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An arresting development

07 November 2011. Published by Adam Craggs, Partner

HMRC officers have arrested a tax advisor on the very day that he was due to give evidence before the Tax Tribunal on a capital gains tax issue.

Tax advisor arrested

The gentleman concerned was a Mr Watkin Gittins of Montpelier Tax Consultants.  Mr Gittins was representing his clients, Brian and Doreen Foulser, in a tax dispute relating to hold over relief from capital gains tax.  The issue was due to be heard before the Tribunal on 27 September 2010.

However, on the day the hearing was due to commence, Mr Gittins was arrested on suspicion of cheating the Revenue and false accounting.  It is understood that Mr Gittins' premises were also searched.  Mr Gittins was released later that day without charge and to date no charges have been brought against him.

The effect on the Foulser case

Perhaps not surprisingly, the Foulser hearing was adjourned.  Subsequently, the taxpayers made an application to remove HMRC from the proceedings based on their "serious misbehaviour" which would have had the practical effect of allowing their appeal.  The argument was that HMRC had arrested Mr Gittins for the purpose of alerting the Tribunal and in order to make their case before the Tribunal as difficult as possible.  It is understood that the Tribunal have refused to bar HMRC from the proceedings.

HMRC's powers

HMRC have a huge panoply of criminal powers contained in the Police and Criminal Evidence Act 1984 ("PACE") and the Serious Organised Crime and Police Act 2005 ("SOCPA").  For example HMRC may:

  • enter and search premises (PACE s. 8 and sch. 1);
  • require production of documents (PACE s. 8 and sch. 1);
  • seize items such as computers (PACE ss. 8, 19 and Criminal Justice and Police Act 2001 s. 50 sch. 1);
  • arrest persons (PACE ss. 17 and 24).

Under SOCPA HMRC may also require persons to hand over relevant material which could be of substantial value in an investigation (ss. 62 and 63) with severe sanctions for failure to comply ranging from possible monetary payments to imprisonment for a maximum of 2 years.

Commercial disruption

Clearly, HMRC have a legitimate interest in pursuing those who they suspect may have committed a tax related criminal offence.  In order to investigate a suspected offence it is both proper and lawful for HMRC officers to use the extensive criminal powers that have been made available to them by Parliament.  Whilst we do not comment on the lawfulness, or otherwise, of HMRC's conduct in the case of Mr Gittins, it is not legitimate for HMRC to utilise their powers simply in order to disrupt the activities of those who they perceive to be engaged in the promotion of 'unacceptable' tax mitigation structures.  There is a fine line between a legitimate public interest and the unlawful use of an Authority's powers.  It is to be hoped that HMRC's activities are not beginning to cross this line!