessed. The same applies here.

The appeal is dismissed.

THEODORE WALLACE

SPECIAL COMMISSIONER

Release Date: 26 January 2005

SC 3074/04