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Barrowcliffe v Customs and Excise [2004] UKVAT V18855 (29 November 2004)

18855

VALUE ADDED TAX — dishonest evasion — penalty imposed on director of company — VATA 1994 s 61 —Human Rights Convention art 6 — whether Notice 730 procedure offensive — no — whether refusal of public funding on income grounds must lead tribunal to allow appeal summarily — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

PETER BARROWCLIFFE Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Colin Bishopp (Chairman)

Marjorie Kostick BA FCA CTA

Peter Whitehead

Sitting in public in Manchester on 8 November 2004

The appellant did not appear and was not represented

Andrew Macnab, counsel, instructed by the Solicitor's office of HM Customs and Excise for the respondents

DECISION

This is an appeal by Peter Barrowcliffe against the imposition on him of a penalty by the respondents, in accordance with sections 61 and 76 of the Value Added Tax Act 1994. The respondents' case is that Mr Barrowcliffe was responsible for the dishonest evasion by Tipek Security Services Limited ("Tipek") of VAT at a time when Mr Barrowcliffe was a director of Tipek and responsible for submitting its VAT returns. It appears to be undisputed that the company failed to make returns but instead paid centrally issued assessments, which understated its true liability by a very large amount. The amount of VAT said to be evaded exceeds £335,000. Mr Barrowcliffe was assessed to a penalty of £83,848.33, representing 25 per cent of the tax evaded. The Commissioners allowed 75 per cent mitigation of the maximum 100 per cent penalty by reason of Mr Barrowcliffe's co-operation with them.

Mr Barrowcliffe did not appear at the hearing and was not represented. However, the VAT consultant who had previously been representing him wrote to the tribunal indicating that neither he nor they would be present and inviting the tribunal to hear the appeal in his absence; the request went rather further in asking that the appeal should be allowed summarily. Despite the fact that the appeal is against the imposition of a civil evasion penalty, we considered it appropriate in the circumstances to proceed in Mr Barrowcliffe's absence. The Commissioners were represented by Andrew Macnab of counsel.

The penalty was imposed upon Mr Barrowcliffe by letter dated as long ago as 5 January 1999. Mr Barrowcliffe did not serve his notice of appeal, however, until May 2001, rather more than two years out of time. The reason given was that his advisers were awaiting the judgment in Customs and Excise Commissioners v Han and another [2001] STC 1188, which was given by the Court of Appeal in July 2001.

An application for an extension of time for serving the notice of appeal came before the present chairman in December 2001. One complaint made on Mr Barrowcliffe's behalf is that no written reasons for the decision allowing his application have been given. Perusal of the tribunal's file reveals that the parties were asked whether they would agree to the reasons being made public (since it would not be usual, save on special request which was not made in this case, to give written reasons for the granting of an extension of time) but that no reply was received, and consequently no written reasons were promulgated. Had they been given, they would have indicated that it counted against Mr Barrowcliffe that he had been advised several times over the intervening period that he had a right of appeal but had failed to respond to that advice; that his conduct, in negotiating payment of the penalty by instalments, was consistent with his having decided against making an appeal; and that the reason given, that the decision in Han and another was awaited was unconvincing (as many appeals had been lodged with an application to stand the appeal over pending the outcome of that case and it was by no means clear why the notice of appeal had in fact been lodged before the judgment of the Court of Appeal was given); but that the time limit of as little as 30 days, imposed by rule 4 of the Value Added Tax Tribunals Rules 1986 (SI 1986/590) seemed difficult to reconcile with the requirements of article 6 of the European Convention on Human Rights and, there being no evidence of prejudice to the Respondents, the application for an extension of time of service for the notice of appeal should be allowed.

The notice of appeal sets out the following grounds:

"The case for VAT evasion and subsequent civil evasion penalty issued on 5/1/99 for the amount of £83,843.33 relies solely on evidence gathered during an interview conducted on 13/7/98. The interview was carried out under Notice 730 procedure and infringed my client's Human Rights under article 6 of the ECHR. During the tape recorded interview my client was not properly cautioned, not advised of any access he may have to free legal aid, and his right to silence was infringed as he was invited to incriminate himself in order to earn mitigation of the penalty."

It is noteworthy that neither there, nor elsewhere, since the notice of appeal was lodged, has it been contended on Mr Barrowcliffe's behalf that Tipek's default was not due to his dishonesty. For reasons which were not evident to us, no defence has been served and we do not know what, if any, comment might have been made about the dishonesty had one been served. The application that the appeal should be allowed summarily, too, does not contain any denial of dishonesty but instead contends that the Respondents have oppressively continued to collect the instalments of the disputed penalty; that state funding has been refused to the Appellant because "his disposable income was deemed to include payments being made to the Commissioners" (one is left to infer that the inclusion is claimed to be incorrect); that the refusal of any award of costs to the appellant following his successful application for extension of time for service of the notice of appeal was itself unfair; and that, by reason of his not being able to afford, or receive public funding to pay for, representation, the Appellant is suffering a material inequality of arms.

We are satisfied that there is no merit in any of the arguments put forward on behalf of the Appellant.

We deal first with the complaints set out in the notice of appeal about the manner in which the two interviews of the Appellant (although the notice of appeal refers to only one) were conducted. On both occasions, Mr Barrowcliffe was accompanied by a partner in the firm of consultants recently representing him, a Mr Atkins. It is apparent that at the beginning of each interview, the Appellant was shown the Respondents' Notice 730 and that he indicated he understood its contents and needed no further explanation. We have no doubt that, had any further explanation been necessary, Mr Atkins was competent to provide it. Notice 730 explains the Commissioners' policy and practice in operating the provisions of section 60(4) of the 1994 Act. That subsection provides that statements made and documents produced by a person under investigation are admissible in a Court or before this tribunal even though they were obtained by the Commissioners' inducing the person concerned to make them by an indication that his co-operation would be taken into account in their deciding whether to prosecute him, or instead to impose a civil penalty. The Notice goes on also to describe the Commissioners' practice in mitigating any civil penalty which might be imposed, in return for co-operation.

Although, as we are aware, there has been considerable debate about the compatibility of that provision with article 6 of the European Convention on Human Rights, those doubts were laid to rest by the European Court of Human Rights in Allen v United Kingdom (Application 76574/01) ECHR 2002-VIII. The Court drew a distinction between compulsory co-operation, where refusal of itself gave rise to a penalty and which had been disapproved in Saunders v United Kingdom (1996) 23 EHRR 313, and that in issue here, where a refusal to co-operate could not of itself lead to any penalty at all or (as in Allen's case) might lead to the imposition of a very modest penalty. We are satisfied that the grounds of appeal set out in the notice of appeal itself cannot succeed.

It is evident from the paperwork available to us that the principal reason for Mr Barrowcliffe's failure to launch an appeal promptly was not that he, or his advisers, were awaiting the decision in Han and another but that, from the outset, he attacked the imposition on him of the penalty in different ways. He protested that it was unfair to penalise him rather than the company itself. That complaint overlooks the fact that section 61 of the 1994 Act is designed specifically to cater for the situation which arises when a company which has failed to account for its VAT liabilities has gone into liquidation, as is the position here, and has as its purpose the penalising of those of its officers who have dishonestly caused the company to underdeclare its liabilities. Secondly, evidently apprehensive that action by Customs and Excise might render him bankrupt and consequently unable to hold office as a director of a limited company, Mr Barrowcliffe made arrangements with his local VAT office to pay the penalty imposed upon him by instalments. Since, from the outset, he has been made aware by Customs of his right of appeal (we were provided with copies of several letters addressed to him making that point) but instead of appealing, he chose to negotiate payment by instalments, he cannot in our view realistically be heard to claim that Customs' conduct in collecting the instalments which he has offered is oppressive. In any event, even if there were merit in his complaint, it is not within the jurisdiction of this tribunal to deal with it.

Similarly, it is not within the jurisdiction of this tribunal to deal with Mr Barrowcliffe's claim that he has been unjustly refused state funding to present his defence. Furthermore, save for the issue relating to the effect of the European Convention on Human Rights, of which we have already disposed, it is by no means clear from his representatives' communication what argument he might have pursued had he been represented at the hearing. It is certainly true that, in accordance with article 6 of the Convention, Mr Barrowcliffe is entitled to a fair hearing and (subject to satisfying the financial requirements) to public funding to assist him. However, that right pre-supposes that there is an issue to be heard and, as we have indicated, there does not appear in this case to be any issue which it might be possible for the tribunal to determine in his favour.

Quite why it is contended that the costs incurred by Mr Barrowcliffe in making his application for permission to appeal out of time should be paid for him is unclear. Normally any litigant seeking relief from the consequences of his own failure to comply with a time limit would be required to pay both his own and his opponent's costs incurred in dealing with the application. In this case the direction made was rather more generous to Mr Barrowcliffe than he might have expected, namely a direction that the costs be costs in the appeal. We are satisfied that this complaint too is without foundation.

As we have indicated already, the dishonesty alleged is that Tipek, at Mr Barrowcliffe's instigation, paid centrally issued assessments knowing that they substantially understated its true liability. That such conduct is dishonest is beyond doubt: see R v Dealy [1995] STC 217, Storey v Customs and Excise Commissioners (2002, Decision 17793). It is quite clear from the transcripts of Mr Barrowcliffe's interviews which were provided for us (and which, as we have explained, are admissible as evidence) that Mr Barrowcliffe accepted that there had been substantial underdeclarations (the company was paying less than one per cent of its true liability), that he was responsible for the decision to pay the centrally issued assessments instead of the correct amount, that he recognised that his conduct was dishonest and that it was appropriate that a penalty for dishonest evasion should be imposed.

The appeal is without merit and must be dismissed. In ordinary circumstances, the Commissioners ask for a direction in their favour in respect of costs when an appellant brings an unsuccessful appeal against the imposition of a dishonest evasion penalty, and when an appellant fails to attend the hearing without reasonable excuse. Mr Macnab did not ask us to make such a direction immediately but merely to give the Commissioners permission to apply for one at a later date. We give that permission but upon the basis that the application, if any, must be lodged with the tribunal within one month after the release of this decision.

COLIN BISHOPP

CHAIRMAN
Release Date: 23 November 2004

MAN/2001/0406