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My clients own a fish and chip restaurant, which is fairly successful. Three years ago they were investigated by Customs and Excise, who raised assessments on the basis of surveillance and 'business economics'. A civil penalty and interest was also imposed.
It appears from the recent Han and Yau case that there may be grounds for a retrospective appeal, based on human rights criteria. Can readers advise me on the basis of such an appeal?
(Query T15,793) – Sea Chef.
My clients own a fish and chip restaurant, which is fairly successful. Three years ago they were investigated by Customs and Excise, who raised assessments on the basis of surveillance and 'business economics'. A civil penalty and interest was also imposed.
It appears from the recent Han and Yau case that there may be grounds for a retrospective appeal, based on human rights criteria. Can readers advise me on the basis of such an appeal?
(Query T15,793) – Sea Chef.
There is much talk at the moment about the impact of the Human Rights Act on VAT appeals, especially in relation to Customs' new policy of suggesting there is something wrong with a trader's returns and inviting the trader to own up. In some cases, there will undoubtedly be points worth arguing and Customs are going to have to pay more attention to the way they deal with matters. On occasions, officers are extraordinarily sloppy about the way they deal with assessments and in their handling of relationships with traders.
However, I fear that I doubt the prospects of success in reopening a matter that is three years old. Even though human rights in value added tax predate the Act itself, because the VAT legislation is European in origin, the courts would obviously be reluctant to reopen a matter that old.
The starting point for any action would have to be an appeal to the VAT tribunal and one would need leave to appeal late. Customs would be likely to object and one would need a very strong case to show that Customs had misbehaved in some way to have much chance of persuading the tribunal to overrule its objection.
No details are given in the query, but of course the inference is that it was the clients who were misbehaving. Customs obviously had evidence of under-declaration based on the surveillance results and, presumably, ratios of undisclosed sales and/or mark-up calculations.
Presumably the clients accepted at the time that there was a problem, since a penalty was imposed.
The querist gives no clues as to why the human rights of his clients are thought to have been infringed. In my view, human rights as an appeal point may well turn out to be valuable in individual cases but only as part of a good defence, which shows that Customs have got it wrong in other ways too. It will be rare to win just because Customs have not followed the procedures as fairly as they might have, given that we already have rules concerning time limits, etc. and a requirement that Customs assess to 'best judgment'.
Even if the client failed to get the right advice at the time and, in consequence, gave in instead of arguing, that is not much help since the time limit for appealing on points of VAT law has long since expired. – A St J Price.
The Han and Yau case has received widespread publicity and is seen by some as a milestone in VAT appeals, and rightly so. The Human Rights Act 1998, which came into force in the United Kingdom in October 2000, has rapidly become a thorn in the tax-gatherers' sides, no more so than in the instant case.
The gist of Han and Yau was this. The two gentlemen ran a Chinese restaurant and were charged penalties on underpaid VAT. They were invited by Customs and Excise to explain discrepancies via an interview, and incurred a penalty of £67,095. This represented a 90 per cent penalty plus the VAT due.
Staggered by the size of the penalty, Messrs Han and Yau, with professional assistance, appealed to the VAT tribunal claiming that Customs' methods amounted to a breach of the Human Rights Act. The tribunal agreed. The main thrust of the argument was that, given the nature of the offences and the size of the penalty awarded (i.e. over 25 per cent of their extra VAT liability), theirs was, in effect, a criminal case and should be treated like one. As such Article 6 of the European Convention on Human Rights was in point, in that the defendants were entitled to a 'fair and public hearing'. The consequence of this was that they should have been cautioned under the Police and Criminal Evidence Act 1984, advised of their right to silence, given a public hearing and offered professional representation under the legal aid scheme.
That is the precise opposite of Revenue and Customs tax investigation scenarios, where the target is 'invited' to be frank, open and co-operative, the prospect of a smaller eventual penalty acting as an inducement not to remain silent. An important point to note is that, in a previous (October 2000) VAT tribunal hearing, it was stated that evidence gathered without a caution is not admissible under the Human Rights Act 1998.
Han and Yau has been appealed by Customs and will go to the Court of Appeal, and possibly to the House of Lords, in due course thereafter. In the meantime, it seems that appeals are to be processed on the basis that Han and Yau was correctly decided, so my advice is to appeal today, especially if the clients' penalty was over 25 per cent! – G.J.F.
