Human rights decision undermines Customs

A successful recent challenge to the civil fraud penalties applied by Customs and Excise under the Human Rights Act 1998 suggests that VAT and duty evasion will only be treated as criminal offences in the future. Gavin McFarlane of Dechert and London Guildhall University reports.

This column has frequently questioned the legality of the civil penalty regime that Customs and Excise operate in excise duty and value added tax matters. Since the Human Rights Act 1998 came into force in England and Wales last October, these penalties have looked increasingly dubious. Just before Christmas the doubts were finally endorsed by the specialist VAT and Duties tribunal sitting in London. The question to be decided in the appeal of Han and Yau and others (LON/2000/935, 19 December 2000) was whether the imposition of so-called civil evasion penalties relating to non-payment of VAT and excise duty constituted criminal charges under article 6.1 of the European Convention on Human Rights (ECHR). The concept of civil fraud relating to “conduct involving dishonesty” first made an appearance in the indirect tax system in the Finance Act 1985. (The last issue of Fraud Intelligence covered the deliberations of the Keith Committee in the early 1980s, its recommendations led to the introduction of the civil fraud penalties.) Later, in the Finance Act 1994, a parallel penalty for civil fraud was introduced in respect of excise duty.