In 2006 a Mr Higgins was sentenced to four months in prison for environmental pollution offences. This would not normally be of interest to readers of Tax Brief, but the extraordinary procedural muddle which ensued is worth some comment because of the tax issues which arose.
As well as being convicted Mr Higgins was also subject to a confiscation order of £400,000. The question was whether or not that included any tax which might be due on the profits of his illegal landfill operation. You would think that there was a simple yes or no answer to that question – but the courts managed to tie themselves up in such knots that nobody could give a satisfactory answer.
The various decisions in the appeal process directly contradicted each other. Was the £400,000 a compromise figure based on the amount which the taxpayer could pay, or was it an accurate calculation of the benefit which he had obtained from his illegal activity – and if so did the figures include tax or not?
There is a generally accepted principle that HMRC should not be permitted to take tax twice from the same taxpayer on the same profits even where evasion is evolved. So, Mr Higgins said that in agreeing to pay the £400,000 he had met all his liabilities to the state and it was double taxation for HMRC to seek to tax him again by raising assessments on him. HMRC argued that the confiscation order was nothing to do with tax – it had the right to assess him on what it believed to be the undeclared profits of the business. The Upper Tribunal has just ruled in favour of HMRC but has said that it is open to the taxpayer to argue the double taxation point again when it comes to enforcement of the assessments. This does seem to be a very odd outcome and simply adds further confusion to an already very messy case.
The root of the problem is the very different powers relation to confiscation orders made by the crown court and those relating to taxation, which are the responsibility of HMRC or the National Crime Agency, who in cases such as this, take over the function of HMRC. There seemed to be no coordination whatsoever in this case and no consideration appeared to be given by anybody to the taxation consequences (if any) of the confiscation order.
All the judges involved tried to make sense of what happened, but not surprisingly they struggled to reach a conclusion. While we have no sympathy with those who act illegally it is surprising that somebody can agree to pay a confiscation order without appreciating that the state may come back to him for a second bite of the cherry.
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