Patrick Cannon comments on the impact of a recent decision of the European Court of Human Rights.
A recent decision of the European Court of Human Rights may cause difficulties for HMRC in enforcing the new 50% penalty against those taxpayers who have the temerity not to capitulate in the face of a follower notice.
HMRC’s public view is that a penalty of less than 70% of the tax at stake is not a criminal matter for the purposes of the ECHR so that the victim’s article 6 rights to a fair and public trial are not engaged: see for example EM1363. This seems to be based on King v UK ECHR 13381/2004 and is questionable where the penalty is not for past wrongs but is aimed directly at deterring the opposing party in litigation with HMRC from continuing with his appeal. It is difficult to think of any other situation in which one party to litigation in the UK can fine the other 50% of the amount at stake should the other party continue to litigate and eventually lose. I believe that this amounts to a breach of the victim’s article 6 ECHR rights to enjoy a fair trial. The problem has been however that in the civil tax sphere one’s article 6 rights are severly curtailed and trumped by the state’s right to assess tax and impose penalties: see for example R (Totel Ltd) v FTT [2011] EWHC 652 (Admin). However, this curtailment does not operate when the matter is classed as criminal for Convention purposes when the victim’s rights under article 6 are fully engaged. These rights are very valuable and include the right to a fair hearing (how can a 50% fine for litigating and losing be fair?) and the presumption of innocence (the imposition of a 50% fine surely presumes guilt). HMRC has settled on a 50% penalty thinking that a penalty of such a proportion is not criminal in Convention law and so the victim’s article 6 rights will not be engaged. It can then stifle the victim’s access to justice with impunity.
But not so fast. The recent decision of the ECHR in Pakozdi v Hungary [2014] ECHR 1318 on 25 November 2014 found that a default surcharge of 50% of the tax due was so severe as to amount to a punishment and that in effect the taxpayer had been charged with a criminal offence for Convention law purposes so that article 6 was engaged.
HMRC has recently started softening up their target taxpayer groups with the issue of a seven page information sheet on follower and accelerated payment notices (CC/FS25A), which states that the recipients will soon receive a follower and an accelerated payment notice. Many taxpayers will of course choose to settle in the wake of these notices. For those who believe that their follower notice wrongly claims that there is a ‘relevant judicial ruling’ that means that their particular scheme is bound to fail, but who were thinking of throwing in the towel anyway in the face of a 50% penalty, the Pakozdi decision provides a powerful weapon to challenge the legality of the 50% penalty as a criminal charge fully engaging the taxpayer’s art 6 rights and providing a basis to quash the penalty by way of judicial review or in collateral proceedings by resisting enforcement proceedings on the basis of incompatibility with the ECHR.
Home >Articles > Is the new follower notice penalty in breach of the HRA 1998?
Is the new follower notice penalty in breach of the HRA 1998?
Patrick Cannon comments on the impact of a recent decision of the European Court of Human Rights.
A recent decision of the European Court of Human Rights may cause difficulties for HMRC in enforcing the new 50% penalty against those taxpayers who have the temerity not to capitulate in the face of a follower notice.
HMRC’s public view is that a penalty of less than 70% of the tax at stake is not a criminal matter for the purposes of the ECHR so that the victim’s article 6 rights to a fair and public trial are not engaged: see for example EM1363. This seems to be based on King v UK ECHR 13381/2004 and is questionable where the penalty is not for past wrongs but is aimed directly at deterring the opposing party in litigation with HMRC from continuing with his appeal. It is difficult to think of any other situation in which one party to litigation in the UK can fine the other 50% of the amount at stake should the other party continue to litigate and eventually lose. I believe that this amounts to a breach of the victim’s article 6 ECHR rights to enjoy a fair trial. The problem has been however that in the civil tax sphere one’s article 6 rights are severly curtailed and trumped by the state’s right to assess tax and impose penalties: see for example R (Totel Ltd) v FTT [2011] EWHC 652 (Admin). However, this curtailment does not operate when the matter is classed as criminal for Convention purposes when the victim’s rights under article 6 are fully engaged. These rights are very valuable and include the right to a fair hearing (how can a 50% fine for litigating and losing be fair?) and the presumption of innocence (the imposition of a 50% fine surely presumes guilt). HMRC has settled on a 50% penalty thinking that a penalty of such a proportion is not criminal in Convention law and so the victim’s article 6 rights will not be engaged. It can then stifle the victim’s access to justice with impunity.
But not so fast. The recent decision of the ECHR in Pakozdi v Hungary [2014] ECHR 1318 on 25 November 2014 found that a default surcharge of 50% of the tax due was so severe as to amount to a punishment and that in effect the taxpayer had been charged with a criminal offence for Convention law purposes so that article 6 was engaged.
HMRC has recently started softening up their target taxpayer groups with the issue of a seven page information sheet on follower and accelerated payment notices (CC/FS25A), which states that the recipients will soon receive a follower and an accelerated payment notice. Many taxpayers will of course choose to settle in the wake of these notices. For those who believe that their follower notice wrongly claims that there is a ‘relevant judicial ruling’ that means that their particular scheme is bound to fail, but who were thinking of throwing in the towel anyway in the face of a 50% penalty, the Pakozdi decision provides a powerful weapon to challenge the legality of the 50% penalty as a criminal charge fully engaging the taxpayer’s art 6 rights and providing a basis to quash the penalty by way of judicial review or in collateral proceedings by resisting enforcement proceedings on the basis of incompatibility with the ECHR.
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