King v Walden (Inspector of Taxes)

King v Walden [2001] STC 822, a recent decision of the High Court, confirms that the imposition of penalties for the fraudulent or negligent delivery of incorrect income tax returns amounts to a criminal charge under Article 6(2) European Convention on Human Rights (ECHR). This follows, but goes further than, a line of decisions that penalties for the dishonest evasion of VAT are criminal, which have since been confirmed by the Court of Appeal in Han & Others v Commissioners of Customs and Excise [2001] EWCA Civ 1048. The protections enshrined in Article 6 may have wide-reaching implications for the investigation of tax liabilities and for the conduct of penalty hearings. Indeed, they may affect the admissibility of evidence obtained through the tax authorities’ exercise of their compulsory powers. Peter Burrell and Susannah Cogman of Herbert Smith consider the case in detail.

The facts of King relate to a fraud on the Revenue by the Appellant taxpayer. In January 1989 the Revenue had made assessments to tax in respect of a number of the Appellant’s properties which it was alleged he had acquired from 1973 onwards using the profits from running them as guesthouses. The Appellant made various unsuccessful appeals, and in October 1994 a penalty determination was made under section 95(1) of the Taxes Management Act 1970 (penalties for fraudulently or negligently delivering an incorrect return etc). In April 1996 further assessments to tax were made. An appeal against these assessments, interest and the penalty was dismissed by the Commissioners in February 2000.