Much has been written recently about the future of co-operation with the Inland Revenue, following the recent decision on Regina v W.
The cases I am referring to are those where the taxpayer has been under-declaring his taxable income.
The taxpayer who has under-declared his income has committed an offence and thereby laid himself open to prosecution for the common-law offence of cheating the public revenue and, if more than one party is involved, conspiracy to do so, and possibly also conspiracy to defraud and where documents have been produced falsely or modified, forgery. These are potentially serious offences.
The Revenue has the responsibility for the care and management of the tax system and the Court of Appeal stated, in Regina v W, that the Revenue’s common law power to prosecute was ancillary to, supportive of and limited by their duty to collect taxes.
Prosecution is the last resort
The Revenue will normally prefer to collect tax, interest and penalties rather than prosecute the offending taxpayer. It will prosecute in cases where the amounts involved are very large, and in particular where the honesty of a solicitor, accountant or tax adviser is in doubt or the case involves an MP, Justice of the Peace, General Commissioner or other person involved in the administration of justice.
The Revenue will draw the taxpayer’s attention to Code of Practice number nine and explain its prosecution policy by reference to what is usually known as the ‘Hansard Statement’.
The normal procedure adopted by the guilty, but well advised, taxpayer is to commission his tax advisers to produce a report into his tax affairs. This report is then handed to the Special Compliance Office of the Revenue and the amount of tax under-declared is calculated, together with interest and penalties, which will depend on the seriousness of the case and on the taxpayer’s co-operation in producing the report.
The Hansard policy is not an absolute guarantee of non-prosecution, although that is the normal practice, and TMA 1970, section 105, specifically makes admissible in criminal proceedings any document, produced by the taxpayer in the course of the investigation.
The system has worked well in practice for many decades and the Revenue recovers considerable sums of money as a result. It is sometimes considered a soft option for the taxpayer, but the reality is that in many cases the amount of penalties charged is considerably in excess of any fine which a criminal court would be likely to impose.
It does, however, avoid the possibility of imprisonment, and most errant taxpayers readily accept that the Hansard procedure is preferable to a criminal trial.
In Regina v W, the Crown Prosecution Service is prosecuting the taxpayers for conspiracy to commit false accounting, even though settlement has been reached with the Revenue for tax, interest and penalties, the Revenue having decided not to prosecute. The concern among tax advisers is whether Regina v W calls into question the whole basis of the Hansard procedure because the taxpayer’s position is not improved if he is merely prosecuted by the CPS instead of the Revenue, and he might in fact be worse off, because he may have disclosed information which could be used against him, and he will also have paid penalties to the Revenue, whereas if the Revenue were mounting the prosecution it would leave the Court to impose any penalties, and merely recover the tax.
Policy change is needed
The case has not yet been fully heard but the question which has been raised is whether, as a result of Regina v W, there should be a change of policy by tax advisers in handling investigation cases.
It seems sensible to follow the Hansard procedure as any decision to prosecute would be taken by the Revenue alone and not by the CPS. In the absence of the Revenue effectively mounting a prosecution at one remove through the CPS, taxpayers and their advisers ought to continue to co-operate under the Hansard procedure. If they do not, the Revenue will be forced to reconsider its own prosecution policy, and the issue will escalate to the disadvantage of all taxpayers who have no wish to see the system becoming more confrontational than it is.
Nigel Eastaway of TaxServe is chairman of the technical committee of the Chartered Institute of Taxation.
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