Time for a Change?

In the light of the House of Lords' judgment in R v Allen, the Revenue should modify its methods in Hansard cases, says RICHARD CLARKE.

In R v Allen, their Lordships commented on the Revenue's use of the 'Hansard extract'. The Hansard extract is the basis for the Revenue's investigations into suspected serious fraud, where prosecution is not considered appropriate at the outset. It is exclusively used by Tax Inspectors at Special Compliance Office.

The extract reads:

'In reply to a Parliamentary Question on 18 October 1990 the Chancellor of the Exchequer gave the following answer regarding tax fraud.

'The practice of the Board of Inland Revenue in cases of tax fraud is as follows:

1. The Board may accept a money settlement instead of instituting criminal proceedings in respect of fraud alleged to have been committed by a taxpayer.

2. It can give no undertaking that it will accept a money settlement and refrain from instituting criminal proceedings even if the case is one in which the taxpayer has made a full confession and has given full facilities for investigation of the facts. It reserves to itself full discretion in all cases as to the course it pursues.

3. But in considering whether to accept a money settlement or to institute criminal proceedings, it is its practice to be influenced by the fact that the taxpayer has made a full confession and has given full facilities for investigation into his affairs and for examination of such books, papers, documents or information as the Board may consider necessary.

'The above statement of practice should be regarded as replacing the one given by the then Chancellor of the Exchequer on 5 October 1944.'

Although Tax Inspectors will not paraphrase this extract, it is clearly an inducement given to a taxpayer to tell the truth, co-operate and settle financially rather than be prosecuted. What is crucial, however, is that it gives no absolute assurance that even if the taxpayer does all these things, he will not still be prosecuted.

Tax advisers have known for many years that so long as their clients made full disclosure, there was no practical likelihood of prosecution, notwithstanding the 'reserved' right of the Board of Inland Revenue. But comments from their Lordships in R v Allen may mean that tax advisers should seek more concrete assurances from the Revenue.

There are three developments that increase the pressure on the Revenue to amend its procedures in cases of suspected serious fraud.

Two earlier cases

R v Werner and Clarke (also known as R v W) [1998] STC 550 concerned a case of tax evasion which the Revenue declined to prosecute, accepting instead a monetary settlement. The Crown Prosecution Service later initiated proceedings against the taxpayers on charges of conspiracy to defraud.

Some commentators expressed dismay at this and made representations to the Revenue to seek assurance that clients investigated under Hansard would not be prosecuted by another government body following settlement with the Revenue.

In the event, a hastily assembled committee of 'small prosecuting agencies' published their agreement not to cross over each other's departmental responsibilities. Advisers were expected to draw the inference that the Revenue would not allow a repeat of R v W.

In King v Walden [2001] STC 822, the court accepted that for the purposes of the Human Rights Act 1998, penalties payable by the taxpayer were criminal in nature. Accordingly the taxpayer had the rights of an accused in criminal proceedings. These would include the right:

'to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him.' (Article 6.3 of the European Convention for the Protection of Human Rights and Fundamental Freedoms.)

This is in contrast with the Hansard procedure where the Revenue gives no indication of what it considers to be wrong with a taxpayer's affairs and places the onus on him to confess fully.

Their Lordships' opinions

It was widely accepted that the inducement to self-incrimination inherent in the Hansard extract was susceptible to challenge under Article 6 of the Convention. This point arose in R v Allen, and their Lordships have now had their opportunity to add their voice to the debate.

The inducement aspect of Hansard is provided for by section 105, Taxes Management Act 1970 which states that: '(1) statements made or documents produced by or on behalf of a person shall not be inadmissible in any such proceedings …' because they have been made or produced following the reading of the Hansard extract.

In R v Allen, Lord Hutton said that:

'To the extent that there was an inducement contained in the Hansard statement, the inducement was to give true and accurate information to the revenue, but the accused … did not respond to that inducement, and instead … gave false information. Therefore, in my opinion, the appellant's argument in this case that he was induced by hope of non-institution of criminal proceedings held out by the Revenue to provide the schedule and that its provision was therefore involuntary, is invalid.'

But it is what Lord Hutton said next which has attracted most attention:

'If, in response to the Hansard statement, the appellant had given true and accurate information that he had earlier cheated the Revenue and had been prosecuted for that earlier dishonesty, he would have a strong argument that the criminal proceedings were unfair and an even stronger argument that the Crown should not rely on evidence of his admission …'

His Lordship resoundingly disapproved of the notion within the Hansard extract that the Revenue can somehow have it both ways. The House of Lords has clearly held that if a taxpayer makes a full and truthful disclosure under Hansard, the Revenue does not have a case to instigate criminal proceedings against him.

Hansard will live on

It is unlikely that taken together these will mean the end of Hansard as a process for dealing with tax evasion. It is recognised by practitioners involved and often by their clients (though not at the time) that investigation under Hansard is preferable to the alternative. But the Revenue needs to address the anomalies in the investigation process that are no longer sustainable in the era of an increased emphasis on individual human rights. Will the Inland Revenue now recognise that taxpayers under investigation have a right to know what they are alleged to have done?

Furthermore, if the Hansard inducement is to continue (and there are many taxpayers who will prefer it to), there must be a categorical assurance that full disclosure will prevent any possibility of prosecution. The House of Lords has already indicated that this is the practical position; the Revenue should now explicitly recognise this.

Richard Clarke was formerly group leader of Special Compliance Office London and now works in the tax investigations team at PricewaterhouseCoopers. He may be contacted on 020 7213 5778 or at richard.f.clarke@uk.pwcglobal.com.

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