RESPONSE OF ROBERT VENABLES Q.C. TO HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

Written by on 17/03/2014 21:06

1. Background to this Response

On 24th January 2014, HMRC published:

Promoters of Tax Avoidance Schemes and DOTAS

Raising the stakes on tax avoidance: Summary of Responses and Draft Legislation

Tackling marketed tax avoidance.

I shall refer to these collectively as “the Publications”.

2. The proposals contained in the Publications fall into three main categories

Proposals to make life more difficult for promoters of tax avoidance schemes

who, in HMRC’s view, “ misbehave”.

Proposals to introduce a financial penalty on taxpayers in dispute with HMRC

who insist on exercising their right to have the dispute adjudicated by

independent tribunals with rights of appeal, subject to requisite consents, all the

way to the Supreme Court.

Proposals for a principle of “Guilty until Found Innocent” whereby taxpayers in

dispute with HMRC will, if HMRC so require, be compelled to pay tax demanded

by HMRC without any right of appeal to the Courts

3. This is my response to those publications.

My Response

General

4. In essence, the proposals stand triply condemned as fundamentally flawed, root and

branch, in that:

they ignore the Rule of Law, and in particular the doctrine of separation of

powers and the vital role of an independent judiciary which, at the request of any

citizen, is entitled to rule on the legality of acts of the Administration;

RESPONSE OF ROBERT VENABLES Q.C. TO

HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

1 None would agree more than I. For some reason, my name appears to carry some

weight with the public. The result is that I am sometimes misrepresented,

particularly on internet sites, as having endorsed a tax product on which I have

not advised at all. Cleverer promoters have stated that my advice had been taken

in relation to a product, which is literally true, but have omitted to mention that

I had not in fact advised that it was fit for purpose.

they ignore one of the two elements of the rules of natural justice: no one should

be judge in his own cause; and

they ignore the presumption of innocence until proved guilty or, in civil matters,

of non-liability until found liable.

5. Had we never had the Glorious Revolution of 1688 which firmly established that the

Administration is not a law onto itself but that its actions can always be called into

account in the Courts, had we not defeated the absolutist Napoleon Bonaparte, had Hitler

won the Second World War and we were now a fascist society and if we did not have a

Human Rights Act, HMRC’s proposals would, perhaps, make some sense. As it is, they

are utterly repugnant to the values of the people of the United Kingdom society in 2014.

That these proposals could now even be mooted, shows that there is something very

rotten in the state of HMRC.

6. Modern politicians are often condemned for being useless at governing the country and

possessing only the skills of getting themselves elected and keeping themselves elected.

In fairness to David Gauke M.P., Exchequer Secretary to the Treasury, that is not a

criticism which can be levelled at him as respects these proposals. They are calculated

to alienate natural core supporters of his party, namely the economically productive

members of society, and, if implemented, to help ensure that the Conservative party loses

the next general election.

7. Further, by creating potential significant cash-flow problems for small and medium-sized

businesses at a time when, despite all the Government’s efforts, banks are still reining in

lending to them, they threaten to undermine the still fragile recovery from the painful

recession which was the major achievement of the last Labour Government.

Promoters of Tax Avoidance Schemes

8. The proposals to heighten pressure on misbehaving promoters of tax avoidance schemes

are well-motivated. And all of us honest tax-advisers will heartily agree that consumers

need protection against the “cowboys ”.1 Yet, as so often happens, the current HMRC

proposals involve giving to HMRC a power so dangerously wide as to threaten our

RESPONSE OF ROBERT VENABLES Q.C. TO

HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

2 which could have judges who were not full-time professionals, who might know

very little indeed about tax and would not include a judge of High Court status,

no matter how difficult the case or how great the sums involved.

3 And that could be for a variety of reasons. HMRC might have chosen to take first

a case against some impecunious taxpayer who would not afford proper

representation or to appeal further. Or HMRC could have entered into a

confidential settlement agreement with the taxpayer whereby the decision was not

appealed but the taxpayer was given virtually everything he wanted, as an

inducement not to appeal.

historic rights and liberties. In a free society such as ours, it is fundamental that all

should have access to legal advice, all the more so when they are in dispute, or possible

dispute, with a powerful organ of the state, such as HMRC. Yet these proposals would

enable HMRC to prevent, say, a barrister, expressing his candid opinion to a client if he

had committed some venial infraction, which had nothing to do with this honesty,

integrity of fitness to advise., such as failing to comply with at technical requirement to

undertake so many hours per year of “continuing professional development”.

9. Moreover, to a large extent, the present proposals would enable HMRC to be prosecutor,

judge and jury, which offends one of the two core principles of natural justice as

recognised in English law for hundreds of years, the rule against bias..

10. My counter-proposal is that

(a) HMRC should be empowered to impose restrictions on persons only for the

protection of the consumer

(b) the restrictions must be no more than a proportionate response to relevant

misconduct on the part of the person restricted and

(b) the person proposed to be restricted should at all stages have, in the normal

way, full rights of appeal to the Courts against HMRC’s determinations.

Financial Penalties For Exercising Rights of Appeal

11. The second proposal is that provided HMRC had won some case before the lowly First

Tier Tribunal,2 and the decision had for some reason not been appealed.,3 then HMRC

would be able to decide whether this decision was conclusive of the appeal of some other

taxpayer (T) (to which they would be the respondent) and require him to cave in to their

demands without exercising his rights to have his case properly adjudicated on its merits.

RESPONSE OF ROBERT VENABLES Q.C. TO

HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

4 More than once in my career, I have lost before the Court of Appeal for reasons

which did not bear scrutiny. Fortunately, the House of Lords put matters right on

appeal. Yet for most litigants, the Court of Appeal is the final court of appeal,

where there is no guarantee that justice will be done.

5 I am reminded of the ancient Greek city state, the citizens of which were sceptical

about new laws. While anyone was free to propose one, if his proposal failed, he

was hanged.

If T failed to agree, litigated and ultimately lost, he would be subjected to a financial

penalty for exercising his rights of appeal.

12. This proposal strikes at the heart of our constitution. The Rule of Law requires that

everyone should have access to the Courts without let, hindrance or intimidation,

particularly in the case of a dispute with the Administration. Every lawyer knows that

the outcome of litigation is rarely certain.4 And T may ultimately lose for some reason

quite independent of the decision in the earlier case. To impose a financial penalty for

exercising one’s rights to resort to the Courts is a clear restriction on those rights.5 It

would be legalised blackmail.

13. Motivating this proposal is a fear that some taxpayers may spin-out litigation simply to

secure a cash-flow advantage, even though, if they lose, they will ultimately have to pay

interest on unpaid tax. As the third proposal is motivated by the same consideration, I

set out my counter-proposal in that context.

“Guilty until Found Innocent”

14. It is a fundamental principle of the Rule of Law that he who asserts must prove and until

he has proved the defendant is presumed innocent. That is as much a principle of civil

law as it is of criminal law. In particular, there is no presumption that the assertion of the

Administration is right.

15. The proposal that in certain cases, including ones where HMRC have invoked the second

proposal but the taxpayer has called their bluff, HMRC should be able to collect tax in

dispute, runs completely against this principle. And it is scarcely mitigation that if and

when HMRC eventually gets round to litigating – which, of course, they would have little

incentive to do – and years down the line the Courts hold that the taxpayer was right, that

he will be entitled to repayment with a derisory repayment supplement. In the meantime,

the taxpayer may have been put out of business or bankrupted or died.

16. Motivating this proposal is even more obviously a fear that some taxpayers may spin-out

RESPONSE OF ROBERT VENABLES Q.C. TO

HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

litigation simply to secure a cash-flow advantage.

17. My counter-proposal is that exactly the same principles should apply to tax appeals as to

civil litigation in general. Where a claimant alleges that there is no arguable defence to

his claim he can, after launching proceedings, apply for judgment against the defendant

on that ground. The matter is determined by a regular court – not by the claimant himself!

– and, if the claim is upheld, the defendant has his right of appeal, in the usual way. Of

course, the claimant has to show that his case is strong and that the defendant is simply

playing for time.

18. The court hearing the application does not have to decide entirely to prevent the

defendant from defending the claim. If it considers that the defence is very weak, but not

totally unrealistic, it can give conditional leave to defend. The condition is usually that

the defendant pays into court the sum in dispute or some lesser sum which the court

thinks will almost certainly be held to be due.

19. If HMRC assert that a taxpayer is prolonging a tax appeal which has no realistic chance

of success, then they indeed ought to be able to apply to a court for an order that the

taxpayer pays now an amount which he has no realistic chance of being held liable not

to pay once the matter if fully litigated. Given the special status of HMRC as an organ

of the Crown. I see no reason why the money should simply be paid into court but could

be ordered to be paid to HMRC, who will, of course, be good for repayment, if necessary.

20. What is crucial is that the matter should be determined not by HMRC, one of the parties

to the litigation, but an independent court, and that the taxpayer should have full rights

of appeal in the normal way. There is no reason why the “court” of first instance on the

application should be the First Tier Tribunal, provided the taxpayer has the same appeal

rights as in the case of the final determination of his appeal.

21. If this were adopted, then I apprehend that taxpayers who had no arguable case and who

were simply playing for time were required to pay the tax on account, they would have

no further interest in pursuing their appeals.

22. Oddly enough, this situation is in my view already covered by Taxes Management Act

1970 section 55, as substituted in 1975! The prima facie position is that tax assessed by

an assessment which is the subject of appeal is due but that the taxpayer can apply to

postpone payment of tax if there are reasonable grounds for believing that the tax in

dispute should not have been charged: section 55(6). In the first instance, the taxpayer

makes an application to HMRC to postpone payment. If HMRC disagrees, then there is

RESPONSE OF ROBERT VENABLES Q.C. TO

HMRC “TAX AVOIDANCE” PUBLICATIONS OF JANUARY 24th 2014

6 In my experience of thirty-four years in practice, twenty-four as a Silk, I have

never once known HMRC fail to agree postponement requested.