Higgins
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 January 2015 |
| Date | 29 January 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge David S Porter, Mr John B Adrain
Mr Arthur Harvey, of counsel, for the Appellant
Mr Craig Dunford of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents.
Income tax Discovery assessment Effect of Confiscation Order Confiscation Order assessed on a gross basis Included a proportion of tax liability Discovery assessment not disputed Assessment reduced to prevent double recovery in relation to tax included in Confiscation Order Additional liability not disproportionate Appeal allowed in part.
The First-tier Tribunal (FTT) has allowed in a part a taxpayer's appeal against income tax and National Insurance contribution (NIC) assessments, finding that as the benefit received from the taxpayer's criminal activities used as the basis of the calculation of a Confiscation Order had been gross figures the Confiscation Order included an amount of tax, however as the Confiscation Order was reduced to reflect what the taxpayer could afford, the amount of tax and NIC paid as part of the Confiscation Order had to be proportionately reduced. The FTT also found that even though by upholding the tax and NIC assessments in part it effectively increased the Confiscation Order, the total liability was not disproportionate within the terms of the First Protocol to the European Convention, art. 1 (A1P1) as it was less than half of the taxpayer's assets.
The appellant (Mr Higgins) paid 400,000 to the Serious Organised Crime Agency (SOCA) under a Confiscation Order in respect of his prosecution for illegal waste disposal. Sometime later SOCA informed Mr Higgins that it was taking over the general revenue functions of HMRC in respect of the relevant years and issued discovery assessments and late payment penalties (initially levied at 75%, but reduced on review to 60%) as the figures included in Mr Higgins' accounts did not include any receipts from criminal activity. Mr Higgins appealed against the assessments and penalties on the basis that his payment under the Confiscation Order included income tax, interest and penalties and to uphold the assessments and penalties would result in double recovery (he did not dispute the actual assessments). The National Crime Agency (NCA) (which was at the time of the offence SOCA) said that the Criminal Court and Confiscation Order did not deal with any income tax arising from Mr Higgins' trading transactions as he had made no returns of income and expenses arising in those periods.
The FTT found that there was considerable confusion between the parties as to the terms on which the 400,000 paid under the Confiscation Order had been calculated. They did however agree that the initial calculation of the benefit to Mr Higgins was based on the notional cost of removing the illegally dumped material from the landfill site (between 1,609,500 and 2,595,000 according to the prosecution (less 273,246 of landfill tax paid) and between 1,298,750 and 1,696,754 according to the defence). It was accepted that these values did not necessarily represent the monies Mr Higgins had derived from his criminal activity. The benefit figure was then reduced to what Mr Higgins could reasonably provide and accordingly the Confiscation Order was issued in the sum of 400,000. The FTT decided that if Mr Higgins had paid the 2,595,000 assessed by the NCA or the lower figure of 1,298,750 assessed by the defence, he would have paid back everything he had illegal obtained, which would have included any income tax due on the entire amount. As a result, even though the FTT accepted that the judge in Confiscation Order hearing did not consider any income tax, if the Confiscation Order of 400,000 was based on a proportion of the gross figures of either 2,595,000 or 1,298,750 then income tax at the appropriate level must have been included in the figure of 400,000 based on a gross methodology.
The FTT calculated that based on an average of the prosecution and defence figures the maximum amount that Mr Higgins obtained from his criminal activity was 1,663,378 (para. 55 of the decision) and therefore this was the maximum amount he could have paid under the Confiscation Order. If Mr Higgins had paid this sum the FTT had no doubt that he would have paid back all the benefit that he had received from his criminal activity. It therefore would have included any income tax due and penalties because it represented his total liability as a gross figure, albeit net of landfill tax. In fact the Confiscation Order only charged Mr Higgins 400,000 on the basis that this is what he could afford.
Mr Higgins' representative argued that SOCA had used the incorrect mechanism in arriving at the tax liability. It ought to have followed the Attorney General's Guidance and referred the matter back to the court which fixed the Confiscation Order. The FTT disagreed. It found that that Court order was made in the criminal court in 2008 and, in their view, did not specifically deal with income tax in terms which showed the amount of tax and the periods in dispute. The FTT shared the view of Judge Clarke's view in Peries TAX[2011] TC 01516 when he concluded that the issues in the proceedings before him and those arising in the civil recovery proceedings were different. Accordingly, he held that any similarity of evidence which might be considered by, respectively, the High Court, and the Tax Tribunal would not justify a stay of the tax and penalty appeals before him. Having prosecuted the Criminal offence successfully, SOCA was able to take a view with regard to the income tax liabilities of Mr Higgins.
The FTT considered the penalties being charged at 60% was reasonable given that Mr Higgins committed a substantial criminal offence and deliberately failed to declare any profits from a business. However the FTT reduced the assessments to tax and NIC, the interest and penalties based on the proportion of the maximum amount that Mr Higgins obtained from his criminal activity (1,663,378) which he actually paid under the Confiscation Order (400,000) (para. 62 of the decision).
Finally the FTT also considered whether by confirming a tax liability in the reduced figure of 81,012 and a penalty of 32,612 it had made the Confiscation Order disproportionate within the terms of A1P1. The FTT decided that it did not as the increased Confiscation Order was less than half of Mr Higgins' assets.
This case looked at the interaction of criminal proceedings and discovery assessments and in particular whether a Confiscation Order arising from a taxpayer's conviction for illegal waste disposal included the payment of tax and NIC due as a result of the criminal activity. Based on the facts of the case the FTT found that it did, although as the Confiscation Order was reduced to reflect what the taxpayer could pay he had only paid a proportion of the tax and NIC due.
[1] Mr Malachy Higgins (Mr Higgins) appeals against the income tax/NIC assessments for the years 1998/9 to 2003/4 in the sum of 71562.10 plus interest of 35,100.33 and a penalty of 42,937.26 on the basis that he paid 400,000 to the Serious Organised Crime Agency (SOCA) under a Confiscation Order on the occasion of his prosecution on 13 February 2008in respect of illegal waste disposal and the imposition of the assessment, interest and penalties would amount to a double recovery as he had already accounted for the same in the Confiscation Order. The Respondents [The National Crime Agency (NCA)] but at the time of the offence SOCA) say that the Criminal Court and the Confiscation Order did not deal with any income tax arising from Mr Higgins transactions in trading as Higgins Waste as no returns had been made of the income and expenses arising in those periods.
[2] Mr Craig Dunford (Mr Dunford), of counsel, represented the Respondents (NCA) and produced a series of agreed bundles. Mr Arthur Harvey (Mr Harvey), of counsel, appeared for Mr Higgins. The parties had agreed the assessments were to best judgment and argued the point as to whether the payment under the Confiscation Order included Mr Higgins entire tax liabilities. Mr Harvey after the hearing provided a written submission with regard to the penalty.
[3] We were referred to the following cases:
Martin TAX[2012] TC 01990.
R v Waya ELR[2013] AC 294.
Peries & Anor TAX[2011] TC 01516
Swallow TAX[2010] TC 00742.
R v May [2008] UKHL 28.
R v Allingham & Anor [2007] NICC 53.
Khan v Director of Assets Recovery AgencySCD (2006) Sp C 523.
R v Edwards [2004] EWCA Crim 2923.
R v FoggonTAX [2003] BTC 247.
Re Moran TAX[2001] BTC 351.
R v Dimsey TAX[2001] BTC 408.
R v Ellen TAX[2001] BTC 421.
IR Commrs v Alexander Von Glehn & Co LtdTAX(1920) 12 TC 232.
McKnight (HMIT)v Sheppard TAX[1999] BTC 236
[4] Mr Higgins had been prosecuted for the illegal depositing of waste and had been subjected to a Confiscation Order under section 156 of the Proceeds of Crime Act 2002 (POCA) in the sum of 400,000. SOCA served two notices on him under Section 317 (2) of POCA informing him that it was taking over the general revenue functions of HMRC in respect of his tax returns for the years 1996/7 to 2002/3 and 2003/4. As a result, it assessed him to Income tax under section 29 of the Taxes Management Act 1970 and penalties under Schedule 56 of the Finance Act 2009. The terms of the assessment were not contested, but the penalty has been contested.
[5] We were also referred to the Attorney Generals Guidance with regard to the circumstances that apply when a conviction had been secured for a criminal offence, but no Confiscation Order had been made. The relevant authorities should consider using the non-conviction based powers available under POCA. An example as to when that might be appropriate, would be the circumstances in this appeal.
6. Civil recovery represents a better deployment of resources to target someone with significant property, which cannot be explained by...
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Revenue and Customs Commissioners v Higgins
...of Crime Act 2002, s. 317(2) – TMA 1970, s. 29. The Upper Tribunal (UT) remade the First-tier Tribunal (FTT) decision in Higgins [2015] TC 04259. The UT held that the FTT had made an error of law in attempting to challenge assessments, given that the taxpayer had not provided any relevant e......