King v United Kingdom (13881/02)
| Jurisdiction | England & Wales |
| Judgment Date | 18 May 2001 |
| Neutral Citation | [2001] EWHC 419 (Ch) |
| Date | 18 May 2001 |
| Court | Chancery Division |
Chancery Division.
Jacob J.
Jeremy Woolf (instructed by Salim & Patel) for the appellant.
Ashley Underwood and Kate Selway (instructed by the solicitor for the commissioners of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
AP MP and TP v Switzerland HRC(1997) 26 EHRR 541
Barnett v Brabyn TAX[1996] BTC 345
Bendenoun v France HRC(1994) 18 EHRR 54
Brown v Stott WLR[2001] 2 WLR 817
Caffoor (Trustees of the Abdul Gaffoor Trust) v Income Tax Commr (Colombo) ELR[1961] AC 584
Cenlon Finance Co Ltd v Ellwood TAX(1962) 40 TC 176
Deweer v Belgium HRC(1980) 2 EHRR 439
Duce v Boots ELR[1937] Ch 642
Eckle v Germany HRC(1982) 5 EHRR 1
Escoubet v Belgium UNK(unreported, 28 October 1999)
Fen Farming Co Ltd v Dunsford TAX(1974) 49 TC 246
Garyfallou Aebe v Greece (1997) 28 EHHR 344
Georgiou (t/a Marios Chippery) v United Kingdom UNK[2001] STC 80
Greenfield v Secretary of State for the Home DepartmentUNK(unreported, 2 February 2001)
HM Advocate for Scotland v McIntosh PC UNK[2001] D1 UKPC 1
Hollington v Hewthorn ELR[1943] 1 KB 587
Hoystead v Commr of Taxation ELR[1926] AC 155
IR Commrs v Sneath ELRTAX[1932] 2 KB 362; 17 TC 149
Inocenco v Portugal UNK(unreported, 11 January 2001)
Neumeister v Austria HRC(1968) 1 EHRR 91
Õztûrk v Germany HRC(1984) 6 EHRR 409
Pierre-Bloch v France HRC(1997) 28 EHRR 202
R v Benjafield UNK(unreported, 21 December 2000)
R v Director of Public Prosecutions, ex parte Kebilene ELR[2000] 2 AC 326
R v Hutchings ELR[1881] 6 QBD 300
R v Special Commrs, ex parte Elmhirst ELRTAX[1936] 1 KB 487; 20 TC 381
Ranaweera v Ramachandran ELR[1970] AC 962
Ravnsborg v Sweden HRC(1994) 18 EHRR 38
Ringeisen v Austria HRC(1971) 1 EHRR 455
Salabiaku v France HRC(1988) 13 EHRR 379
Salmon v General Commrs for Havering and IR Commrs TAX(1968) 45 TC 77
Schmautzer v Austria HRC(1995) 21 EHRR 511
Slaney v Kean TAX[1970] 45 TC 415
Sparks v West Brixton General Commrs UNK[1977] STC 212
Tod (HMIT) v South Essex Motors (Basildon) Ltd TAX[1988] BTC 78
Wemhoff v Federal Republic of Germany HRC(1968) 1 EHRR 55
Westmoreland Investments Ltd v McNiven (HMIT) TAX[2001] BTC 44
Willey v IR Commrs TAX[1985] BTC 442
Williams v Special Commrs TAX(1974) 49 TC 670
This was an appeal from a special commissioners decision dated 23 March 2000 ("2000 commissioners"). Since 1976 Mr King ("the appellant") and his partner Miss Johnson purchased a number of properties in the UK. The Revenue contended that the money used to accumulate these properties came from the profits made by the appellant from using most of them as guest houses, largely by way of rental to local authorities. The Revenue made assessments to tax in respect of "out-of-time" years and issued a penalty at 80 per cent of the loss tax. The appellant appealed to the special commissioners in 1991. The appeal was dismissed and the finding later affirmed by the High Court and the Court of Appeal. The appellant subsequently appealed against the assessments and the penalty.
Interest appeals
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(2) The 2000 commissioners held that they were bound by the 1991 decision both as to the findings of wilful default and neglect and as to the amounts of tax lost. The question is whether an issue heard and determined in relation to a particular assessment is binding on future dependent and consequential assessments.
Penalty appeals
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(2) Whether, assuming the Human Rights Act 1998 did not apply, the commissioners were right to uphold the penalty assessments.
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(3) Whether the Human Rights Act 1998 applied to this case.
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(4) Whether there was a breach of the presumption of innocence.
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(5) Whether 80 per cent of the lost tax was too high a penalty.
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(6) Whether a penalty determination for penalising defaulting taxpayers was one involving a charge of a "criminal offence" for the purpose of art. 6(2) of the European Convention on Human Rights.
Held, dismissing the appeal:
Interest appeals
1. Assessments were independent of each other. A decision in respect of one year's assessment could not create any form of res judicata or issue estoppel. In Caffoor v Commrs of Income Tax [1961] AC 584 it was held that the only issue which could be determined was the amount of the assessable income for the year in which the assessment was challenged. In this case, the commissioners were wrong to bind themselves regarding the interest appeals.
Penalty appeals
1. The 2000 commissioners were wrong to hold that the appellant could not challenge the findings of the 1991 commissioners. By virtue of the agreed construction of s. 101 there was a rebuttable presumption that income in respect of which the tax was charged is as stated in the original assessments. The appellant failed to rebut this presumption. The penalty has factual merit and was not wrong or unjust for procedural reasons.
2. The HRA applied directly to this case. The assessments issued by the Revenue instigated the proceedings not the appeal itself.
3. The burden of proof remained with the Revenue at all times. In the alternative, the presumption of innocence was well within the reasonable limits for such presumptions as permitted by art. 6(2) and consequently there was no breach.
4. Due to the gravity of the case and the appellant's lack of adequate voluntary disclosure and less than adequate co-operation, the penalty was not too high.
5. The system of imposition of penalties for fraudulent or negligent delivery of incorrect returns or statements was "criminal" for the purpose of art. 6(2).
Jacob J:
1. Mr King, the taxpayer, appeals from a decision dated 23 March 2000 of the special commissioners (Mr T Wallace and Dr A Brice, whom I will call the "2000 commissioners"). The points raised are numerous. Some are of general importance - the most important of all being whether a penalty determination for penalising defaulting taxpayers is one involving a charge of a "criminal offence" for the purposes of art. 6(2) of the European Convention on Human Rights.
2. The 2000 commissioners set out the basic facts in para. 19-59. So I give only a brief summary. Mr King is a New Zealander. Formerly a pilot, he has lived in this country throughout the relevant period, though his domicile has always been New Zealand. Since 1976 he has lived with Miss Johnson, with whom he has had six children. Over the years from 1973 properties were acquired. First there was 10 Fielding Terrace (1973) followed by 14 Wolverton Gardens (1977), 91 Twyford Avenue (1979), 9 Fielding Terrace (1981), 6A Florence Road (1981) and Roundwood Lodge (1983). These properties were mainly in the name of Mr King, though Wolverton Gardens and Twyford Avenue were in Miss Johnson's. Broadly the Revenue's case is that the money used to accumulate these properties came from the profits made by Mr King (and Miss Johnson) from using most of them as guest houses, largely by way of rental to local authorities. The Revenue say that there was no other credible source of the money.
3. In January 1989, the Revenue made assessments to tax in respect of Mr King and Miss Johnson. More than half of these were in respect of "out-of-time" years, i.e., those more than six years back. For that purpose the special commissioners granted leave under Taxes Management Act 1970 section 36s. 36 or Taxes Management Act 1970 section 37s. 37 of the Taxes Management Act 1970 ("TMA 1970") as it then stood. In the cases covered by s. 37 the Revenue had to prove Mr King guilty of "fraud wilful default or neglect". In the older cases (covered by s. 36) "fraud or wilful default" had to be proved.
4. Mr King and Miss Johnson appealed these assessments. The matter came before special commissioners in 1991. They (Mr B O'Brien and Mr T Everett, whom I will call the "1991 commissioners") issued their decision on 18 November 1991. They dismissed the appeals. They rejected submissions by Mr King that he was not liable to tax on the profits of certain of the guest houses. They rejected his claim that he was only a manager for a business conducted by him either for his father or for various partnerships consisting of his family (i.e. himself, his children and his father) in various combinations.
5. Mr King unsuccessfully appealed the 1991 decision to the High Court and the Court of Appeal (reported at (1995) 68 TC 387). Shortly after the High Court decision (given on 26 November 1993), the Revenue informed Mr King that imposition of penalties was contemplated. On 17 October 1994, the Revenue issued a penalty determination against Mr King in respect of the matters the subject of the 1991 decision. The commissioners had already made a determination of 13 December 1991 that the assessments, the subject of the 1991 decision, should carry interest.
6. By this time, therefore, there were two sets of determinations made against Mr King, one for interest and one for penalties. On 4 April 1996, further assessments for the years 1977/78 to 1985/86 were made. The basis of these was that the Revenue had recently discovered Mr King's purchase of Roundwood Lodge back in 1983. This was unknown to the commissioners at the time of the 1991 determination. Mr King had not disclosed it as an asset owned by him, even though he had been required to disclose his assets prior to the determination. The Revenue took the view that Roundwood Lodge had been purchased with profits from the business, hence the increased liability to tax as set forth in the assessments. There has been a decision not to make a penalty determination in respect of the non-disclosure of Roundwood Lodge.
7. Mr King appealed all three sets of assessments. It took a long time for them to be determined. It was not until 18 May 1998 that the hearing commenced. The final hearing day was not until 23 April 1999 and, as I have said, the special commissioner's decision was not given until 23 March...
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