Crime doesn’t pay for couple in section 317 appeal

Mohammed Butt and his wife, Mahfooz Begum, lost their appeal at the first tier tribunal (FTT) against section 317 notices issued by the National Crime Agency (NCA), which assessed them to over £500,000 in tax and £300,000 in penalties over a 17-year period.

In September 2012, following a criminal investigation into allegations of drug trafficking and money laundering by Butt and 10 other members of his family, Butt was arrested by officers of the Serious Organised Crime Agency (the predecessor of the NCA) on suspicion of money laundering by an organised crime group in Luton.

No charges were brought against Butt, owing to insufficient evidence for a criminal prosecution. However, two of Butt’s brothers and his two sons were charged and convicted of money laundering and/or drug trafficking offences. 

Between 1998/9 and 2012/13 Butt declared various items of rental and business income in his tax returns. However, in the relevant years, he failed to declare numerous amounts of additional rental income from both commercial and residential properties, as well as capital gains on the disposal of two residential properties.

Criminal conduct

Under section 317 of the Proceeds of Crime Act 2002, the NCA can issue a section 317 notice to HMRC and adopt its “general revenue functions” in respect of a person. This is only the case if it has reasonable grounds to suspect that the person has income that “arises or accrues as a result of the person’s or another’s criminal conduct”.

In December 2015, the NCA, having issued HMRC section 317 notices, issued Butt and Begum with assessments under section 29 TMA 1970, as well as penalty determinations under sections 7 and 95 TMA, schedule 24 FA 2007, and schedule 41 FA 2008.

For Butt, this amounted to total tax of £452,685.49 and penalties of £291,436.27 for the tax years 1996/7 to 2012/13 (inclusive). For his wife, total tax of £91,474.28 was assessed, as well as penalties of £59,988.94 for tax years 1998/9 to 2011/12 (inclusive).

In their appeal before the FTT  [[2023] UKFTT 785 (TC)], Butt and Begum challenged the assessments and penalties on the following grounds.

• The qualifying condition was not met for the NCA to issue the section 317 notices.
• The taxpayers’ actions were not deliberate, and so different time limits applied.
• The NCA had reached incorrect factual conclusions as to their taxable income.
• The penalties had been incorrectly applied.

Reasonable suspicion

For the section 317 notices to stand good, it fell to the NCA to establish whether it had an objectively reasonable suspicion that there was criminal conduct and that Butt and/or Begum received some income, in the years they were assessed, either directly or indirectly as a result of criminal conduct.

Ultimately, the FTT upheld the section 317 notices, finding that the issuing NCA officer’s belief that some income of Butt and Begum (whose evidence was that she had relied on her husband for financial support) had been derived from criminal conduct was reasonable. 

Assessments upheld

The taxpayers’ arguments also fell short when claiming that the discovery assessments had been issued out of time.

In the FTT’s view, it was more likely than not that Butt knew he had not declared all of his income in each of his tax returns. As such, it followed that this omission leading to the loss of tax was, in each case, deliberate and so sufficient to satisfy the conditions set out in sections 29(4) and 36 TMA for the extended time limits of assessment to apply.

In terms of the quantum of tax assessed, the NCA officer had based his assessments on the “view of the matter” letters issued to each taxpayer. These calculated the assessed amounts based on information the NCA held at the relevant time, including the funds required for the purchase of certain properties, holiday expenditure and the lifestyle of Butt and Begum, unexplained bank deposits, omitted rental income and omitted capital gains.

The FTT found that the amounts assessed were fair, and that Butt and Begum did not produce sufficient evidence for the FTT to reduce or set aside those assessments.

The penalty assessments were similarly confirmed.

The appeals were dismissed.

Although the involvement of section 317 notices makes this case a little different, in other respects this appeal covered well-trodden ground, with the taxpayers failing to successfully challenge the discovery assessments and associated penalties.