I can't help but chuckle over this article in the Guardian.
"Police officers who allegedly took payments from newspapers and private investigators could face hefty fines and criminal prosecution after it emerged HM Revenue & Customs is reopening personal tax records to check if payments were fully disclosed.
It is understood HMRC has already begun probing self-assessment forms from previous years in the wake of new information obtained amid the phone-hacking revelations."
Quite right too, especially if it also puts off the police from taking bribes in the future from journalists for leaking information about people and investigations!
Tax does have to be taxing.
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This is really strange....So it appears that Nanny isn't too bothered that these illegal payments were made but rather concerned that she didn't get her cut...Kerching!
ReplyDeleteIf these payments are illegal, surely an order for seizure under the Proceeds of Crime Act is the right course of action to take unless ofcourse, The Glorious 103rd now expect burglars, armed robbers and all other criminals to list on their tax returns details of their ill-gotten gains.
Would it actually be legal to tax an illegal income?
"The Glorious 103rd now expect burglars, armed robbers and all other criminals to list on their tax returns details of their ill-gotten gains."
ReplyDeleteYes they do. People are required to pay tax on their income. If it doesn't fall under PAYE then it it gets caught up in self assessment. This includes people working in the country illegally, people who sell stolen goods, prostitutes etc. Its up to other areas of government to stop people working illegally or making money from illegal activity.
"In the Miss Whiplash case (IRC v Aken [1990] STC 497),the UK Court of Appeal decided that HMRC were right to tax a prostitute. Prostitution is not illegal under English law, although some related activities, (managing a brothel, for example), are. Relying on this distinction, Miss Whiplash raised an ingenious defence: she argued that, as it was illegal to live on immoral earnings, HMRC by taxing her would be committing an offence. Unsurprisingly the Court of Appeal was not convinced."
ReplyDeleteI like this new racier HMRCISSHITE theme Ken. LOL
Anon;
ReplyDeleteI am neither a lawyer nor an accountant. Are you saying therefore that, if someone makes money following criminal behaviour that they must then pay tax on it? If that is what you're saying, will any seizure made under the Proceeds of Crime Act be gross or net of tax? Will the criminal be hit twice; ie by HMRC plus the court order?
I would have thought the correct thing to do was just to seize all the ill-gotton gains rather than tax it.
@Tonk:
ReplyDelete"I am neither a lawyer nor an accountant."
Nor know much about tax if your comments on this thread are anything to go by.
Following the thread then, if the Government in the shape of the Police or whoever gets their hands on the proceeds of crime, does that not include any element of tax as a gross amount.
ReplyDeleteWouldn't hitting these poor souls for direct and/or indirect tax simply be taking 2 bites at the cherry?
ECHR = even criminals have rights!
Perhaps the Treasury should have another look at what happens under POCA, are the seized proceeds taxable, already taxed by default into the Treasury, are funds that should be paid towards the tax gap diverting elsewhere or what?
If these cretans ever got their act together and started collecting the tax from all the corrupt officials in this shambles of a country we would clear the defecit over night..
ReplyDeleteAnon 17;18
ReplyDelete""""@Tonk:
"I am neither a lawyer nor an accountant."
Nor know much about tax if your comments on this thread are anything to go by.""""""
You are right; I know nothing about tax, other than the fact I pay it.
I was trying to find out what the law is and what the tax position would be....I am never going to be affected by such a ruling or policy, I was merely being curious as an outsider of HMRC. If you are an employee of HMRC and your attitude to someone posting a genuine question out of curiosity, reflects the way your organisation works and the attitude of its employees, then I understand why it is failing. Have a nice day Sir.
Tax law 101, here we go...
ReplyDelete"The Glorious 103rd now expect burglars, armed robbers and all other criminals to list on their tax returns details of their ill-gotten gains."
Actually, no. See towards the end of this, which explains why the proceeds of burglary are differentiated. Also note that this principle was established in law in the 1930s, so there's no "now" about it.
12.30 doesn't get it quite right when (s)he says that:
"People are required to pay tax on their income. If it doesn't fall under PAYE then it it gets caught up in self assessment."
Actually, people are required to pay tax on income from a taxable source (PAYE is a method of collecting tax, not a framework for determining what is taxable, so we can set it aside). For our present purposes, the relevant type of source is either a trade or an employment, so it's necessary to determine whether the income arises from a trade.
Note that some things are specifically excluded from being a trade or employment, notably hobbies and gambling (unless you're a bookie etc), because almost everyone loses money so the tax take would be negative.
The examples 12.30 mentions (and Miss Whiplash), however, are not specifically excluded. All of them can be carried on as trades(*). The rule here is that the activity has to be compared to a series of hallmarks ("badges") of trade which have been established in case law.
One of the badges concerns the manner in which goods that are subsequently sold get acquired. This is the one that differentiates burglary from buying and selling stolen goods. A trader buys goods from a supplier, rather than breaking into someone's home. If we set aside the criminality of both activities, one looks like trading while the other doesn't. 12.30 was quite right to say that income from selling stolen good is taxable, but bglary is not a trade, so income from it isn't taxable.
Turning to our crooked policeman. The income from taking a bribe is probably taxable because it arises in the course of selling information. (I considered whether it arose from his employment, but it doesn't because criminal leaks of information are not part of his job description. Contrast this with tips received by a waiter, which although not paid by the employer are I consideration for duties of the job and are therefore taxable.) Here, if we set side the criminality aspect, the manner in which the information is obtained and sold looks like trading.
Stew G
(* - actually prostitution is a profession, but the tax position is the same so I'll use "trade" as shorthand for "trade or profession")
As for the interaction with POCA: I'm afraid I just don't know, but I would suggest that the question of whether seizure should be post or pre-tax is rather getting ahead of ourselves. First we'd need to establish whether a bribe can be seized, for a start...
ReplyDeleteStew G
Oops. Technical hitch! Hold on...
ReplyDeleteStew G
Tax law 101, here we go...
ReplyDelete"The Glorious 103rd now expect burglars, armed robbers and all other criminals to list on their tax returns details of their ill-gotten gains."
Actually, no. See towards the end of this, which explains why the proceeds of burglary are differentiated. Also note that this principle was established in law in the 1930s, so there's no "now" about it.
12.30 doesn't get it quite right when (s)he says that:
"People are required to pay tax on their income. If it doesn't fall under PAYE then it it gets caught up in self assessment."
Actually, people are required to pay tax on income from a taxable source (PAYE is a method of collecting tax, not a framework for determining what is taxable, so we can set it aside). For our present purposes, the relevant type of source is either a trade or an employment, so it's necessary to determine whether the income arises from a trade.
Note that some things are specifically excluded from being a trade or employment, notably hobbies and gambling (unless you're a bookie etc), because almost everyone loses money so the tax take would be negative.
The examples 12.30 mentions (and Miss Whiplash), however, are not specifically excluded. All of them can be carried on as trades(*). The rule here is that the activity has to be compared to a series of hallmarks ("badges") of trade which have been established in case law.
One of the badges concerns the manner in which goods that are subsequently sold get acquired. This is the one that differentiates burglary from buying and selling stolen goods. A trader buys goods from a supplier, rather than breaking into someone's home. If we set aside the criminality of both activities, one looks like trading while the other doesn't. 12.30 was quite right to say that income from selling stolen good is taxable, but bglary is not a trade, so income from it isn't taxable.
(cont. Sorry...)
Turning to our crooked policeman. The income from taking a bribe is probably taxable because it arises in the course of selling information. (I considered whether it arose from his employment, but it doesn't because criminal leaks of information are not part of his job description. Contrast this with tips received by a waiter, which although not paid by the employer are I consideration for duties of the job and are therefore taxable.) Here, if we set side the criminality aspect, the manner in which the information is obtained and sold probably looks a lot like trading.
ReplyDeleteAs for the interaction with POCA: I'm afraid I just don't know, but I would suggest that the question of whether seizure should be post or pre-tax is rather getting ahead of ourselves. First we'd need to establish whether a bribe can be seized, for a start...
Stew G
(* - actually prostitution is a profession, but the tax position is the same so I'll use "trade" as shorthand for "trade or profession")
Stew G.
ReplyDeleteMany thanks for the clear information presented in such a way that a non lawyer/accountant/tax specialist could actually understand it.
"Confused" of Surbiton asks:-
ReplyDeleteIs the "write-off" of £20m interest taxable as a benefit in kind or similar/whatever, and if not, why not?!
Also. under what legislation was the £20m "written-off", i.e. by what authority?
"Confused" of Surbiton,
ReplyDelete"Is the "write-off" of £20m interest taxable as a benefit in kind or similar"
I presume you're referring to the Vodafone interest? (Though I thought it was more than £20m.) The answer is ... sort of, but it's complicated.
It wouldn't be anything like a Benefit in Kind (BIK) because a BIK can only arise for an individual who is employed (again, we're back to a taxable source, as per above). Vodafone isn't an employee - and certainly not an employee of HMRC.
However...
The easiest way to explain it is to look at what would happen if Vodafone hadn't had the interest written off. They would have been able to set that interest off against their (enlarged) tax bill - see here. In theory, when the rules changed to allow companies to do this, the interest rate rose to offset the difference it made.
Because the interest was waived, they didn't get to write this amount off their profits. This effectively (though I can see that it probably also seems rather tenuously) means that they got taxed on the difference.
"Also. under what legislation was the £20m "written-off", i.e. by what authority?"
S1 Taxes Management Act 1970 gives the Commissioners of HMRC (that's Hartnett and some of the people immediately below him) the right and responsibility for the collection and management of Corporation Tax.
However, the extent of the Commissioners' power to do so isn't set out in statute. As is so often the case (given that ours is a Common Law system) it has been for the courts to decide the limit. This gives a reasonable background.
The contentious issue with Vodafone is whether it was a reasonable exercise of their power/duty of collection and management to write the interest off.
Stew G
If it can be taxed, I think it's about time crime was legalised.
ReplyDelete...and just to be clear, the collection and management duty/power absolutely doesn't allow them to assess/collect duties (tax, interest, etc) that isn't due under taxing statutes ... but it does give them the power to not collect duties that would otherwise be due under those statutes, where it is in the public interest.
ReplyDeleteStew G
@21.28 "If it can be taxed, I think it's about time crime was legalised."
ReplyDeleteDoes your comment also include the legalisation and taxation of currently illegal drugs?
Further to Tonks comments - in order to make a seizure under the proceeds of crimes act they would first have to be convicted of a crime. Some criminals live for decades without getting caught. They can pay tax on their income every year. The point is criminals rarely declare taxable income. It doesn't mean they shouldn't.
ReplyDelete"Its up to other areas of government to stop people working illegally or making money from illegal activity."
ReplyDelete@10 August 2011 12:30
Although most reasonable people will agree with you. Several commenters here like to play with their human shaped straw bundles.
It's disingenuous for people to suggest that proceeds of crime are not taxable, as even criminals make use of the same services that people who make legitimate income.
As it has been stated here, it's not up to HMRC to prove that the income wasn't obtained criminally (unless of course HMRC suspects fraudulent tax accounting) that is what the judicial system is for.
Unless of course you are advocating the idea that HMRC should make these choices, but I don't think that would make Ken very happy as it seems he thinks HMRC has too many overarching powers already!
@10 August 2011 18:27
ReplyDeleteHad too much (the) Sun have we?
@10 August 2011 18:27
ReplyDeleteThought cretans were people from Crete?
.....if bent coppers are getting it, why aren't the (alledgedly) bent politicians getting the good news as well?
ReplyDeleteOh that's right (as stated on this blog), we dont do politicians do we.....? Well thats all right then....
Here is what the tax tribunals service considers relevant to income received legally or illegally.
ReplyDeleteGo argue with the QC's at the MOJ with your hypothetical "so you're saying...." pieces of straw.