Serious Organised Crime Agency v Fenech
| Jurisdiction | UK Non-devolved |
| Judgment Date | 10 October 2013 |
| Neutral Citation | [2013] UKFTT 555 (TC) |
| Date | 10 October 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 555 (TC)
Judge David Demack, Richard Law
Timothy Brown of counsel instructed by Azzopardi & Co, solicitors, London, appeared for the Appellant
David Yates of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Income Tax and NICs - tax assessments and penalty assessments - whether SOCA had reasonable grounds to suspect income accruing to appellant due to criminal conduct so that s. 317(1)(a) Proceeds of Crime Act 2002 applied giving it jurisdiction - yes - whether tax assessments for 2004/05 and 2005/06 raised timeously - yes - was cash received by appellant by way of income - yes - whether quantum of tax assessments correct - yes - whether level of penalties excessive - no - appeal dismissed.
The First-tier Tribunal has dismissed a taxpayer's appeal against TMA 1970, Taxes Management Act 1970 section 29s. 29 discovery assessments, assessments to Class 4 National Insurance contributions and penalty determinations under TMA 1970, Taxes Management Act 1970 section 93 subsec-or-para 5s. 93(5) (incorrect returns) and s. 95 (late returns), finding that the Serious Organised Crime Agency ('SOCA') (now the National Crime Agency ("NCA")) were entitled to raise the assessments because the "qualifying condition" in Proceeds of Crime Act 2002 section 317 subsec-or-para 1s. 317(1) of the Proceeds of Crime Act 2002 ("PCA") that allows SOCA to adopt HMRC functions was satisfied.
The taxpayer appealed against various discovery assessments in respect of further trading income and Class 4 National Insurance contributions and related penalties that had been raised by SOCA, adopting the functions of HMRC under PCA 2002, s. 317. The grounds for the appeal and issues for the tribunal to determine were: (i) whether PCA 2002, s. 317 entitling SOCA to raise the assessments was satisfied; (ii) whether two of the assessments were raised out of time; (iii) whether the money to which the assessments related was not additional taxable income; (iv) whether the quantum of the assessments was incorrect; and (v) whether the level of penalties was excessive.
The tribunal found that in order for SOCA to adopt the functions of HMRC, all that PCA 2002, s. 317 required was that SOCA have reasonable grounds to suspect criminal conduct and there be income, however indirect and however little, flowing from it. SOCA did not have to prove that the income assessed arose from criminal conduct nor did they need to trace any gain into cash, they merely had to have a "reasonable suspicion", which the tribunal found meant a genuine suspicion held by SOCA, which was "reasonable" when viewed objectively, that some income was received directly or indirectly from criminal conduct for that year.
The tribunal noted the findings in the earlier High Court case which had rejected the taxpayer's application for the return of cash that had been seized by SOCA, that SOCA's log and affidavit summarising the taxpayer's suspected criminality made out a compelling case of having reasonable grounds to suspect criminal conduct and, for the same reasons, found that the jurisdictional threshold of s. 317(1) was satisfied and SOCA were entitled to adopt the powers of HMRC for the relevant years of assessment.
With regard to the time limits, the tribunal found that for the six year time limits to apply, there had to be at least negligent conduct on the part of the taxpayer and that there was at least some income that the taxpayer had failed to account for in his tax returns which amounted to a loss of tax brought about by his negligence, if not more so. The six year time limit, therefore, applied.
With regard to the trading income assessments themselves, the tribunal rejected the taxpayer's claim that he had only traded through his various companies finding that the evidence clearly illustrated he had traded as a sole trader, in parallel with his companies, because he had entered into a lease personally for premises from which he had traded in antique furniture and additionally, he had taken out a licence for a yard in 1999, on which he had paid rent until at least 2012, despite stating in between that he had no trading address and no yard to keep stock.
The tribunal further accepted SOCA's calculations of the quantum of tax due, rejecting the taxpayer's accountant's report as "pure conjecture", finding that the taxpayer had presented no evidence whatsoever to show that he maintained any trading records, had arranged his affairs with the intention of evading tax and so as to ensure that the tax authorities would have the greatest difficulty in finding, let alone tracing, any audit trail. Accordingly, as the taxpayer produced no evidence to justify any reduction in the assessment, the assessments stood.
Finally, the tribunal also upheld the penalty assessments finding that: (i) no mitigation was appropriate for disclosure because the taxpayer made no attempt to provide relevant financial documents or information on request and had not filed returns for three of the years in question; (ii) no mitigation was appropriate for co-operation because very little information was provided by the taxpayer; and (iii) the 25 per cent reduction for seriousness was appropriate because the taxpayer had failed to make returns for three years and had made incorrect returns for the other two. Accordingly, all appeals were dismissed.
This case is interesting because it unusually involves SOCA (now NCA) adopting the powers of HMRC in raising the various assessments, which is the first point of challenge by the taxpayer. The tribunal found that the relevant "qualifying condition", of SOCA having reasonable grounds for suspecting untaxed income to have arisen from criminal conduct, was satisfied and having established the assessments were valid in that respect, the case then proceeds along the usual lines considering whether HMRC can establish negligent conduct for the purposes of justifying the time limits applied and whether the taxpayer can then provide evidence to displace the actual assessments once they have been found to be validly raised, which, in this case, having maintained no records whatsoever and dealt almost exclusively in cash, the taxpayer was unable to do.
For commentary on assessments, including discovery assessments, see the CCH Tax Reporter at 184-275ff.
[1]Mr Geoffrey Michael Fenech appeals against discovery assessments to income tax raised under Taxes Management Act 1970 section 29s.29 of the Taxes Management Act 1970 ("TMA") and assessments to class 4 national insurance contributions ("NICs") for the five consecutive years commencing with that of 2004/05. At the time the assessments were originally raised they were in a total sum of £235,407.02.
[2]Subsequently, that sum was reduced for two reasons. First, Mr Fenech provided the Serious Organised Crime Agency ("SOCA") with information relating to a bank deposit of £22,224.54 in 2005/06, which it accepted as evidence of its being derived from a non-taxable source. Secondly, SOCA decided to reduce "unbanked cash" on which part of the tax assessments were raised from £113,574.31 to £39,000. We were not told what difference those deductions made to the tax and NICs assessed.
[3]Mr Fenech also appeals against penalty determinations for each of the relevant tax years raised on 7 October 2010 and 1 November 2010 under Taxes Management Act 1970 section 93s. 93(5) (incorrect returns) and Taxes Management Act 1970 section 95s. 95 (late returns) of TMA amounting to £176,555.25, i.e. 75% of the tax assessed on him.
[4]The assessments under appeal were raised by the SOCA, it having adopted the functions of HMRC in relation to Mr Fenech under the Proceeds of Crime Act 2002 ("POCA").
[5]SOCA is a non-departmental public body established by s.1 of the Serious Organised Crime and Police Act 2005. In broad terms, SOCA's statutory remit is as follows:
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(a) to detect and prevent serious organised crime;
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(b) to mitigate the consequences of such crime;
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(c) to reduce the incidence of such crime in other ways;
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(d) to gather, store, analyse and disseminate information relevant to the above; and
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(e) to gather, store, analyse and disseminate information relevant to the investigation and prosecution of offences.
[6]SOCA may adopt the functions of HMRC where the qualifying condition contained in Proceeds of Crime Act 2002 section 317s. 317 POCA is met. (The relevant parts of Proceeds of Crime Act 2002 section 317s.317 are set out at [87] and [90] below). The condition is met where SOCA has reasonable grounds to suspect that income, chargeable to tax, has arisen in a chargeable period as a result (in whole or part, directly or indirectly) of criminal conduct. Such conduct may be that of the person concerned, or another. The condition must continue to be met throughout the relevant periods.
[7]By virtue of Proceeds of Crime Act 2002 section 323 subsec-or-para 1section 323(1) and (1)(d) of POCA, the general revenue functions include such of the functions vested in the Board of HMRC as relate to income tax, NICs and capital gains tax.
[8]Until 1 April 2007 the civil recovery and revenue functions of the Assets Recovery Agency were vested in its director. On that date they were transferred to SOCA pursuant to s. 74 of the Serious Crime Act 2007.
[9]Mr Fenech, having appealed separately against the tax and NICs assessments, and the penalty assessments, the tribunal considered it appropriate to require him to serve consolidated grounds of appeal, and directed accordingly.
[10]Mr Fenech's consolidated grounds of appeal were served on 18 September 2012 in the following terms:
1.The Respondent did not satisfy the qualifying condition of Proceeds of Crime Act 2002 section 317s.317 POCA on the basis that:
(a) no income or gains have been derived by the...
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