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  • Customs & Convention: HMRC, Tax & Human Rights

    10 July 2019

    Andy Wood

    It should be noted that Mrs Justice Falk has now ruled against Credit Suisse concluding that whilst the four months – stretching from December 2009 to April 2010 – for which the BPT was in force “was a deliberate feature, it is not immediately obvious that it would be correct to describe the limited period of operation as part of the objectives” of the tax.

    Credit Suisse will not appeal the decision

    Compliance Checks: The Human Rights Act & HMRC Penalties – CC/FS9

    I would venture that there are few among the general population who might feel inclined to extend much sympathy towards the high-earners in the City of London.

    Even in these days when the average Premier League player’s salary nudges £3 million a season, many of those working within the Square Mile earn sums which would make a professional footballer’s eyes water.

    In fact, a survey published this March by the European Banking Authority revealed that more than 3,500 bankers plying their trade in London were Euro millionaires, picking up in excess of €1 million (£850,000) a year.

    The same study noted that one asset manager had pocketed £36.5 million, £34.1 million of which was accounted for by their bonus.

    To put that in perspective, that individual’s total income was a whopping 1,200 times the average median salary of UK employees.

    Banking on HMRC in Court?

    With that in mind, it might surprise some to learn that one bank is taking HMRC to court in an effort to recoup hundreds of millions of pounds which it coughed up to the former Labour government after it introduced a temporary ‘super-tax’ on bankers’ bonuses in December 2009.

    The then Chancellor of the Exchequer, Alastair Darling, hoped that the measure – which meant that banks had to pay 50 per cent tax on bonuses of more than £25,000 – would result in a “permanent culture shift” and wean the City off its custom of rewarding star performers with huge bonuses.

    Credit Suisse’s share of the bill added up to £239 million but it now argues that it was effectively penalised because it happened to pay its bonuses during the four-month period that the tax was in force. Those institutions which did not, it says, avoided having to pay up at all.

    The bank is suing for the entire amount paid plus damages, claiming that the tax breached EU rules.

    HMRC’s assertion, meanwhile, that the procedure was “self-assessed” will be tested in court later this month.

    Credit Suisse’s reference to EU law raises both the issue of and the tension within human rights legislation as it addresses tax.

    The most relevant section of the European Convention of Human Rights (ECHR), is Article 6 which states that:

     “in the determination of his civil rights and obligations or of any criminal chargeagainst him everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law

    This includes those dealing with decisions made by tax authorities such as HMRC.

    Credit Suisse’s claim is not the first time that the ECHR has been cited in a tax case. Last year, for instance, HMRC’s introduction of the much-criticised ‘loan charge’ was described as a breach of human rights and became the subject of another legal challenge.

    Campaigners acting on behalf of an estimated 50,000 contractors said to be affected by the fine, complained that it was “grossly unfair”.

    And Don’t Forget About Article 6

    If we venture even further back, we find an example of when Article 6 was not only used but employed successfully.

    That came in 2001 when one of the proprietors of a Chinese takeaway in Runcorn was accused of VAT evasion. Believing that he had acted dishonestly, Customs and Excise imposed a penalty which effectively doubled the outstanding amount only for tax tribunal – and, later, the Court of Appeal – to conclude that the size of the fine contravened Article 6.

    Even a 2015 ruling in a case in which HMRC prevailed carried something of a warning for the taxman.

    An office fit-out company, Bluu Solutions, claimed to a tribunal that a one per cent penalty levied for its late payment of PAYE was a breach of the European Convention of Human Rights.

    Even though the tribunal decided that the company had to pay up, it noted that:

     “a tax penalty, which is meant to be punitive and to deter, is ‘criminal’ for the purposes of Article 6″

    As such, there remains an onus on HMRC to try to prove its case, bring its case within a reasonable time and allow the taxpayer the resources and time to defend themselves.

    It was a position already acknowledged with the Revenue’s own compliance handbook. Whilst conceding that:

    “some HMRC penalties are ‘criminal’ in nature for the purposes of Article 6…this classification as ‘criminal’ is for the purposes of European Convention on Human Rights (ECHR) only”

    The handbook defiantly continued that “it does not make them criminal for domestic purposes. They remain civil penalties”.

    Understanding HMRC’s Position

    HMRC is well aware that the protections afforded to taxpayers are qualified by another part of the ECHR (Article 1 of the First Protocol) which explains that someone’s “peaceful enjoyment of his possessions” should not, for example, prevent the state collecting such as taxes as are due.

    Nevertheless, and with perhaps one eye on the loan charge controversy and disputes such as Credit Suisse, HMRC has provided a document called “The Human Rights Act and penalties”.

    This publication could be construed as rather revealing, spelling out the Revenue’s sensitivity to being pulled up on human rights grounds as it presses forward with its plans to tackle tax avoidance and evasion with “maximum impact”

    If you have any queries about this blog then please do get in touch