Calamitous consequence of a failure to notify HMRC

Should one feel sorry for Gareth Edward Steed?

Mr Steed engaged in what the Crown Court judge described as “moonlighting” – legitimate trading which he failed to declare for tax.  Indeed it seems he was not on HMRC’s ‘radar’ at all.  He received no tax returns and he failed to notify HMRC of his chargeability to tax.

It seems that he was a ‘grafter’ prepared to do anything legitimate to make money – whether that involved buying and selling second hand cars, undertaking building work, or whatever.  Perhaps he also was engaged in some rather less legitimate ‘business’ too.

But somehow he was ‘rumbled’.  Ultimately he was charged with three counts of tax evasion.  As often happens in criminal cases there were clearly some sort of discussions between the two sides before the matter came to court.  As a result the original three charges were dropped and one new charge was introduced – to which Mr Steed pleaded guilty.

The charge was one of common-law ‘cheat’ in that between 1 April 2003 and 31 December 2004 Mr Steed failed “to submit declarations of tax due including the proceeds derived from the sale of vehicles, furniture and tools together with that from building work”.

Mr Steed accepted that, as a result, a tax liability of at least £3,558 had arisen for 2002/03 which had escaped self-assessment.

But that was not the end of Mr Steed’s troubles because, following his conviction for ‘cheat’ HMRC pursued confiscation proceedings.

They argued that he had a ‘criminal lifestyle’ for confiscation purposes on the basis that he had committed an offence over at least 6 months from which he had gained a benefit of at least £5,000 (s75 PoCA 2002).  In that connection HMRC pointed out that had a tax return been submitted for 2002/03 it would have triggered not only payment of £3,558 for 2002/03 but also a payment on account for the following year.  In consequence the amount involved exceeded £5,000.

The Crown Court judge agreed.  Applying the ‘criminal lifestyle’ assumptions the judge found that Mr Steed was unable to produce evidence to rebut the statutory assumptions that amounts expended by him and assets held by him had been obtained in consequence of unspecified general criminal conduct on his part.  He made a confiscation order against Mr Steed for £707,200 (with a four year prison sentence in default of payment by the due date).

That sum was Mr Steed’s ‘available amount’, which is normally calculated to be the value of the defendant’s gross assets less any liabilities secured on them (such as mortgages).

The Crown Court judge also formed the view that Mr Steed had probably been engaged in other criminal activity too.  He said, “It may be that the defendant . . . would not be convicted on the criminal standard of all the matters to which I have referred. It is a question of viewing an overall picture and the conclusion I come to is that the overall picture supports the contention that it is more likely than not that he was involved in criminal conduct over and above the Count to which he pleaded guilty”.  He referred to “money-laundering, drug-dealing, the possession of goods bearing false trademarks with a view to sale, the evasion of duty and benefit fraud”.

Mr Steed appealed.  The Court of Appeal in a decision published on 1 February 2011 upheld the confiscation order and dismissed the appeal – Steed v R [2011] EWCA Crim 75.

In particular the Court of Appeal recognised that the proceeds derived from legitimate trading (such as sales of used cars) were not themselves benefits of criminal conduct.  Rather the benefit consists of the tax evaded.

The Court of Appeal accepted that “where a trader evades tax and proves, on the balance of probabilities, that his assets and expenditure derived from legitimate trading on which he paid no tax then the trader will have rebutted the statutory assumptions”.  In that event the only benefit remaining for confiscation would be an amount equal to the tax evaded.

But crucially it also noted that the Crown Court judge had found that “the appellant was unable to establish on the balance of probability the extent to which the sources of his assets and expenditure were legitimate and the extent to which they were illegitimate. Since he was unable to prove what proportion was legitimate the consequence was that in relation to any given asset or item of expenditure he could not prove that the property was not held by him as a result of his general criminal conduct”.

It followed that he was unable to rebut the statutory assumptions in relation to monies he had expended and assets which he held.

So the financial consequences of Mr Steed’s failure to notify chargeability to tax have been rather more serious than he may have anticipated – almost 200 times more serious!

David