Harvard Sharkey v Revenue & Customs

This is an appeal by the taxpayer, Harvard Martin Sharkey, from the decision of the Special Commissioner, Mr. Theodore Wallace, on 26^th January 2005 (“the Decision”) dismissing the Appellant’s appeal against a fixed penalty of £50 under section 97AA(1)(a) of the Taxes Management Act 1970 (“TMA”).

The penalty was imposed for failing to comply with a notice served under TMA s.19A requiring the Appellant to produce specified documents and information for the purposes of an enquiry into his 2001 tax return.

It was common ground before the Special Commissioner that the Appellant did not appeal against the notice and he did not comply with it.

It was also common ground that on 24^th March 2003 the Revenue appropriated £50 of a payment of £654.21 in satisfaction of the penalty.

Very broadly, the Appellant complains that the imposition of the penalty and matters connected with it have breached his rights under the European Convention on Human Rights, particularly Article 6.

The Appellant’s contentions before the Special Commissioner were that the enquiry, the imposition of the penalty under TMA s.97AA(1)(a) and the threat of further penalties of £150 daily under TMA s.97AA(2)(b) until compliance involved criminal charges within Article 6; but his inability to obtain Criminal Defence Service funding for professional representation, and the unilateral collection of the penalty, in the absence of a fair and public hearing within a reasonable time by an independent and impartial tribunal, were contrary to his rights under Article 6; further, the nature of the enquiry and the role of the Tax Inspector brought the activities of the Inspector within the Codes of Practice issued under the Police and Criminal Evidence Act 1984 (“PACE”), but there was a failure by the Inspector to comply with such Codes. In addition, the Appellant submitted that the imposition of the penalty for failure to provide information was in breach of Article 6.1 as a violation of the right not to incriminate oneself.

The Special Commissioner rejected all those complaints. He held that the fixed penalty of £50 under TMA s.97AA(1)(a) is not a criminal charge within Article 6. Accordingly, the inability of the Appellant to obtain Criminal Defence Service funding was irrelevant. The Special Commissioner found that there was no evidence that any prosecution was being considered or any penalties involving criminal proceedings within Article 6.1 were contemplated by the Revenue at the time of the enquiry and the imposition of the penalty, and, accordingly, there had been no infringement of any right to silence and not to incriminate oneself under Article 6.1.

In the Appellant’s skeleton argument and in the oral submissions made on his behalf, it was submitted very broadly that the Special Commissioner was wrong in law in his conclusions that: the £50 penalty on the Appellant under TMA s.97AA(1)(a) was not a criminal charge within Article 6; the inability of the Appellant to obtain funding assistance for the present proceedings was irrelevant; there had been no breach of his right to remain silent and not to incriminate himself under Article 6; and the provisions of PACE and the Codes issued under it were irrelevant.

In addition, the Appellant maintained that the Special Commissioner showed bias against the Appellant.

As was the case before the Special Commissioner, the Appellant appeared in person. He requested that he be represented, as he had been before the Special Commissioner, by his father, Terence John Sharkey (“Mr. Sharkey”). There was no objection to that application by the Respondents, Her Majesty’s Revenue & Customs (“HMRC”). Although Mr. Sharkey has no legal qualifications or training, I granted permission for Mr. Sharkey to act as the Appellant’s advocate in view of the exceptional circumstances that Mr. Sharkey acted in a similar capacity before the Special Commissioner, was responsible for drafting the Notice of Appeal and wrote the extensive skeleton argument for the Appellant on this appeal.

Mr. Tim Ward, counsel, appeared for HMRC.

Article 6 is as follows:

At the core of the appeal is the Appellant’s contention that the Special Commissioner erred in law in holding that the £50 penalty under TMA s.97AA(1)(a) is not a criminal charge within Article 6.

It is convenient to refer, first, to TMA s.19A which, so far as relevant, is as follows:

TMA, s.97AA is, so far as relevant, as follows:

TMA s.100 is, so far as relevant, as follows:

It is common ground between the parties that the term “criminal charge” has an autonomous meaning under the Convention. In Engel v. The Netherlands (No. 1) (1976) 1 EHRR 647, at 678 to 679, para. 82, the European Court of Human Rights (“the European Court”) established three criteria for determining whether proceedings are “criminal” within the meaning of the Convention, namely, (a) the classification of the offence under national law, (b) the nature of the offence, and (c) the severity of the penalty that the person concerned risked incurring: see also Han v. Customs & Excise Commissioners [2001] 1 WLR 253 at para. [61] citing AP, MP and TP v. Switzerland (1997) 26 EHRR 541, at page 558 para. 39.

As to the first of those criteria, the s.97AA(1)(a) £50 fixed penalty is part of the civil law as a matter of domestic classification.

The Appellant contends, however, that the application of the second and third Engel criteria lead to the conclusion that the £50 fixed penalty imposed on the Appellant was a criminal charge within Article 6. In that connection the Appellant emphasises the following features.

He emphasises the factual background to the imposition of the penalty, and maintains that it is apparent that the information which the Inspector, Ms. Sarah Dalton, sought from him was not a random enquiry but one which was specifically targeted at him as a consequence of an earlier interview with another taxpayer, his fiancée, Ms. J. Bardsley. In short, he maintains that he had become the subject of a Revenue enquiry possibly before, but certainly following, the interview of another taxpayer.

In this connection he relied upon the following facts. On 16^th April 2002 an interview took place between Ms. Bardsley and Ms. Dalton. The meeting was an enquiry into Ms. Bardsley’s tax affairs. It appears, from written minutes of the meeting prepared by the Revenue that, during the course of the interview, there was a discussion about the purchase of a property by Ms. Bardsley with the Appellant. There was a reference by Ms. Bardsley to occasional financial help by the Appellant and to the Appellant’s contribution towards a mortgage on the property. There was also reference to the address at which the Appellant was living during the relevant period.

Following that interview, on 30^th September 2002 Ms. Dalton issued a notice of enquiry into the Appellant’s tax return and requested documents and information for the purposes of her enquiry.

The Appellant maintains that correspondence from the Revenue, in particular a letter from Ms. Dalton of 26^th August 2003, indicated that, whilst the Revenue was not claiming that the enquiry was random, nor was it resisting an interpretation that its enquiry was specifically targeted at him.

Mr. Sharkey submitted that even small penalties have been found to be criminal for Article 6 purposes: see Lauko v. Slovakia 4/1998/907/1119 2^nd September 1998.

Further, and in any event, the Appellant submits that the penalty, viewed in the context of further daily fines of up to £150 per day under TMA s.97AA(2) for non-compliance, is a substantial and punitive penalty intended to punish and deter.

Mr. Sharkey referred me to the terms of a letter of 20^th December 2002 sent by Ms. Dalton to the Appellant referring to the failure to comply with the s.19A notice, and especially the following part of that letter:

Mr. Sharkey referred me to, and relied particularly upon, the decision and judgment of the Court of Appeal in Han (Potter and Mance LJJ, Sir Martin North dissenting). That was a case in which taxpayers brought appeals against the imposition by the Commissioners of Customs & Excise of civil penalties for dishonest evasion of VAT under s 60(1) of the Value Added Tax Act 1994 and under s 8(1) of the Finance Act 1994. The Court of Appeal, dismissing the appeal from the VAT and Duties Tribunal on a preliminary issue, held that the penalties were criminal charges within Article 6 and, accordingly, the taxpayers were entitled to the minimum rights specified in Article 6.3.

Mr. Sharkey referred particularly to the following passage in AP, MP & TP v. Switzerland, cited in paragraph [61] of the judgment of Potter LJ (with whom Mance LJ agreed) in Han:

Mr. Sharkey also relied upon certain features of the penalties in Han which were conceded by counsel for the Commissioners, and which were features which the European Court has held to militate in favour of a finding that a penal measure is criminal in nature: namely, that the s.60 provisions should be regarded as applying in principle to all citizens as taxpayers and not to a restricted group; and the function of the penalties was not to compensate Customs & Excise but to punish and deter.

He also relied upon the statement of Potter LJ in paragraph [98] of Han that in the area of tax evasion, at least, the weight of authority of the European Court is that for the purposes of a “criminal” charge it is not necessary to demonstrate that the penalty to which the taxpayer is subject involves or may involve imprisonment. It is sufficient that it is substantial and its purpose is punitive and deterrent. The majority of the Court of Appeal considered that those requirements were made out by the taxpayers in that case.

Mr. Sharkey also emphasised that the Revenue reserves its right to use information acquired pursuant to a notice under TMA s.19A in subsequent criminal proceedings.

Attractively as Mr. Sharkey presented this aspect of the appeal, I have no hesitation in rejecting it.

I agree with Mr. Sharkey that, as the authorities clearly show, the first Engel criterion, namely the classification of the allegation in domestic law, is no more than a starting point and is not decisive of the criminal or civil nature of the allegation for the purposes of Article 6.

If, as in the present case, the allegation, claim or penalty is classified as civil under domestic law, the court determines whether it is, none the less, criminal in character for the purposes of Article 6 by proceeding to the second and third Engel criteria, namely the nature of the offence and the severity of the penalty which it invokes.

The penalties under s.97AA for failure to produce documents under s.19A do not depend upon some dishonest or criminal conduct on the part of the taxpayer, or even a belief or mere suspicion by the Revenue of any such dishonest or criminal conduct. They are wholly independent of any prosecution, or intended prosecution or enquiry into dishonest or criminal conduct.

In the present case, the Special Commissioner concluded, on the facts, that there was no evidence that any prosecution was being considered or that any penalties involving criminal proceedings within Article 6.1 were contemplated. That finding cannot be challenged on the appeal before me: cf. JB v. Switzerland 3^rd May 2001; Funke v. France (1993) 16 EHRR 297.

Further, I accept the submission of Mr. Ward that the function of the £50 fixed penalty under TMA s.97AA is not merely punishment and deterrence. He accepts that there is an element of punishment, but he submits, and I agree, that the primary objective of the £50 fixed penalty is to procure the production of the documents requested by the Revenue: cf. Lauko v. Slovakia, Han, and Szott-Medynska v. Poland 9^th October 2003. Mr. Ward points out, for example, that TMA s.97AA(4) expressly provides that no penalty shall be imposed under s.97AA(1), in respect of a failure within that subsection, at any time after the failure has been remedied.

I also accept Mr. Ward’s submission that the fixed £50 penalty under s.97AA(1) is to be treated, for the purpose of the analysis which I am presently conducting in respect of Article 6.1, as quite separate from the daily penalty which can be imposed under TMA s.97AA(1)(b) and (2) and s.100 if the taxpayer continues to fail to provide the requisite documents. Whether that additional daily penalty is imposed by an officer of the Board under s.97AA(2)(a) or by the Commissioners under 97AA(2)(b), the decision to impose the further penalty rests upon a new and independent exercise of the Revenue’s powers in the light of the particular circumstances then existing. The mere fact of continuation of failure to comply will not lead, inevitably, to the imposition of the further daily penalty. In the present case, for example, no such additional daily penalty has been imposed on the Appellant, notwithstanding his failure to comply with the s.19A notice.

Accordingly, the penalty under consideration in the present case is a very modest one (cf. WS v. Poland 15^th June 1999), which may be imposed in circumstances in which, as the Special Commissioner found in the present case, there is no enquiry into any criminal conduct on the part of the taxpayer but, rather, is imposed as the administrative means of securing the production of documents in connection with the taxpayer’s tax return. In this respect, it is to be distinguished on the facts from the various cases relied upon by the Appellant.

I agree with Mr. Ward that a closer parallel to the present case than the authorities relied upon by the Appellant is the decision in Smith v. United Kingdom 29^th November 1995, which the Special Commissioner mentions in paragraph 14 of his decision. In that case the European Commission considered a 10 per cent surcharge imposed automatically where an application for a summary warrant was made following non-payment of the community charge. The Commission concluded that the surcharge did not give rise to a criminal charge within Article 6. The Commission said that:

While it is correct, as Mr. Sharkey observed, that the European Court has held that in appropriate circumstances even a very modest penalty may constitute a criminal charge within Article 6.1, those were all cases in which some additional feature, such as a criminal enquiry or prosecution or the sanction of imprisonment if the penalty was not paid, coloured the nature of the penalty. None of those particular features arises in the present case.

For the sake of completeness, it should be noted that it is not a ground of appeal that the imposition of the £50 fixed penalty on the Appellant involved “the determination of his civil rights” within Article 6.1.

In Ferrazzini v. Italy 12^th July 2001, the Grand Chamber of the European Court, reviewing its longstanding case law to the effect that tax disputes fall outside the scope of “civil rights and obligations” for the purposes of Article 6.1, concluded that its existing approach should be upheld: see para. 29 of the decision. Notwithstanding the dissenting opinion of six of the judges and academic debate about the decision, the proper course would be for me to follow the decision of the majority: see R (Ullah) v. Secretary of State [2004] UKHL 26, [2004] 2 AC 323 at para. [20] (Lord Bingham of Cornhill).

The imposition of the £50 fixed penalty on the Appellant not being a criminal charge within Article 6.1, there is no scope for any complaint by the Appellant that his privilege to remain silent and not to incriminate himself was infringed in the present case.

In Shannon v. United Kingdom 4^th October 2005, the European Court explained that there are two types of case in which it has been found that the right to silence and the privilege against self-incrimination has been violated.

As the European Court emphasised in that case, and as was further explained by the European Court in Allen v. United Kingdom 10^th September 2005, the privilege against self-incrimination does not, in itself, prohibit the use of compulsory powers to obtain information outside the context of criminal proceedings. In Shannon, the following paragraphs of the decision in Weh v. Austria, no. 38544/97 8 April 2004 were quoted:

In Allen v. United Kingdom the European Court said:

That approach was followed by Moses J in R (Murat) v. Inland Revenue Commissoners [2004] EWHC 3123, [2005] STC 184 in which the applicant appealed against the imposition of penalties under TMA s.97AA(1)(a) and (1)(b) for refusing to provide information pursuant to a s.19A notice. Moses J rejected an argument that the requirement to provide the information breached the privilege against self-incrimination. He said, at para. [7]:

The present case does not fall within either of the two types of case specified in paragraphs 42 and 43 of Shannon; at the time of the s.19A notice and of the imposition of the £50 fixed penalty on the Appellant, no criminal proceedings were pending or anticipated and none have been brought by the Revenue. The imposition of the £50 fixed penalty in the present case is, as the European Court indicated in Allen and as was found by Moses J in Murat, merely a proportionate and legitimate measure by the State to achieve the calculation and assessment of the Appellant’s tax.

S 66(1)(b) of PACE provides for the issue of Codes of Practice in connection with “the detention, treatment, questioning and identification of persons by Police Officers”.

S 67(9) of PACE provides that:

The Appellant says that the Inspector, Ms. Dalton, was a person within s 67(9) of PACE, but she failed to comply with the provisions of Code C issued under PACE. That Code is a “Code of Practice for the detention, treatment and questioning of persons by police officers.” At paragraph 10.1 of that Code, there is provision for a caution to be given to the suspect.

The Appellant claims that, in view of the nature of, and background to, Ms. Dalton’s enquiry, she was a person “charged with the duty of investigating offences or charging offenders” within s 67(9) and that the failure to caution the Appellant was a breach of paragraph 10 of Code C.

This claim of the Appellant cannot succeed in the light of the findings of the Special Commissioner that there was no evidence that prosecution or evasion penalties were under consideration or that the Revenue was in possession of information indicating that the Appellant’s tax return was incorrect: paragraphs [31] and [36] of the Decision; and cf. R. v. Gill [2003] EWCA 2256.

The Appellant contended before the Special Commissioner that his inability to obtain Criminal Defence Service funding for professional representation was a breach of his rights under Article 6. Having found that neither the fixed penalty under s.97AA(1)(a) nor the possible penalties under s.97AA(1)(b) were criminal charges within Article 6, the Special Commissioner concluded, in paragraph [23] of his Decision, that “the matter of non-availability of Defence Service funding does not arise even if within the tribunal’s jurisdiction, which it is not. ”

In his skeleton argument for the appeal from the Special Commissioner, the Appellant submitted that the Special Commissioner had acted incorrectly in failing to appreciate that civil funding might have been available (as indeed is the case) and that the Appellant, as a litigant in person, was unaware of the availability of civil funding.

In his oral submissions, Mr. Sharkey sought to elaborate on the circumstances in which the Appellant had made enquiries for obtaining legal aid. At least some of the factual matters to which he referred had not been placed before the Special Commissioner. Furthermore, the Appellant’s Notice of Appeal in this case contains no reference to any ground of appeal based upon the issue of the availability of legal aid.

In all the circumstances, the Appellant is not permitted to raise at this stage a new ground of appeal on that issue. Apart from other considerations, it would be unfair to HMRC to permit him to do so without, first, the further evidence being set out clearly in writing and, second, giving HMRC an opportunity to make enquiries in relation to that further evidence and to procure evidence in rebuttal.

In his grounds of appeal in his Notice of Appeal the Appellant says that “the Commissioner’s question to the Appellant ‘But they would not be able to collect taxes, would they?’ erred in that it showed a pre-disposition and was not relevant to the proceedings”.

This ground of appeal is quite hopeless. The observation or question of the Special Commissioner was perfectly legitimate. It was no more than a reflection of, and an invitation for the Appellant to comment upon, the same concern or train of reasoning as was mentioned by the European Court in Allen in the passage which I have quoted earlier in this judgment.

In the Appellant’s skeleton argument on this appeal he refers to the complaint made by the Appellant to the Special Commissioner that:

This point was not pursued before me as a separate line of complaint. I understand it is merely part of the Appellant’s contention that the £50 fixed penalty was a criminal charge against the Appellant. I have already dealt with that aspect of the appeal.

For all those reasons, I dismiss this appeal.