16 October 2000
Section 144, Finance Act 2000 introduces a specific criminal offence aimed at tax fraud and punishable by up to seven years in prison.
The new offence is to be 'knowingly concerned in the fraudulent evasion of income tax'.
It applies to offences committed from the beginning of 2001; participants in the informal economy are therefore given the opportunity to regularise their affairs under current law and practice.
The new offence is to be 'knowingly concerned in the fraudulent evasion of income tax'.
It applies to offences committed from the beginning of 2001; participants in the informal economy are therefore given the opportunity to regularise their affairs under current law and practice.
Section 144, Finance Act 2000 introduces a specific criminal offence aimed at tax fraud and punishable by up to seven years in prison.
The new offence is to be 'knowingly concerned in the fraudulent evasion of income tax'.
It applies to offences committed from the beginning of 2001; participants in the informal economy are therefore given the opportunity to regularise their affairs under current law and practice.
The new offence does not criminalise conduct which is not already an offence under current law. Case law suggests that the ambit of the new offence is similar to that of the existing common law offence in England and Wales of cheating the public revenue, an offence used for the prosecution of many existing income tax frauds. (But, as Lord Grabiner noted, 'cheat' cannot be tried summarily, unlike other offences which often go hand in hand with tax and contribution frauds.)
Dishonesty is a necessary feature of conduct which can amount to an offence under a number of provisions relevant to fraud in the widest sense. But dishonesty is the very essence of 'cheat' and will be for the new offence. The criminal courts have never sought to define as such the conduct which counts as dishonest but they have provided guidance which is likely to apply in this context (see Ghosh [1982] QB 1053). Conduct is dishonest if:
by the ordinary standards of reasonable and honest people it is dishonest; and
the person whose conduct is under consideration must have realised that the conduct was dishonest by those standards.
A positive act of deception (such as completing a tax return known to be false) is not a necessary element either of 'cheat' or of the new offence. Deliberately refraining from notifying chargeability to tax or from submitting tax returns, in circumstances where the person concerned must have known tax should be paid, may well in itself amount to dishonest conduct and therefore to either offence.
The new offence, unlike 'cheat', applies to offences committed in Scotland as well as elsewhere in the United Kingdom. Under current Scottish law, however, there is no precise equivalent of 'cheat'. The nearest, the Scottish common law offence of 'fraud', requires some positive act of deception. So the new offence does entail an extension in the conduct which counts as criminal north of the border.
During the debate in the Finance Bill Standing Committee, the Paymaster General was asked in what circumstances a customer of a business could become 'knowingly concerned' in a fraud by that business. She said that the test was one requiring both knowledge (rather than mere suspicion) of an offence and also actual involvement in it. Simply paying for services in cash was unlikely to satisfy this test.
In the same debate at least one committee member raised the subject of the impact of the new offence on tax advisers, especially those involved in advising on arrangements which could be characterised as tax avoidance. The Revenue does not consider that the new offence has led to any change in the law in this area.
Where a scheme labelled as 'avoidance' by its participants and their advisers admittedly fails, the key issue as a matter of criminal law would be whether they have been dishonest in the unsuccessful effort to reduce the relevant tax liability. It would be for the courts to decide as a question of fact whether that is the case.
Concern has been expressed in some quarters that, as a result, the decision will not normally be taken by those with professional experience of tax matters and, given the highly technical nature of much tax law, that state of affairs may lead to injustice. That is an issue well beyond the scope of this article, but it may be helpful to remember that possible dishonesty becomes a consideration in this context only in certain circumstances. That is where there is some suggestion that the participants in an avoidance scheme are not merely relying on the intrinsic technical soundness of the arrangements actually put in place to reduce the liability, but also on concealment of the true facts from the inspector. If so, then, if the scheme fails, it is perfectly possible that the criminal courts may find there has been an offence. But, conversely, where there is no trace of any concealment of the true facts of arrangements for which there is a respectable technical case, it is hard to imagine how a criminal offence can have been committed.
The foregoing are extracts from longer articles published in the Tax Bulletin which is Crown Copyright and to which reference should be made for details for the full text. Information regarding subscription can be obtained from Miss F Chowdhury, Room 439, 22 Kingsway, London WC2B 6NR, tel: 020 7438 7812. It is also available free of charge from the Revenue's website.
The new offence is to be 'knowingly concerned in the fraudulent evasion of income tax'.
It applies to offences committed from the beginning of 2001; participants in the informal economy are therefore given the opportunity to regularise their affairs under current law and practice.
The new offence does not criminalise conduct which is not already an offence under current law. Case law suggests that the ambit of the new offence is similar to that of the existing common law offence in England and Wales of cheating the public revenue, an offence used for the prosecution of many existing income tax frauds. (But, as Lord Grabiner noted, 'cheat' cannot be tried summarily, unlike other offences which often go hand in hand with tax and contribution frauds.)
Dishonesty is a necessary feature of conduct which can amount to an offence under a number of provisions relevant to fraud in the widest sense. But dishonesty is the very essence of 'cheat' and will be for the new offence. The criminal courts have never sought to define as such the conduct which counts as dishonest but they have provided guidance which is likely to apply in this context (see Ghosh [1982] QB 1053). Conduct is dishonest if:
by the ordinary standards of reasonable and honest people it is dishonest; and
the person whose conduct is under consideration must have realised that the conduct was dishonest by those standards.
A positive act of deception (such as completing a tax return known to be false) is not a necessary element either of 'cheat' or of the new offence. Deliberately refraining from notifying chargeability to tax or from submitting tax returns, in circumstances where the person concerned must have known tax should be paid, may well in itself amount to dishonest conduct and therefore to either offence.
The new offence, unlike 'cheat', applies to offences committed in Scotland as well as elsewhere in the United Kingdom. Under current Scottish law, however, there is no precise equivalent of 'cheat'. The nearest, the Scottish common law offence of 'fraud', requires some positive act of deception. So the new offence does entail an extension in the conduct which counts as criminal north of the border.
During the debate in the Finance Bill Standing Committee, the Paymaster General was asked in what circumstances a customer of a business could become 'knowingly concerned' in a fraud by that business. She said that the test was one requiring both knowledge (rather than mere suspicion) of an offence and also actual involvement in it. Simply paying for services in cash was unlikely to satisfy this test.
In the same debate at least one committee member raised the subject of the impact of the new offence on tax advisers, especially those involved in advising on arrangements which could be characterised as tax avoidance. The Revenue does not consider that the new offence has led to any change in the law in this area.
Where a scheme labelled as 'avoidance' by its participants and their advisers admittedly fails, the key issue as a matter of criminal law would be whether they have been dishonest in the unsuccessful effort to reduce the relevant tax liability. It would be for the courts to decide as a question of fact whether that is the case.
Concern has been expressed in some quarters that, as a result, the decision will not normally be taken by those with professional experience of tax matters and, given the highly technical nature of much tax law, that state of affairs may lead to injustice. That is an issue well beyond the scope of this article, but it may be helpful to remember that possible dishonesty becomes a consideration in this context only in certain circumstances. That is where there is some suggestion that the participants in an avoidance scheme are not merely relying on the intrinsic technical soundness of the arrangements actually put in place to reduce the liability, but also on concealment of the true facts from the inspector. If so, then, if the scheme fails, it is perfectly possible that the criminal courts may find there has been an offence. But, conversely, where there is no trace of any concealment of the true facts of arrangements for which there is a respectable technical case, it is hard to imagine how a criminal offence can have been committed.
The foregoing are extracts from longer articles published in the Tax Bulletin which is Crown Copyright and to which reference should be made for details for the full text. Information regarding subscription can be obtained from Miss F Chowdhury, Room 439, 22 Kingsway, London WC2B 6NR, tel: 020 7438 7812. It is also available free of charge from the Revenue's website.
