In The Queen on the application of D Hart and others [2017] EWHC 3091 (30 November 2017), the High Court quashed search warrants.
This was an application for judicial review of the issue and execution of two search warrants.
The claimants were members of a small consultancy firm (OCS). OCS recommended a model business structure to its clients involving setting up a limited company (LTD) alongside a limited liability partnership (LLP). An attraction of the model was that it achieved an immediate and substantial reduction in monthly tax payments. This was because the salary paid by the LTD to workers who had joined the LLP was on the basis of part-time employment, remunerated at or about the level of the national minimum wage, and therefore PAYE tax and NICs were payable by the LTD only in respect of a much-reduced salary.
In the course of a criminal investigation into the activities of OCS, HMRC drafted search warrants relating to both OCS’s business premises and the residential premises of one of the claimants. Under the Police and Criminal Evidence Act 1984 s 9 and Sch 1, the application was presented to a Crown Court judge. The claimants contended that HMRC’s application had misrepresented both the law and the facts. In particular, it had made allegations of criminal conduct when, on a correct interpretation of the law, no crime could have been committed by OCS. The claimants therefore argued that the judge had been deprived of the opportunity to make a full and fair assessment of the propriety of the warrants.
The High Court found, firstly, that the Crown Court judge had not been misled as to the law. The application was not put forward by HMRC on the basis that, as a matter of law, OCS’s model could never be an effective and lawful means of avoiding tax, and must inevitably involve criminal evasion of tax. Rather, HMRC contended that the model was not genuine, and did not represent the truth of what was occurring in reality. In particular, employees of LTD were never involved as partners in LLP. This was a permissible basis on which to make the application.
As to the justification for issuing the warrants, as opposed to a less intrusive order, the High Court found that HMRC should not have asserted that the investigation may be seriously prejudiced if the claimants were put on notice of an application for a production order. The High Court accepted that the claimants had been reluctant to provide information but this fell short of providing a basis to believe that they may conceal or destroy information, or unduly influence others to do so, if put on notice of a production order. This type of conduct constituted a serious criminal offence and it was ‘highly doubtful’ that HMRC could have justified such an allegation.
The High Court concluded that the Crown Court judge may have made a different decision if he had been told of the full extent to which the claimants had responded to enquiries so far, and received a more detailed explanation of the reasons for the need for search warrants. The warrants were unlawful.
Why it matters: Although the High Court found that the issue of the warrants had been unlawful, it was not prepared to make an order that all materials seized should be returned. It observed inter alia, that a production order would have been justified in any event and that retention of the documents could be ordered by a judge under the Criminal Justice and Police Act 2001.
Also reported this week:
Iveco v HMRC - Reduction of taxable amount or claim for repayment?
In The Queen on the application of D Hart and others [2017] EWHC 3091 (30 November 2017), the High Court quashed search warrants.
This was an application for judicial review of the issue and execution of two search warrants.
The claimants were members of a small consultancy firm (OCS). OCS recommended a model business structure to its clients involving setting up a limited company (LTD) alongside a limited liability partnership (LLP). An attraction of the model was that it achieved an immediate and substantial reduction in monthly tax payments. This was because the salary paid by the LTD to workers who had joined the LLP was on the basis of part-time employment, remunerated at or about the level of the national minimum wage, and therefore PAYE tax and NICs were payable by the LTD only in respect of a much-reduced salary.
In the course of a criminal investigation into the activities of OCS, HMRC drafted search warrants relating to both OCS’s business premises and the residential premises of one of the claimants. Under the Police and Criminal Evidence Act 1984 s 9 and Sch 1, the application was presented to a Crown Court judge. The claimants contended that HMRC’s application had misrepresented both the law and the facts. In particular, it had made allegations of criminal conduct when, on a correct interpretation of the law, no crime could have been committed by OCS. The claimants therefore argued that the judge had been deprived of the opportunity to make a full and fair assessment of the propriety of the warrants.
The High Court found, firstly, that the Crown Court judge had not been misled as to the law. The application was not put forward by HMRC on the basis that, as a matter of law, OCS’s model could never be an effective and lawful means of avoiding tax, and must inevitably involve criminal evasion of tax. Rather, HMRC contended that the model was not genuine, and did not represent the truth of what was occurring in reality. In particular, employees of LTD were never involved as partners in LLP. This was a permissible basis on which to make the application.
As to the justification for issuing the warrants, as opposed to a less intrusive order, the High Court found that HMRC should not have asserted that the investigation may be seriously prejudiced if the claimants were put on notice of an application for a production order. The High Court accepted that the claimants had been reluctant to provide information but this fell short of providing a basis to believe that they may conceal or destroy information, or unduly influence others to do so, if put on notice of a production order. This type of conduct constituted a serious criminal offence and it was ‘highly doubtful’ that HMRC could have justified such an allegation.
The High Court concluded that the Crown Court judge may have made a different decision if he had been told of the full extent to which the claimants had responded to enquiries so far, and received a more detailed explanation of the reasons for the need for search warrants. The warrants were unlawful.
Why it matters: Although the High Court found that the issue of the warrants had been unlawful, it was not prepared to make an order that all materials seized should be returned. It observed inter alia, that a production order would have been justified in any event and that retention of the documents could be ordered by a judge under the Criminal Justice and Police Act 2001.
Also reported this week:
Iveco v HMRC - Reduction of taxable amount or claim for repayment?
