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Failure to notify HMRC results in PoCA hammering

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4th Feb 2011
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The Court of Appeal recently upheld the verdict against a small-time tax cheat who was hit with confiscation proceedings for more than £700,000 and the threat of a four-year prison sentence. AccountingWEB.co.uk's experts discuss the implications.

David Winch this week alerted the community to the Steed v R appeal court decision in the Money Laundering & Fraud discussion group. The worrying legal precedent set in the case of this apparent “grafter” is that pleading guilty to the relatively minor crime such as failing notifying HMRC of chargeability could lead to much more serious sanctions under the Proceeds of Crime Act 2002 (PoCA).

Points of the case

  • The Crown Court judge originally described Gareth Edward Steed’s activities as "moonlighting" - legitimate trading which he failed to declare for tax.
  • Steed received no tax returns and failed to notify HMRC of his chargeability to tax.
  • He was charged with three counts of tax evasion, resulting in the original three charges being dropped, and the introduction of one new charge - to which Steed pleaded guilty.
  • The charge was common-law 'cheat', in that between 1 April 2003 and 31 December 2004 he failed "to submit declarations of tax due including the proceeds derived from the sale of vehicles, furniture and tools together with that from building work".
  • Steed accepted that a tax liability of at least £3,558 had arisen for 2002/03 which had escaped self-assessment.

However, this was not the end of the matter for Steed, and following his conviction HMRC pursued confiscation proceedings.

HMRC argued that he had a criminal lifestyle for confiscation purposes on the basis that he had committed an offence over at least six months from which he had gained a benefit of at least £5,000 (s75 PoCA 2002). According to Winch's analysis they pointed out that had a tax return been submitted for 2002/03 it would have triggered not only payment of £3,558 for 2002/03 but also a payment on account for the following year, in consequence the amount involved exceeded £5,000.

The Crown Court judge found that Steed was unable to produce evidence to rebut the statutory assumptions and made a confiscation order against him for £707,200 under the PoCA - Steed's 'available amount' - with a four year prison sentence in default of payment by the due date.

Steed appealed, but the Court of Appeal decision published on 1 February upheld the confiscation order and dismissed his appeal.

Confiscation proceedings

Gerard Murray said the Steed case opened a “proverbial hornets’ nest both in relation to dealings with HMRC and the wider picture of criminal confiscation under PoCA 2002” and urged practitioners to take be on the alert for danger signals, the potential threat of professional action, and the potential traps that lay in wait around confiscation hearings.

Murray drew several lessons from the plethora of cases now being taken under confiscation proceedings:

  1. Defendants and their accounting and legal advisers should be on notice that cases which previously would have been heard in the lower courts and subject to a fine are increasingly being brought to Crown Court and that confiscation proceedings will follow upon either a guilty plea or being found guilty. The temptation is to accept the guilty plea for a reduction in the number of charges without realising that confiscation proceedings will still follow.
  2. The number of agencies adopting PoCA criminal confiscation powers is steadily growing and that very often the defendant business or its lawyers may be tardy (or just too late) in taking expert advice from forensic accountants who have experience of such cases.
  3. The legislation is Draconian and the courts increasingly feel that their hands are tied.

In a separate discussion group posting Murray noted that the number of agencies adopting PoCA criminal confiscation powers is steadily spreading across a range of government agencies. He added that it is increasingly being used against “what many would consider to be just ordinary businesses rather than the Mr Bigs of the criminal underworld”.

Click below to view the discussion group postings:

Replies (16)

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By peterdell
04th Feb 2011 14:37

Good

Sends out the right message. I dont agree with a custodial sentence but if your caught stealing this is a criminal offence and should be treated as such. This oh we will negiotiate with the Revenue and pay a fine of 100% tax provided nobody finds out, all done behind closed doors, doesn't wash anymore. I can only think this person must have really upset the Inspector to get to the stage of criminal proceedings. However when are the Revenue going to start targeting the wealthy?

Also what I am waiting for is a case where an incompetent adviser has provided advice which ends up as being fraud. This must be coming soon.

Happy days.

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By Mallock
07th Feb 2011 11:16

Not Good

I'm sorry but I fail to see how a confiscation order of over £700,000 fits a crime which netted just over £3,500.

He did wrong and it is correct that he should be punished but is it really right to take what presumably is everything he owns? Had he mugged someone and stolen a similar amount of money he would be considerably better off.

A deterent has to be in place but it should be applied proportionately. In my eyes this is a misuse of power.

 

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By Stephen Morris
07th Feb 2011 11:41

Proportionality

Yes, a totally disproportionate response to the original offence.

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By Nick Graves
07th Feb 2011 11:58

I've been banging on about this for ages

It's nationalisation through the back door for the most petty of offences. There doesn't even have to have been a CRIME for it to be invoked. Losing a planning appeal is sufficient.

Yet the bankers and politicoes get away with their sometimes corrupt actions, legitimised behond closed doors.

It's not only disproportionate, it's positively dangerous. For those of us sadly not living in an self-righteous dreamworld such as peterdell, the corollary is as nasty as 'three stikes and you're out' rule. I for one, do not wish to see the day when it becomes in an evader's interest to murder an HMRC wage slave rather than risk being "caught".

If they're not careful with this escalation stuff, it will happen.

Sadly it seems few have the wit enough anymore to see it.

 

 

 

 

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By michaelblake
07th Feb 2011 11:59

Read the judgement

It would be worrying if the confiscation order was based upon the profits that were declared from the "moonlighting2 activities which he failed to notify to HMRC, but as the judgement shows:

1.  The judge in the High Court did not believe that he had declared all his profits, and

2. There was evidence of other criminal activity. As para 27 of the Court of Appeal judgement notes: 

The judge then made various findings of criminal activity. He referred to money-laundering, drug-dealing, the possession of goods bearing false trademarks with a view to sale, the evasion of duty and benefit fraud. Relying on those findings, the Judge concluded:-

 

"It may be that the defendant…would not be convicted on the criminal standard of all the matter to which I have referred. It is a question of viewing an overall picture and the conclusion I come to is that the overall picture supports the contention that it is more likely than not that he was involved in criminal conduct over and above the Count to which he pleaded guilty. The clear impression the evidence gives is that he was an individual who drew very heavily on the fruits of society without making his proper contribution to society in return for those fruits…" (Judgment, 42(a)-(c))

I would suggest readers follow the link in the article to the Court of Appeal judgement before getting too excited about injustice and lack of proportionality 

 Michael Blake

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By frauke
07th Feb 2011 12:09

Depends...

The amount of £707,200 under the PoCA - Steed's 'available amount!   

I don't know his true personal circumstances, but I presume the court was working on this was the amount of money he had available from his income after day to day living expenditure etc....     On the presumption that he did not have that available amount before 2002/03 - I can only presume he made the money (ignoring any extra for his lifestyle) after that time - and did not declare it!

Then the amount is proportional as he was unable to prove he had the £707,200 prior to being a tax cheat!

 

 

 

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By peterdell
07th Feb 2011 13:10

The reality is

That people at the bottom of society have been penalised harshly for years (despite what you read in the press) I remember 20 years ago a person being brought before the courts for stealing a bag of prawns from a well known high street store. The man was homeless.

The fact is that for too long tax dodging has been a bit like MPs expenses, behind closed doors and very informal. A few more high profile cases will up the ante for everyone and ensure that non tax professionals are kept out of the industry. It will also mean that this white collar crime will hopefully been given the same status as crimes such as petty theft, which is what it is.

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By Nick Graves
07th Feb 2011 15:18

The rules are quite clear:

No; it's money 'avaliable TO him' ie, the GROSS amount that passed through his hands. Including VAT, where the trade was declared as legitimate. Which is why such legislation is kangaroo-court disproportionate. The criminal/fraudster may only have netted say, 10% of that sum. Or worse; the pharmacist who made a one-entry fiddle on his PACT return was ajudged as if the entire return was Proceeds of Crime. 

If someone were actually CONVICTED of dealing, handling, etc then that's a different matter.

But the legislation seems to be being used as a back-stop, where the usual routes to justice have failed. Which may or may not apply in this case.

Whether it's presentational or actual, draconian fines & draconian confiscation orders only send out ONE message: if you're going to be hanged for a sheep, you might as well be done for a whole flock.

It's one of the reasons the Police were recently very concerned about a 'middle class revolution' kicking off.

Yes; white-collar fraud should be taken seriously. But not merely as an excuse for nationalisation. Especially when the underclass are regularly seen as being 'let-off' since they have no assets worth nationalising. And all too often, that has clearly been the case.

Now if those responsible for the overheating of the 60-year credit cycle ponzi scheme (including Helicopter Ben et al) were treated as if all the funds passing through THEIR hands were POC, it might be a little different...

 

 

 

 

 

 

 

 

 

 

 

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By rosataylor
07th Feb 2011 15:37

mis use of power.

I agree with the writer.

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By Crassus
07th Feb 2011 17:29

Big time and small time

Compare and contrast with the kid gloves treatment of the real fat rats coming forward under the Liechtenstein discosure scheme.

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By peterdell
07th Feb 2011 23:50

Re Nick

"Yes; white-collar fraud should be taken seriously. But not merely as an excuse for nationalisation" This makes no sense at all and the rest of your comments are just plain silly.

The fact is if the underclass, as you so nicely put it, steal benefits, they are generally put in prison, and I am confident that the number of checks are far greater and more wide ranging than anything that tax professionals encounter in the tax system. When an MP fiddles expenses they put their hands up “sorry guv, honest mistake” slap over the wrist no more. Same in the tax system.

Every tax adviser has had to negotiate with the Revenue for clients who have underdeclared sales or failed to report benefits etc. Slap over the wrist pay the fine and carry on. Often the penalty is far less than the tax that would otherwise have been paid. This is not attacking the honest mistakes but there is systematic fraud going on and it should be clamped down on.

If you had been going to the lectures, reading the literature coming out of HMRC, the Revenue have stated they are going to get tough and hopefully this is the beginning. Good on the Revenue. They have fired warning shots and hopefully they will now crack down.

The desirability of such harsh law is a different topic, but in this country one group of people "the underclass" face one set of rules and another set of people "David Cameron and his mates in the big 4" face a different set of rules. Benefit cheats, tax dodgers should be treated the same and if an advisor assists they should be equally culpable.

Do you people not get enough tax breaks from the legalised tax fraud?

Finally there are banks in the city of London which spend hundreds of millions of pounds on tax professionals devising strategies on how to play one tax jurisdiction against another. When they get it wrong and defraud the UK exchequer then what do the professionals involved expect. To me the multi million pound crimes of these people is far more serious than a struggling single mother scamming the system for an extra £20 per week. Interestingly there should be a court trial going on now and the outcome of this will show us how far we have really come. I will comment further when the case comes up on Aweb.

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By david2211
08th Feb 2011 17:28

Steed Case

The judge states "It may be that the defendant ... would not be committed on the criminal standard of all the matter to which I have referred." Surely the "Proceeds of CRIME Act by definition means a person should be punished for the crimes he has been convicted of/plead guilty to rather than what the judge or anyone else thinks he might have done. If an alleged crime isn't PROVEN beyond all reasonable doubt, why should someone be punished for it?

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By abelljms
09th Feb 2011 12:11

what are the facts?

 

 

I think you are missing the point- if you look at his trading cv, it is everything dodgy cash in hand etc.

HMRCy obviously á la the police (sometimes), decided he was guilty of massive tax evasion, but had no evidence so found a different law to convict him under.

Let’s check back in a few weeks and see if he’s in prison …..or funnily enough pays up.
 

 

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By nlingham
14th Feb 2011 12:05

Confiscation order

This is a disgraceful abuser of executive power and typical of the mentality of the New Labour government which passed the legislation.

Whilst the small businessman involved has undoubtedly committed an offence, the should be no place for this sort of disproportionate punishment in what is allegedly a free society. It is the sort of thing Henry VIII might have done

Unfortunately I doubt if our new government has the brains, the initiative or the understanding to correct these sort of injustices and amend the legislation to limit its use to its proper purpose - drug dealers etc. Officials always push new laws as far as they can (e.g. Widespread use of anti -terrorist powers) and politicians have a responsibility to ensure proper drafting of new laws to ensure their proper use.

Unfortunately, our venal self serving windbags are too busy with their expense claims.

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By ICYou
22nd Oct 2011 19:16

FIRST THEY CAME-

First they came for the Communists and I did not speak up because I was not a Communist.

Then they came for the trade Unionists and I didn't speak up because I was not a Unionist.

They came for the Jews and I didn't speak up because I was not a Jew.

Then they came for me and there was no one to speak up for me.

 

Martin Meimoller 1892 - 1984

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By dominovision
28th May 2012 09:45

Completely over the top. They could only establish he had not paid 3,558 and possibly another 5000. So max liability should be for £8,558.

Are we now convicting on guess work rather than proven evidence? What have we done to justice in this country over the past decade..? this country became a police state under labour. and yes I agree with Nick, Peter your living in a leafy dream world.

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