1) David Hart and Others v 1) The Crown Court at Blackfriars and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Holroyde,Mr Justice Julian Knowles |
| Judgment Date | 30 November 2017 |
| Neutral Citation | [2017] EWHC 3091 (Admin) |
| Docket Number | Case No: CO/1375/2017 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 30 November 2017 |
The Queen on the Application of
[2017] EWHC 3091 (Admin)
Lord Justice Holroyde
&
Mr Justice Julian Knowles
Case No: CO/1375/2017
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
DIVISIONAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Rhys Meggy & Patrick Cannon (instructed by BCL Solicitors LLP) for the Claimants
Andrew Bird (instructed by HMRC) for the Second Defendants
Hearing dates: 8th, 9th November 2017
This is an application for judicial review of the issue and execution of two search warrants, issued by His Honour Judge Hillen in the Crown Court at Blackfriars on 12 th December 2016 and executed by searches of premises on 14 th December 2016.
Introduction
The first three claimants are founders and designated members, and the fourth claimant is a member, of Optimal Compliance Services LLP ("OCS"), which is described in the claim form as —
"… a small consultancy which was established to support small and medium size businesses. In particular, OCS supports owner-managed businesses through the creation of modern business structures which promote shared ownership, profit sharing and tax efficiency."
OCS publish documents, to which I will refer as briefing notes, in which they indicate the services they offer to clients. They express a belief that all businesses should have "a partnership ethos". They describe a model structure which they have developed, involving both an existing limited company and a new limited liability partnership. Those different entities are referred to as LTD and LLP respectively, and for convenience I shall adopt the same abbreviations in this judgment. Also for convenience, I shall refer to "workers" as a neutral term for persons working in a relevant business, whether as an employee of an LTD or as a Member of an LLP.
OCS describe the model in the following terms:
"The model comprises a bifurcated structure whereby the LLP operates as a captive licensee business and the team members become LLP Members, sharing in operational profits on a part fixed / part variable basis. They retain their employment status with the existing LTD Company but on reduced salaries. As LLP Members they participate in profits and receive monthly drawings."
The model involves the setting up of an LLP alongside an existing LTD. Pursuant to a series of agreements, employees of the LTD thereafter receive a reduced salary from the LTD, but become entitled to a share of any profits of the LLP, and are able to draw remuneration from the LLP as advance payments against future profits. The agreements provide for the workers to be paid a substantial sum by way of compensation for the reduction in their earnings from the LTD. They agree to pay these sums to the LLP as their capital contributions to the LLP. These compensation payments and contributions are in the form of book keeping entries as between the LTD and the LLP, and it does not appear that any money changes hands.
OCS implemented this model for a significant number of clients, typically small to medium sized LTDs which were facing financial difficulties. From the point of view of the LTD, an attraction of the model was that it achieved an immediate and substantial reduction in monthly payments to Her Majesty's Revenue and Customs ("HMRC"). This was because the salary paid by the LTD to workers who had joined the LLP was on the basis of part-time employment, remunerated at or about the level of the national minimum wage, and therefore PAYE tax and National Insurance contributions were payable by the LTD only in respect of a much-reduced salary. By way of illustration taken from the evidence in the case, an LTD which had previously employed an individual at an annual salary of £57,000 would have been required to make monthly payments to HMRC in excess of £1,950 in relation to the individual's income tax, deducted under the PAYE scheme, and National Insurance contributions. Following implementation of the scheme, the LTD would pay less than £10 per month to HMRC in respect of tax and NI on the reduced salary. The LTD would therefore achieve a benefit in terms of cash flow. The individual, for his part, would have little or no income tax liability in respect of his national minimum wage salary from LTD. He would be liable to pay income tax at a future date, under the self-assessment scheme, on any payment received from the LLP by way of his share of the profits.
In one of their briefing notes, OCS referred to a decision of the Supreme Court to the effect that members of an LLP were entitled to work-based pensions, and recommended to their clients or prospective clients that LLP members be treated in the same way as employees for the purposes of work place pensions. The note continued:
"It is thus becoming increasingly clear that LLP Members are, for all practical purposes, employees as well as being partners. This is particularly important for mortgage (and other loan) purposes. When applying for mortgages and loans LLP Members should always declare themselves as "employees". But for tax purposes partnerships have always been taxed on the basis of partnership profits rather than on payments taken out of the business as partners' drawings. This is similar to the way that people who are "self-employed" are taxed but, of course, LLP Members are not actually "self-employed", as noted above."
The implementation of that model came to the attention of HMRC as a result of a voluntary disclosure by accountants acting on behalf of one of OCS's clients. HMRC were concerned that arrangements made in implementation of the model constituted tax evasion rather than a tax avoidance scheme. They began a civil investigation. In July 2016 they began a criminal investigation.
In the course of the criminal investigation, a written application for search warrants in relation to the business premises of OCS, and the residential premises of one of the claimants, was prepared by HMRC's officer Mr Russell. He was assisted in drafting the application by Mr Faulkner, a Tax Professional Investigation Officer, and his completed application, dated 9 th December 2012, was authorised by a senior officer. The application was made under Section 9 of, and Schedule 1 to, the Police and Criminal Evidence Act 1984, relying on the first set of access conditions. It was Mr Russell who presented the application and gave evidence to His Honour Judge Hillen at the hearing on 12 th December 2016.
In summary, the claimants contend that in making their written and oral application, HMRC misrepresented both the law and the facts in important respects; made allegations of criminal conduct when, on a correct interpretation of the law, no crime could have been committed by OCS; alleged an intention on the part of OCS that LLPs adopting the model would never make a profit, when HMRC knew that a number of OCS's clients had in fact declared profits; and alleged a lack of cooperation by OCS, when they knew that in fact the claimants were cooperating fully and no search warrants were necessary. As a result of all or any of those deficiencies, the claimants contend that the learned judge was deprived of the opportunity to make a full and fair assessment of the propriety of issuing the warrants.
Before describing the facts in a little more detail, it is convenient to set out the relevant legislative framework and to mention some of the case law which I have considered.
The legislative framework
Section 9(1) of the Police and Criminal Evidence Act 1984 provides –
"A constable may obtain access to excluded material or special procedure material for the purposes of a criminal investigation by making an application under Schedule 1 below and in accordance with that Schedule."
It is common ground between the parties that HMRC were entitled to make an application under section 9, and it is therefore not necessary, in the circumstances of this case, to consider the detailed definition of "special procedure material" contained in section 14 of the Act.
Schedule 1 to the 1984 Act makes provision for a Circuit Judge to issue three types of order in respect of special procedure material: a production order or access order pursuant to paragraph 4 of the Schedule; or a search warrant pursuant to paragraph 12. Paragraph 4 requires notice of an application to be given to the person who holds the relevant material, but paragraph 12 does not require notice to the person whose premises are to be searched. Paragraphs 2 and 3 set out two sets of access conditions. By paragraph 1, a production order or access order may only be issued if the judge is satisfied that either the first set or the second set of access conditions is fulfilled. By paragraph 12, a search warrant may only be issued if the judge is satisfied, not only that either the first set or the second set of access conditions is fulfilled, but also that one of the further conditions set out in paragraph 14 is fulfilled.
So far as is material for present purposes, paragraph 2 provides as follows:
"The first set of access conditions is fulfilled if –
a) there are reasonable grounds for believing –
i) that an indictable offence has been committed;
ii) that there is material which consists of special procedure material or includes special procedure material and does not also include excluded material on premises specified in the application…;
iii) that the material is likely to be of substantial value (whether by itself or together with other material) to the investigation in connection with which the application is made; and
iv) the material is likely to be relevant...
To continue reading
Request your trial
-
R Martin Kay v Scan-Thors (UK) Ltd
...1634; R (Mills and Mills) v Sussex Police and Southwark Crown Court [2014] 2 Cr.App.R. 34; R (Hart) v The Crown Court at Blackfriars [2017] EWHC 3091 (Admin); and R (Daly) v The Commissioner of Police of the Metropolis and South East Magistrates' Court [2018] EWHC 438 (Admin) variously desc......
-
Jonathan Edward Peter Tipper v The Crown Court at Birmingham
...set out in R (Hart & Ors) v (1) The Crown Court at Blackfriars & (2) The Commissioners for Her Majesty's Revenue and Customs [2017] EWHC 3091 (Admin), a production order would have sufficed for HMRC's purposes — particularly as, on the date on which the warrants were executed, separate req......
-
Gerard Fitzgerald v Preston Crown Court
...the Claimant's point of view (that the non-disclosure might reasonably have led the Judge to refuse to issue the warrant: R (Hart) v Crown Court at Blackfriars [2017] EWHC 3091 (Admin), at [19]), we are unable to agree that any non-disclosure was material. We cannot detect that this issue p......
-
Anthony Ashbolt and Simon Arundell v HM Revenue & Customs
... [2014] 1 WLR 1647, R (Newcastle United FC) v Leeds Cr Ct and HMRC [2017] EWHC 2402 (Admin), [2017] 4 WLR 187 and R (Hart) v HMRC [2017] EWHC 3091 (Admin). From these cases we extract the following principles of relevance here, all of which were a matter of common ground between the part......