Hansard and Human Rights

ANDY SHARP ponders the future for the Hansard procedure in the light of the Human Rights Act and recent case decisions.

THE INTERACTION BETWEEN investigations conducted in accordance with Code of Practice 9 (also known as the Hansard procedure) and the European Convention on Human Rights or the Human Rights Act was one of the interesting points which was considered in Regina v Allen [2001] STC 1537.

One of the main points of principle in the case rested upon whether self incrimination under the Hansard procedure breached Article 6 of the Human Rights Act. This was a fundamental issue in the case as Hansard relies upon the inducement of civil settlement in serious fraud cases, instead of prosecution.

At present, under Code of Practice 9, taxpayers are read an extract from Hansard which explains the Board of Inland Revenue's policy in relation to cases of suspected serious fraud. Taxpayers are then invited to disclose all their tax irregularities and this may prevent the Board of Inland Revenue from indicting the taxpayer for a variety of criminal offences including common law cheat, conspiracy or false accounting.

In practice, the Revenue does not prosecute taxpayers who have made a full disclosure under the terms of Hansard although, technically, the right to mount criminal proceedings exists, even if the case is one where the taxpayer has disclosed everything and co-operated with the investigation into his affairs.

However, taxpayers who are offered the protection of Hansard often fail to recognise their predicament and decide not to disclose to the Revenue. This is exactly what happened in the Allen case, where false and misleading information was provided by the appellant. The appellant then tried to persuade the House of Lords that he had been induced to provide documents to the Revenue, and had self incriminated himself under Hansard, thereby breaching his human rights under Article 6.

After a detailed consideration of the case, Lord Hutton determined that no breach of Article 6 relating to self incrimination had taken place and that the prosecution was sound. Lord Hutton went on to say that:

'... if, in response to the Hansard statement, the appellant had given true and accurate information which disclosed that he had earlier cheated the Revenue and had then 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...'

This interesting statement confirms the view that many tax advisers have held for several years, that the Revenue should confirm to taxpayers that if they make a full disclosure under Hansard they will not be prosecuted.

Given that judicial authority for this view now exists, it is about time the Revenue accepted the need to reflect the recent decision, and amended the Hansard statement. However, any amendment to the Hansard process needs to be considered carefully, particularly as the Hansard statement represents the Board's policy in relation to serious fraud. Any change to this policy is serious, and would also represent an ideal opportunity for the Board to consult on the issue.

So what are the ramifications if the Revenue does take heed from the Allen case? Aspects to this question are considered below.

Changing the statement

The simplest amendment to the Hansard statement would be to change the wording of the three paragraphs to confirm categorically that in cases of suspected serious fraud, any taxpayer who makes a full disclosure will not be prosecuted. This would be quite easy to achieve, but would cause at least one major problem for the Revenue, as it could no longer reserve to itself full discretion in all cases as to the course it pursues. If the Revenue were to confirm that a taxpayer who makes a full disclosure under Hansard would not be prosecuted, the Board would lose that power of discretion. This would remove a great degree of flexibility for the Revenue, but citizens have the right to know where they stand in any particular process. Therefore the Board would probably attempt to dilute the loss of discretion as far as possible.

As the prosecution of Hansard denials and incomplete disclosures is an integral part of the prosecution policy of the Revenue, presumably any change in the serious fraud policy would have to be matched by a new statement in respect of the prosecution policy of the Board of Inland Revenue. This policy needs revamping and those with sufficient influence within the Revenue would do well to take the opportunity to shed, for example, the wholly inappropriate prosecution of working family tax credits, which represents an excessive drain upon Special Compliance Office resources. The policy of policing the working family tax credits system is an improper use of skilled investigator resources whose efforts would be much better targeted against tax defrauders and evaders.

Full disclosure

The question of what comprises a full disclosure appears straightforward, but on closer examination it is not clear cut. Seasoned practitioners in this field know that investigators will not confirm that the disclosure is complete until the last possible moment, just in case something else turns up. Therefore one could be faced with serious problems in cases where, for example, the taxpayer has genuinely and inadvertently omitted a minor aspect from his disclosure, which is subsequently brought to light by the Inspector.

Technically, such a minor omission would mean that the taxpayer had not made a full disclosure and would be open to prosecution. This would seem somewhat harsh to say the least and it is difficult to see how much latitude could be expected from the Revenue, as Inspectors would want to encourage full disclosures and not partial ones.

It is to be hoped that common sense would prevail in such cases, and some form of statement from the Revenue regarding such limited occasions would be useful. However, in the absence of such a statement, all would not be lost, as the key aspects that the Revenue would have to consider would be the size and gravity of the omission and more importantly the intention of the taxpayer to defraud. The latter point is important, as proving intention to criminal standards is not the easiest of things to do.

What would the Revenue prosecute?

The dicta from Lord Hutton shows that full disclosure should not result in prosecution. However, the vexing question remains as to what the Revenue would prosecute in cases of partial disclosure. This is not an easy question to answer, as there would be some difficulty in maintaining that a taxpayer could be prosecuted for the areas of his disclosure which are complete. The Revenue would probably take the line that only the areas that have not been disclosed could be prosecuted. This may result in taxpayers playing their chances by trying not to make full disclosures in the hope of fooling the investigators that everything has been disclosed. This would be a dangerous game to play and the only real solution is for advisers to, as far as possible, ensure that the taxpayer does make a full and comprehensive disclosure.

There are other issues to consider if the Hansard statement were amended as suggested. One such aspect is what would happen to section 105, Taxes Management Act 1970, as this underpins the prosecution of Hansard cases where disclosures are deliberately misleading or false. Under present arrangements, section 105 provides that statements made, or documents provided, by or on behalf of any person shall not be inadmissible in any such proceedings. While this legislation has stood the test of time well, its relevance now needs to be examined in the light of Lord Hutton's comments. Indeed, some question why section 105 remains on the statute books, as most prosecutions undertaken in respect of Hansard denials are based not on what the taxpayer produces to the Revenue in the form of documents and information, but rather what is kept hidden. It is most unlikely that the Revenue would willingly forgo section 105, and it is more probable that an amended version would be introduced which would be in line with any revised Hansard statement.

Interaction with Customs

Another potential problem for the Revenue lies in the interaction between any amendment to the Revenue's policy in relation to serious fraud and the same policy of Customs. Any change in the Board's statement in relation to serious fraud will have some impact on Customs, and perhaps the most significant impact will be felt by VAT investigators who are working the new negotiated settlements procedure. This process, which was developed with the assistance of the Revenue and is largely based on Hansard, also provides taxpayers with an inducement to make full disclosure and settle the case civilly. No details have emerged of any negotiated settlements procedure case which has been prosecuted for a failure to make a full disclosure, although this area does represent as yet uncharted waters. However, given the ratification that Hansard has received from the courts, it must be only a matter of time before Customs' procedures are aligned with the Revenue's.

Indeed given the closer working relationship between the Revenue and Customs, particularly at local investigation level, with the formation of joint shadow economy teams, it is surprising that such closer working has not been introduced within Special Compliance Office and the negotiated settlements procedure teams across the United Kingdom. Such arrangements would be beneficial as there would be less likelihood of one organisation offering a civil settlement and the other organisation proceeding with prosecution; however, several abuse of process arguments spring to mind in such cases.

Human Rights Act

Perhaps the most difficult area, and one which has not yet surfaced in the field of Special Compliance Office investigations, is the challenge to Hansard of Article 6(3) of the Human Rights Act. King v Walden [2001] STC 822 demonstrated that cases involving tax geared penalties (within section 95, Taxes Management Act 1970) are criminal for the purposes of Article 6. By inference, it is highly probable that any other tax geared penalties, for example those charged under sections 7 and 93(2), Taxes Management Act 1970, are also criminal for the purposes of the Human Rights Act, although this will only be determined by action through the courts, as the Revenue will base its policy on such issues from the decisions in court cases. Given that anyone being investigated by Special Compliance Office is facing at the very minimum a civil settlement to include tax geared penalties, then how can Hansard comply with Article 6 (3) of the Human Rights Act? This legislation provides that:

'Everyone charged with a criminal offence has the following minimum rights:

How then can this sit with the invitation under Hansard to make a full disclosure, while the Revenue reveals nothing of the information that it holds? The issue is a significant one and potentially affects the conduct of Hansard cases in the future, so some form of clarification or confirmation is required from the Revenue.

The Revenue should also address criminality and tax-geared penalties as a general issue. Taxpayers are currently penalised by being charged with tax-geared penalties and the Revenue has said nothing about the conduct of such cases which breach the individual's human rights.

It is entirely understandable that the Revenue would want to preserve any detailed evidence it holds, and simultaneously comply with the Human Rights Act. Such a stance would not be an easy one to maintain. However, one possible solution would entail a disclosure by the Revenue in sufficient detail to comply with the Human Rights Act, but not enough to compromise any potential prosecution. At the opening Hansard meeting, the taxpayer could be informed that Special Compliance Office holds information which indicates that his tax return or accounts are incorrect in relation to a potential understatement of Case I profits and Case V income. This would preserve the Revenue's hand, and at the same time provide sufficient detail to appease the requirements of the Human Rights Act. However, the ultimate decider as to what would be acceptable probably lies with decisions made in courts rather than with the Revenue attempting to interpret the Human Rights Act.

Much work to be done

The issue of the interaction between Hansard as a procedure and the Human Rights Act is far from over, indeed it seems that there is considerable work to be done in this field. It will be the responsibility of advisers and the Revenue to ensure that whatever form any new Hansard statement takes, it must be manageable. It must strike a balance between the needs of the Revenue on the one hand and the taxpayer's human rights on the other.

Hansard has been a valuable asset to the Revenue, advisers, and clients who, wisely, choose to seek its protection. However, the process does not seem to sit well with the Human Rights Act, so change seems to be inevitable. It is to be hoped that any changes preserve the process so that Hansard continues to work in the 21st century.

Andy Sharp was formerly Hansard group leader at Special Compliance Office, Liverpool, and is now a partner at Specialist Taxation Services, Chorley.

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