Cheating the Revenue (contrary to common law)

Date Updated: January 2012
Title: Revenue Offences
Offence: Cheating the Revenue (contrary to common law)
Legislation: Common Law
Mode of Trial: Indictable Only
Statutory Limitations & Maximum Penalty: No statutory maximum - sentencing at large
Sentencing range: See case law Court not bound by statutory maxima for substantive offences

The Sentencing Guidelines Council Guidelines on Sentencing for Fraud - Statutory Offences provides guidance on the seriousness, aggravating and mitigating factors that can be taken into account in cases of fraud against the Revenue but the preamble to the guidelines makes it clear that they do not apply to the common law offence of cheating the Revenue. Instead the courts in such cases should continue to refer to existing guidance from the Court of Appeal (Criminal Division) when sentencing these offences. Accordingly the seriousness and aggravating factors and mitigating factors set out below are not exhaustive:

Seriousness and Aggravating factors:

The planning of an offence
Continuing the fraud after warnings from HMRC
High level of profit from the offending
Offenders operating in groups and gangs
The degree of control exercised by the defendant in any conspiracy
Whether others were drawn in and corrupted
'Professional offending'
An attempt to conceal or dispose of evidence
Offending carried out over a significant period of time
Use of another persons identity
Abuse of position of trust
Causing financial loss to innocent traders or clients

Mitigating Factors

Peripheral involvement
Prompt plea of guilty
Misleading or incomplete advice
Mental illness or disability of the defendant
Youth or age, where it affects the responsibility of the individual defendant
Behaviour not fraudulent from the outset
Legitimate entitlement to part or all of the amount claimed
Voluntary cessation of offending
Complete and unprompted disclosure of the extent of the fraud
Voluntary restitution
Financial Pressure

Sentencing Case Law:

Income Tax - Failing to deduct tax from payments:

Thornhill [1980] 2 Cr. App. R. (S) 320
T pleaded guilty to Cheating the Revenue by failing to deduct tax from payments made to employees over a 5 year period with a resulting loss of £3278. The Court of Appeal took the view that "defrauding the Inland Revenue is a serious offence because it means defrauding the vast body of honest taxpayers. It should be generally known that an immediate sentence of imprisonment may well be the result of pleading guilty to or being convicted of such an offence." It is the fact rather then the length of the sentence that is important. The sentence was reduced from 6 to 3 months imprisonment, primarily because of the risk that the defendant's business was likely to fail and affect others innocent of the crime.

Income Tax - Failing to declare Earnings:

R v Ford (1981) 3 Cr. App. R. (S.) 15
F understated his earnings from a garage business for a number of years resulting in £14,500 tax being evaded. The Court of Appeal stated that imprisonment was right in principle but a balance should usually be sought by imposing a prison sentence to be served forthwith and imposing a swingeing fine. The sentence of 18 months imprisonment was reduced to 6 months and a fine of £9,000.

R v Sivyer [1987] 9 Cr. App. R. (S) 428
S was convicted of Conspiracy to Cheat the Revenue of £400,000 by failing to deduct tax from employees from his construction business. The defendant had attempted to cover his tracks through a serious of complex transactions. The court noted the prevalence of this type of fraud in the construction industry and that deterrence was a necessary element of the sentence. For serious offenders a starting point of 4 years is appropriate in case where the defendant pleads not guilty.

VAT - Non-Payment of VAT

R v Aziz [1996] 1 Cr. App. R. (S.) 265
A avoided paying over £40,000 VAT due on the sale of footwear over a 6 year period by disguising the sales as children's footwear, which attracted a zero rate. A sentence of 4 and a half years was described as serious but not manifestly excessive.

VAT - MTIC Fraud charged as Cheating the Revenue:

R v Paul Ward [2005] EWCA Crim 1926
This was what has been described as a missing trader fraud. It was alleged by the prosecution that the appellant and his co-accused conspired to cheat Her Majesty's Customs and Excise by dishonestly conducting themselves so as to avoid paying value added tax. The nature of the trading which was to result in the loss to the Customs and Excise of the VAT was not strictly relevant, save that it involved the use of a number of trading entities. The goods would be imported into the country without there having been any payment of any tax. The trading within this country would then take place in such a way that the ultimate company, which had been the first company who had received the goods in this country, would fail to pay the VAT which was due on those goods as they were on-sold. All the other traders would be able to obtain relief on the VAT paid on the basis that that was input tax. The first trader would simply disappear: hence the description of the fraud as a 'missing trader fraud'. The result would be that of course there was no entity which could account to the Customs and Excise for VAT. The court went onto say in relation to the appeal against sentence that the position in cases such as this, where the allegation is that many millions, not merely one million, has been lost to the country's revenues is that it is entirely appropriate for the court to approach the matter on the basis that a conspiracy to cheat is the appropriate charge and that entitles it to conclude that a sentence in excess of the statutory maximum for the single substantive offence would be available and proper.

Attorney General's Reference Nos. 88, 89, 90 and 91 of 2006 (Brian John Meehan and others) [2007] 2 Cr. App. R. (S.) 28 (p.155) (also known as: R v Meehan (Brian John), R v McCallister (Gerard Martin), R v Sangha (Bhovinder Singh) and R v Burch (David William)).

The defendants were convicted of Missing Trader Intra Community Fraud (MTIC Fraud). This involves companies, known as missing traders, purchasing goods from European suppliers at the zero rate of VAT and then selling them on in the United Kingdom, with the addition of VAT at the current standard rate. The missing traders are set up with the intention that they will never pay over the VAT they have collected, and go missing from their registered addresses. The missing trader would sell the goods, accompanied by VAT invoices, to the offenders' companies, known as "buffer companies". The buffer companies would then purport to pay the VAT requested to the missing trader but would actually pay the sum owed into the account of the organiser of the fraud and the missing trader would go missing. The end result was that there was no person at the end of the chain and the VAT payments could not be traced. Furthermore, the VAT payments purportedly made by the buffer companies were claimed back from Revenue and Customs.

M and G were directors of the same company and were responsible for a VAT loss of approximately GBP 24 million, S was responsible for a loss of approximately GBP 28 million and B was responsible for a loss of approximately GBP 1 million. The Court of Appeal held that the sentences imposed on the defendants M, G and C of 4and a half years imprisonment (the starting pint being 5 and a half years) and the 2 and a half years imprisonment for B (as he was only involved for a month) were lenient and close to being unduly lenient. The Court took into account that the defendants were not the main organisers of the fraud with their role being confined to the "buffer companies".

Although the reference was not successful is increasing the sentences of imprisonment, the Court did allow the appeal to the extent of imposing Director's Disqualification Order for M, G, and C and 5 years for B.

R v Takkar (Harjit Singh) (CA 28/02/2008)
In this case the court re-visited Attorney General's Reference Nos. 88, 89, 90 and 91 of 2006 and the court drew a distinction between defendants whose role was confined to the buffer companies against defendants that played a more pivotal role. The court warned that for organisers of large-scale frauds involving a loss to the Revenue of well in excess of £1 million, sentences substantially in excess of the statutory maximum for the substantive offence of evasion of excise duty (i.e. "well into double figures") will be appropriate on conviction; for those who were operators of genuine companies with legitimate trade and who lent themselves to the fraud as "buffer" companies, and through whose hands the actual notional commodities passed, the appropriate starting point on conviction was 6 to 8 years imprisonment. Although T was not the organiser of the fraud, he provided the entry point into the UK for the fraud. He was also directly and personally responsibly for the original diversion of VAT. There was also an aggravating feature as T carried on the fraud despite repeated and increasingly stronger warnings from Customs. In all the circumstances the Court of Appeal upheld a sentence 7 years.

R v Mehta (Durgesh) and others (CA 15/07/2008)
The Court of Appeal allowed an appeal against a sentence and reduced the sentence of 10 years imposed. The Court of Appeal took the view that a sentence of 8 to 9 years was appropriate to a defendant who played a central organisational role.

R v Namer (Michael) [2008] 2 Cr. App. R. (S) 24
A sentence of 6 years imprisonment following a plea (the starting point being 9 years) was held by the Court of Appeal to be severe but not excessive. Although not the main organiser he was central to the three conspiracies to Cheat the Revenue that had resulted in loss exceeding £2million. The defendant also had a previous conviction in France for a relevant offence.

R v Peter Wood, Gary John Edgington [2010] EWCA Crim 1742
The proper approach for sentencing the common law offence of cheat the Revenue was set out as follows: The sentencing judge was referred to the Definitive Guideline on Sentencing for Fraud - Statutory offences issued by the Sentencing Guidelines Council, which applies to sentencing of offenders convicted of statutory offences (which include VAT evasion) who are sentenced after 26th October 2009, and so while not in force when the appellants and others were sentenced, those guidelines were clearly informative. Under the heading "Statutory Provisions and Introduction", it is said:

"This guideline applies to sentencing for statutory offences of fraud. This guideline does not cover the common law offence of creating the public revenue ... (which) is generally reserved for the most serious and unusual offences and where a sentence 'in excess of the statutory maximum for other offences ... would be ... proper'. As such cases are unusual, no proposals are made for sentencing offenders convicted of this offences. It would be open to a court to have regard to the principles expressed in the guideline for fraud against HMRC when sentencing an offender convicted of cheating the public revenue but it should be used only as a point of reference as higher starting points are likely to be necessary. Sentencers should continue to refer to existing guidance from the Court of Appeal (Criminal Division) when sentencing for these offences."

Ancillary Orders

Confiscation Orders,
Financial Disclosure Orders,
Directors Disqualification Orders

Consider Also

Deportation

How to use this Legal Guidance