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Kevin Kinsella Jnr of KinsellaTax is seeking further clarification from Dave Hartnett, the HMRC permanent secretary for tax, as to exactly what HMRC’s recommendations are regarding criminal prosecutions.

 

Kinsella is anxious that tax investigation advisers know exactly what terms of reference HMRC are using in connection with the businessman now facing jail for tax evasion.

 

Apparently he set up a cash only account in Dubai in order to avoid paying income tax, or so it is alleged.

 

The international marketing consultant admitted the charge of tax evasion and claimed it was not deliberate. He, in actual fact, paid penalties and interest in a civil settlement with HMRC and then found that he was prosecuted by HMRC for tax evasion.

 

It is said that a total of £158,000 was paid into a Dubai account and the prosecution allege that the defendant knew he was obliged to declare this income to HM Revenue and Customs.

 

The defendant says that he was unaware that the money in the Dubai account was liable to UK tax until he read a newspaper article in October 2006.

 

Following his disclosure, we understand it was a voluntary disclosure; he paid the tax liability plus penalties and interest amounting to £80,945.

 

He has been bailed to appear at Bristol Crown Court and has been order to pay a contribution to the prosecution costs.

 

As we know when the Inland Revenue and HM Customs and Excise joined up in 2004, they formed the Revenue and Customs Prosecution Office (RCPO) and obviously they want to see that they are doing a job of work.

 

However, it is difficult for tax investigation advisers to actually be able to give advice unless there are clear cut rules set out by HMRC as to when they will prosecute and when they won’t prosecute.

 

This case seems to be different to Regina v Werner 1998 BTC 2002.

 

In this case the Crown Prosecution Service (CPS) successfully prosecuted in the case of tax fraud causing a major stir amongst professional advisers and Her Majesty’s Revenue and Customs who, somewhat unusually, found themselves in agreement in challenging the right of the CPS to decide whether to prosecute.

 

The decision appeared initially to undermine the Hansard process now known as Code of Practice 9 whereby HMRC would decide whether a case was appropriate for prosecution.

 

The Court of Appeal held it had no jurisdiction to entertain an appeal against a judge’s ruling that the CPS was entitled to take proceedings against a taxpayer for fraudulent evasion of tax after the taxpayer had paid an agreed amount of tax, penalties and interest pursuant to a settlement agreed with HMRC.

 

The court further said that if there had been jurisdiction, an appeal would have failed.

 

A settlement reached by HMRC did not bind the Crown Prosecution Service.

 

The Werner case generated a great deal of publicity, most of it adverse.

 

The Revenue were concerned that the Hansard policy would be affected in that taxpayers would no longer be willing to make full confessions under the protection of Hansard if they felt the investigation would lead to a prosecution.

 

A statement in Parliament by the then Attorney General John Morris QC commented on the decision of the Crown Prosecution Service in this case.

 

The following exchange appeared in Hansard on 8th April 1998:-

 

‘To ask the Attorney General what consideration the Crown Prosecution Service has given to the implications of the judgement of the Court of Appeal (Criminal Division) in R v W and another; and what arrangements exist for liaison with the Inland Revenue about criminal cases with a tax aspect.

 

The Attorney General: In the proceedings to which my hon. Friend refers the Court of Appeal (Criminal Division) examined the respective [sic] of the Crown Prosecution Service and the Inland Revenue to pursue criminal proceedings. It confirmed that the Inland Revenue’s common law power to prosecute is ancillary to, supportive of and limited by their duty to collect taxes. In contrast, the Crown Prosecution Service’s statutory duty to take over and conduct criminal proceedings is free-standing, unconfined (for the purposes of the particular case) and reflects much wider public interest concerns and objectives. Accordingly, there is no logical inconsistency in the Crown’s position if the Crown Prosecution Service prosecute in circumstances where the Revenue have decided not to.

 

This ruling accorded with the existing understanding of the Crown Prosecution Service and Inland Revenue as to their respective roles in relation to criminal investigation and prosecution and does not require any change of policy or practice on the part of either. Nor does it affect the position of those individuals who co-operate with the Inland Revenue on what is commonly referred to as “the Hansard practice” or otherwise. Primary responsibility for investigation and prosecution in relation to alleged tax evasion rests with the Inland Revenue; proceedings brought by the Crown Prosecution Service will ordinarily encompass charges relating to tax evasion only in circumstances where that is incidental to allegations of non-fiscal criminal conduct. In such circumstances the Crown Prosecution Service and Inland Revenue liaise closely together. The arrangements for such liaison have recently been strengthened by the establishment of the “Convention between Prosecuting Authorities to provide arrangements for ensuring effective co-ordination of decision making and handling in related cases which are the responsibility of different authorities.” Both the Crown Prosecution Service and Inland Revenue became signatories to that Convention when it was established on 11th February 1998. a copy of the Convention has been lodged in the Library of the House.

 

In R v Werner and other the applicants were charged on 27th July 1995 with offences of conspiracy to obtain property by deception (later changed to conspiracy to defraud) and conspiracy to commit false accounting in connection with the affairs of companies with which they were associated. The proceedings were transferred to the Crown Court on 6th November 1995. The prosecution case at this stage was that the motive for the alleged false accounting was partly to conceal the removal of company funds for purposes other than tax and partly the evasion of tax. The case in relation to false accounting was subsequently narrowed to allege only tax evasion. The Inland Revenue had, prior to the institution of the criminal proceedings, decided that its own inquiries should be pursued in relation to unpaid tax. This in turn led, in 1997, to a negotiated settlement of unpaid tax with the companies concerned.

 

The negotiation between Inland Revenue and the companies concerned was quite independent of the criminal proceedings although all parties were aware of their existence. Lord Justice Rose said in giving the judgement of the Court of Appeal:-

 

“In any event we reject the suggestion that, because the prosecution case against both applicants on false accounting was previously based partly, but is now based solely, on tax evasion, this constitutes such a change that [the applicant], at the time of settlement by the companies was misled.”

 

To sum up, there were proceedings by the CPS prior to the Inland Revenue being involved. Therefore, although the charges were ultimately reduced to tax evasion it is somewhat different to the straightforward Hansard procedure (Code of Practice 9) now being dealt with by the Revenue.

 

It is rather a unique case and perhaps there is some bearing in the present case where there may have been a prosecution prior to the Revenue being involved but until we get the full facts of course, we will not know that.

 

However, there should not be any fear that a straightforward Code of Practice 9 case should or would be involved with the Crown Prosecution Service.

 

We await the outcome with interest and also we are anxious to have some directions from Dave Hartnett with regards to HMRC’s future policy.

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