Gold Nuts Ltd and Others v The Commissioners for HM Revenue & Customs

JurisdictionUK Non-devolved
CourtFirst Tier Tribunal (Tax Chamber)
Judgment Date08 February 2016
Neutral Citation[2016] UKFTT 82 (TC)
Date08 February 2016
[2016] UKFTT 0082 (TC)

Judge Anne Redston

Gold Nuts Ltd & Ors

Mr Budhdeo in person; Mr James Onalaja of Counsel for all other appellants other than Chemistree Homecare Limited, which was not represented

Mr Michael Jones, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents

Income tax – Corporation tax – Preliminary hearing on matters of law – COP9 letter issued to Mr Budhdeo – Contractual disclosure offered and refused – Whether FTT had jurisdiction to close a ‘COP9 enquiry’ – No – Whether HMRC used SA and CT enquiries and Finance Act 2008 (‘FA 2008’), Sch. 36 Notices to obtain information to allow them to decide whether to prosecute – Whether Mr Budhdeo had art. 6 right not to self-incriminate – Yes – Whether companies had right not to self-incriminate in reliance on Mr Budhdeo's right – No – Whether Mr Budhdeo could refuse to respond to Sch. 36 Notices in reliance on that right – No, having considered Funke v France (application no 10828/84) (1993) 16 EHRR 297; Saunders v UK (application no 19817/91) (1997) 23 EHRR 313; JB v Switzerland (application no 31827/96) [2001] ECHR 324; Allen v UK (application no 76574/01) [2002] ECHR 858, and other ECtHR authorities – Whether the Civil Evidence Act 1968 and/or the common law changed that answer – No – Similar questions about SA and CT enquiries – Relevance of answers when tribunal decided appeals against Sch. 36 Notices and related penalties and applications to close enquiries – Whether Police and Criminal Evidence Act 1984 relevant to the above matters in the context of the tribunal proceedings – No – Application for disclosure of HMRC's information underpinning COP9 letter refused – Directions given for substantive hearing of appeals and applications in issue.

The First-tier Tribunal (FTT) decided various preliminary issues concerning the interaction of self-assessment and corporation tax enquiries, Finance Act 2008 (‘FA 2008’), Sch. 36 Notices and penalties on the one hand, and possible criminal prosecution on the other.

Summary

Gold Nuts Ltd was the parent company of a number of companies, of which Mr Budhdeo was a director. HMRC enquired into Mr Budhdeo's affairs under COP9, in relation to which Mr Budhdeo refused to sign the Contractual Disclosure Facility (CDF) on the basis that he had not committed tax fraud and would not admit to something he had not done. HMRC also opened enquiries into his personal tax returns, some of the companies' tax returns, a partnership of which Mr Budhdeo was a partner and it had issued information notices on some of the companies and relating penalties for non-compliance. Mr Budhdeo applied to close the enquiries into his personal tax returns and the COP9 enquiry, the companies applied for at least some of the enquiries into the company tax returns to be closed and they appealed against at least some of the information notices and relating penalties for non-compliance. In the earlier decision of Gold Nuts Ltd TAX[2015] TC 04609, the FTT refused an application to set aside an FTT direction that Mr Budhdeo's appeals and applications be joined with those of the companies for which he was a director. The substantive case was adjourned to decide three further preliminary issues, which was the purpose of this hearing. Mr Budhdeo and the companies are together referred to as ‘the Appellants’.

After some clarification and reformulation, the issues addressed in this hearing were:

  1. 1) whether the FTT had the jurisdiction to close a COP9 enquiry, and if so, whether the FTT should direct the closure of the enquiry;

  2. 2) whether HMRC used its Finance Act 2008, Sch. 36 and self-assessment (SA)/corporation tax (CT) enquiry powers to obtain information for the purposes of a possible criminal prosecution of Mr Budhdeo;

  3. 3) whether art. 6 of the European Convention on Human Rights (‘the Convention’) was engaged following HMRC's COP9 enquiry letter and Mr Budhdeo's refusal to sign the CDF;

  4. 4) whether the Civil Evidence Act 1968 (‘CEA 1968’), s. 14 or the common law privilege against self-incrimination was/were relevant to the matters listed at (3);

  5. 5) if the answer to questions (3) and/or (4) is yes, was that relevant to, and/or determinative of: (a) Mr Budhdeo's appeal against the Sch. 36 Notice; (b) the Companies' appeals against the Sch. 36 Notices; (c) the appeals against the Sch. 36 penalty notices; (d) the SA and CT closure notice applications; and

  6. 6) whether any of the provisions of the Police and Criminal Evidence Act 1984 (‘PACE 1984’) were engaged following Mr Budhdeo's refusal to sign the CDF, and if so, whether this was relevant to, and/or determinative of, the substantive issues before the FTT.

The FTT decided as follows:

Jurisdiction over closure of COP9 enquiries

The FTT had no jurisdiction to close a COP9 enquiry. The FTT was established under the Tribunal, Courts and Enforcement Act 2007 (‘TCEA 2007’), s. 3(1) and was therefore a creature of statute. The decision of the High Court in Oxfam v R & C Commrs VAT[2010] BVC 108 could be distinguished from this case because in Oxfam a specific provision was considered (Value added Tax Act 1994 (‘VATA 1994’), s. 83(1)(c)) and was found to be broad enough to give the FTT certain wider powers, but in this case it was common ground that no statutory provision gave the FTT power to close a COP9 enquiry. The FTT also noted that the Upper Tribunal (UT) in R & C Commrs v Noor VAT[2013] BVC 1,571 and the Court of Appeal in Trustees of the BT Pension Scheme v R & C Commrs TAX[2015] BTC 22, found that TCEA 2007 gave explicit judicial review powers to the UT, but that there were no similar provisions for the FTT.

Whether HMRC used their civil powers to obtain information to allow them to decide whether to prosecute Mr Budhdeo

This issue would be decided at the substantive hearing. HMRC accepted that if HMRC's dominant purpose in issuing the Sch. 36 Notices and conducting the CT and SA enquiries was to obtain information to decide whether to prosecute Mr Budhdeo, it would be acting ultra vires and so illegally. However, HMRC submitted that this was not their dominant purpose, and that would be demonstrated by the evidence at the substantive hearing.

Whether the case engaged Mr Budhdeo's ‘civil rights and obligations’ pursuant to art. 6 of the Convention and if yes which rights were relevant

Article 6 of the Convention was engaged so as to give Mr Budhdeo the right against self-incrimination. The FTT noted that all parties accepted, that ‘criminal offence’ had an autonomous meaning for the purposes of art. 6, and extended to the imposition of civil penalties for the fraudulent evasion of tax. With reference to Lord Bingham's comments in Attorney General's Reference No 2 of 2001 ELR[2004] 2 AC 72 and Deweer v Belgium HRC(application no 6903/75) (1980) 2 EHRR 439, the FTT found that it had to decide whether a person refusing the CDF had been told that prosecution was ‘likely’ or only ‘possible’. The FTT found that a person who refused the CDF was meant to understand that there was then a likelihood of prosecution or civil penalties and therefore it followed that Mr Budhdeo had been ‘charged’ with a criminal offence within the meaning of art. 6 and that the COP9 booklet itself accepted that the CDF offer engaged art. 6. The FTT agreed with the parties that a person charged with a criminal offence had the right not to self-incriminate, even though there was no reference to that right in the words of art. 6. The FTT also found that the arguments that the art. 6 rights to a fair hearing, to be informed of the case against him and to be presumed innocent until proved guilty were not relevant to any of the issues before the FTT

Whether the right not to self-incriminate was relevant to the Sch. 36 Notices, the Sch. 36 penalties and/or the closure notice applications

Mr Budhdeo's art. 6 right against self-incrimination:

  1. a) did not allow him to refuse to respond to Sch. 36 Notices (the documents per Saunders v UK HRC(application no 19817/91) (1997) 23 EHRR 313 and the information considering the formulation in Weh v Austria HRC(application no 38544/97) (2005) 40 EHRR 37, the approach in Jalloh v Germany HRC(application no 54810/00) (2007) 44 EHRR 32 and Procurator Fiscal v Brown WLR[2001] 2 WLR 817);

  2. b) did not permit the Tribunal at the substantive hearing to strike down the Notices on the basis that compliance with the Notices would have breached that privilege;

  3. c) did not extend to the companies (this issue fell away given (a), but was considered in case the FTT was wrong in its decision in relation to Mr Budhdeo);

  4. d) did not provide the Appellants with a reasonable excuse for non compliance with the Sch. 36 Notices, so as to afford them relief from the Sch. 36 penalties;

  5. e) did not allow the Appellants to refuse to respond to enquiries raised as part of the SA and CT enquiries commenced by HMRC; and

  6. f) did not allow the FTT to close those enquiries on the basis of Mr Budhdeo's right not to self-incriminate.

Whether CEA 1968, s. 14 or the common law privilege against self-incrimination affected the decisions on self-incrimination

Neither CEA 1968, s. 14 nor the common law privilege against self incrimination changed the answers set out at (a) to (f) above. CEA 1968, s. 14 only applied to ‘proceedings’ so it had no direct application to the Sch. 36 Notices and did not apply to proceedings before the FTT. If such a common law privilege had applied it would have frustrated the statutory purpose of Sch. 36 Notices.

Whether any of the provisions of PACE 1984 were engaged and if so, whether this was relevant to, and/or determinative of, the substantive issues before the FTT

Section 78 allowed the court to refuse to allow evidence to be admitted in criminal proceedings if it would be unfair to admit it. If Mr Budhdeo were to be prosecuted for fraud, the judge at the criminal trial could refuse to admit evidence given in response to...

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