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Aggregates levy penalty qualifies for human rights fair trial protections

A penalty imposed in respect of arrears of aggregates levy is a 'criminal charge' for the purposes of the European Convention on Human Rights (the Convention) and so a taxpayer is entitled to the fair trial protections in Article 6 of the Convention, the first-tier tax tribunal has decided.11 Dec 2018

However, the tribunal decided that the aggregates levy liability itself was not covered by the protection of Article 6.

HM Revenue & Customs (HMRC) claimed that gold mining company Omagh Minerals owed £300,000 of arrears of aggregates levy together with a penalty of over £15,000 and interest of almost £4,500.

Aggregates levy is a UK tax on the commercial exploitation of rock, sand and gravel, intended to encourage the recycling of aggregate.

In Omagh's case the assessment related to rock removed from an opencast gold mine. HMRC said the rock consisted of mica schist and quartz which was not exempt from aggregates levy, whereas Omagh said it was slate or shale covered by an exemption.

Article 6 of the Convention provides that in the determination of any 'criminal charge' against them everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. The Article sets out some specific rights in relation to criminal offences, including the right to be informed to be informed promptly, in a language which they understand and in detail, of the nature and cause of the accusation against them and to have adequate time and the facilities for the preparation of their defence.

Case law of the European Court of Human Rights sets out three criteria for determining whether or not something is 'criminal' for the purposes of Article 6. The first is whether it is covered by the criminal law of the state in question, although this is not determinative and is only a starting point. The second and third criteria are that offence in question is by its nature to be regarded as criminal or that the offence renders the person liable to a penalty which by its nature and degree of severity belongs in the general criminal sphere.

In the Omagh case Judge Guy Brannan said: "it is clear to me that the nature of the penalty under paragraph 9 Schedule 6 FA 2001 is a criminal charge for the purposes of Article 6. I accept that the penalty in this case is a civil and not criminal penalty as a matter of domestic law. But that domestic classification is simply a starting point in determining the autonomous meaning of the concept of a 'criminal charge' for the purposes of Article 6."

"More importantly, I consider that the purpose of the penalty is to deter taxpayers from underdeclaring tax on their returns and to punish those that do so. Manifestly, the penalty is not of a compensatory nature - compensation is achieved by the interest... which compensates HMRC for the fact that the Exchequer has been out of its money (the assessment itself giving HMRC the missing tax)," the judge said.

However, the judge dismissed the taxpayer's argument that the assessment and penalty proceedings should be viewed as a whole and that the protections of Article 6 should be applied to the assessment to aggregates levy as well as the penalty.

In 2001 in the case of Ferrazzini v Italy, the European Court of Human Rights decided that Article 6(1) of the ECHR does not apply to disputes in relation to tax assessments. Judge Brannan said he was bound by that decision and that the status of the penalty did not affect the position of the assessment itself. Although the liability to the penalty is contingent on the aggregates levy being due, he said there would be no difficulty for Article 6 purposes in separating the proceedings in relation to the assessment from the proceedings relating to the penalty.

"It is helpful that the tribunal has provided guidance on what has been a contested area for many years in the tax arena," said Steven Porter, a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com.