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proceeds of crime act compensation advice needed

I have a client who has to pay Proceeds of Crime compensation. The complainant owes my client £57,000 which may be £85,000 after the compensation is paid. Can my client claim tax relief for the POCA compensation?


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07th Jan 2012 16:49

I am a bit puzzled by the question!

The Crown Court has no power under the Proceeds of Crime Act 2002 to award compensation to anyone.  It does have power to order someone (let's call him or her 'the defendant') to make a payment to the authorities (that is to say the government or a government body - such as the police - or the court), but that would not be described as "compensation".

The criminal courts (Magistrates' Court or Crown Court) do have power to award compensation to a victim of a crime of which the defendant has been convicted.  Is that what this question is about?  That power arises under the Powers of Criminal Courts (Sentencing) Act 2000, s130.  It means that the defendant has to make a payment to the victim of his crime to compensate the victim for his loss.

Also the civil courts (High Court) can award compensation / damages where a claimant makes a claim against a defendant for some wrong (such as negligence or fraud).  That does not involve any criminal conviction (although the client may have been convicted of an offence in separate proceedings in the criminal courts).  Again though that is not under PoCA.

If the court has made an award meaning that your client has to pay the complainant, then I don't see how that can increase the amount the complainant owes your client.

Could you explain the circumstances a little more please?


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Compensation and/or confiscation

May be I am getting both above terms mixed up. My client will have to pay the complainant £13,500 for monies he took fraudulently plus £8,500 extra compensation because the complainant has told the court that he had had to borrow money to keep the business afloat because of the irregularities. I have been given the job of auditing/checking my client's accounts which rightly state that the complainant owes my client £57,000 in unpaid salary,expenses and his share of the business's goodwill. If my client pays the complainant that sum will increase to £79,000. Would tax relief be claimable on only the £57,000 or the original debt of £70,500 or the original debt plus the extra compensation totalling £79,000. There will also be a matter of my client suing the complainant and I would like to know which amount my client should sue the complainant for? It has also come to my client's attention that the complainant has a past history,that the courts don't know about, of not paying debts, ripping business partners off and embezzlement: this information has come to my client's attention has he paid a private detective to investigate the complainant's past. 

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07th Jan 2012 19:41

Thanks for the extra info

I take it that your client has been convicted in the criminal courts (Crown Court, most likely) of defrauding the complainant and has been ordered to pay £22,000 compensation under s130 PCC(S)A 2000.

Your client has a civil claim for £57,000 in respect of unpaid salary, expenses and his share of the business's goodwill.

These two matters are quite separate.

If your client fails to pay the £22,000 ordered by the court then (i) interest will be added to that amount at the rate of 8% per annum and (ii) your client may be committed to prison to encourage him to pay up - see s139 of the Act.  In the case of a sum exceeding £20,000 but not exceeding £50,000 the maximum term of imprisonment is 18 months (but in practice he may spend no more than 6 months inside).  He still has to pay the £22,000 when he gets out.  This term of imprisonment would be consecutive (i.e. in addition to any imprisonment arising from the fraud conviction).

Your client can make a civil claim for £57,000.  However he needs to be aware that his credibility as a convicted fraudster in pursuing that claim is not great.

There is no way your client can claim repayment of the £22,000 he has been ordered to pay by the Crown Court (except by appealing against his conviction and / or the compensation order in the criminal courts or asking for it to be reviewed in the Magistrates' Court because he does not have the means to pay it - he should consult a solicitor if he wants to pursue that).  So he cannot make a civil claim for £79,000.

Are you saying your client has paid tax already on the £57,000?

Are you saying your client has paid tax on the £13,500 which he took fraudulently?

Are you saying the business accounts should be adjusted to show that he has suffered the £8,500 additional costs?


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Thanks for your reply

I will advise my client to make a civil claim for the £57,000 owed to him.

The answers to your further questions are:-

1) My client has paid out expenses which total more than this sum out of his limited company.The company has losses totalling more than £120,000 most of which is attributable to the complainant not paying those expenses or providing a salary for my client to live on.My client has had to claim tax credits to feed and clothe himself and lives a pretty meagre existence which will be made worse by the compensation claim. He got a suspended prison sentence and his now working all hours to finance the loans he has taken on to pay the compensation and loans he took in the past to help him finance the complainant's business.So the answer to the question is that he has not paid any tax and is not likely do so even if his civil claim is successful.

2) No tax was paid on this for the same reason.

3) I am saying that the £8,500 additional claim should be relieved through his limited company as most of his income for the next ten years will be used up clearing his an company's debts; if he his not successful with his civil claim. This will mean that he will need to continue claiming tax credits to live.







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07th Jan 2012 20:26

Confused again!

OK, your client has a limited company.  But I am assuming that this is not the limited company that he defrauded.

Was the fraud of which he was convicted in relation to a business which he ran with the complainant?  If so was that business a partnership or a different limited company? Was that business running at the same time as your client's limited company?

Are you saying that your client paid out of his company various expenses which should have been reimbursed by the business which he operated with the claimant?  Did your client's company invoice the other business for those expenses?

I do not understand how your client's company suffered losses because the other business didn't pay a good salary to your client.  Can you explain that to me please?

Are you saying that in the past your client introduced monies (as loans) into the business he ran with the complainant?

Is your client's claim for unpaid salary in relation to salary to him which was put through the books of the business which they ran together but not actually paid over? Or is it for salary which your client thinks he OUGHT to have had but was never agreed to be due to him?

Has the goodwill valuation been agreed with the claimant?  If not, how has it been calculated / justified?

The Crown Court has decided (either following a jury trial or following a guilty plea by your client) that your client has been dishonest and has taken money from the business to which he was not entitled.

If, in fact, your client is owed more money by the business than he is alleged to have taken from it, how did the Crown Court reach that conclusion?

The fact of your client's conviction suggests that his claim for £57,000 is unlikely to succeed.

Also, if your client's company is insolvent he should consider whether it is wise to cease trading and let it fold.  It would be sensible for your client to get advice from an insolvency practitioner.


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07th Jan 2012 20:44

Paying the compensation etc

Has your client already paid the £22,000 or not?

I am a bit confused because you say he "will have to pay" it but you also say he "has taken on" loans to pay it.

Does the client own a house against which he has borrowed?

If the client does not have a house and does not have other assets then he should not have been ordered to pay compensation which he does not have the means to pay, see s130(11) PCC(S)A 2000.  In that event he should see a solicitor about appealing against the compensation order or having it reviewed.

Presumably before the compensation order was made your client provided the court with information about his income and assets. 


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07th Jan 2012 21:08

Further information for you

I think you will find further information in the AWEB Money Laundering & Crime discussion group HERE and on my own website HERE will be useful to you.

What may be confusing you is that if your client has been convicted of four or more counts of fraud and the total involved is at least £5,000 then he is likely to be deemed to have a 'criminal lifestyle'. 

In that event he could be subject to really serious Proceeds of Crime Act 2002 confiscation proceedings which could wipe him out financially.

However he should not be ordered to pay compensation for the fraud until the PoCA confiscation proceedings are concluded.


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08th Jan 2012 11:02

Tax - not a problem?

As far as your initial query concerning the tax relief goes, it seems to me that neither your client nor his company are likely to be paying tax for a while, so it is not an urgent problem.


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