Four-year jail sentence for failing to file tax return

7 February 2011

The England & Wales Court of Appeal last week upheld a four-year prison sentence imposed on a man convicted of failing to submit an income tax return.

In the case, Steed v R, the appellant was a moonlighting trader who had never notified HM Revenue & Customs of his business activities and never declared his taxable income.

When HMRC got onto him they prosecuted him for tax evasion. Eventually they agreed to drop these charges if Steed admitted one charge of the common-law offence of “cheating” and accepted a tax liability of about GBP3,500. He was duly convicted.

But HMRC did not leave matters there. They brought confiscation proceedings against him under the Proceeds of Crime Act 2002, on the grounds that he had enjoyed a “criminal lifestyle” while dodging tax during two fiscal years.

Steed was unable to rebut HMRC’s assumptions of his gains from his life of petty crime. At the POCA  hearing, the Crown Court judge imposed a confiscation order for GBP700,000 on the stunned taxpayer. If he fails to pay he will receive a four-year prison sentence.

Steed appealed, claiming that the benefits he derived from his offences were far below the threshold for POCA proceedings. But the England & Wales Court of Appeal has now dismissed his plea.

According to some practitioners, the ruling sets a worrying precedent that admitting minor offences to HM Revenue could lead to very serious consequences under POCA confiscation proceedings.POCA has often been criticised as draconian, but its supporters defended its enactment by claiming it was reserved for use against the very Napoleons of Crime.

However, it now appears that it is increasingly being used against ordinary businesses or individuals who commit, or cannot prove they did not commit, small tax irregularities.

Practitioners and taxpayers should thus be aware that admitting to minor offences, in return for more serious charges being dropped, might now end up with Crown Court confiscation proceedings.





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