CRIME — Sentence — Confiscation order — Defendant owner of company using and hiring out stolen plant to customers — Stolen items used for substantial period before being recovered by police and returned to true owners — Defendant convicted of handling stolen goods and confiscation order made — Defendant’s benefit from criminal conduct assessed as including turnover of company and value of plant when stolen — Whether benefit including VAT received from customers and later paid to revenue — Whether confiscation order disproportionate — Human Rights Act 1998, Sch 1, Pt II, art 1 — Proceeds of Crime Act 2002, ss 6, 76(4)

Regina v Harvey (Jack)

[2015] UKSC 73; [2015] WLR (D) 539

SC(E): Lord Neuberger of Abbotsbury PSC, Lord Mance, Lord Reed, Lord Hughes and Lord Toulson JJSC

16 December 2015

It would amount to a breach of the right to protection of property protected by article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedom for a court to include VAT, which had been accounted for to the revenue as output tax, within the sums “obtained” by a defendant who was subject to a confiscation order under section 76(4) of the Proceeds of Crime Act 2002.

The Supreme Court so held (Lord Hughes and Lord Toulson JJSC dissenting) in allowing the appeal of the defendant, Jack Frederick Leonard Harvey, from the decision of the Court of Appeal (Criminal Division) (Jackson LJ, Wyn Williams J and Judge Russell QC) [2014] 1 WLR 124 to dismiss his appeal from the order of Judge Elwen at the Crown Court at Truro on 16 April 2012 whereby he had imposed a confiscation order following his plea of guilty to nine counts of handling stolen goods.

LORD NEUBERGER OF ABBOTSBURY PSC and LORD REED JSC (with whom LORD MANCE JSC agreed) said that, as Jackson LJ had put it in the Court of Appeal in the instant case, when considering what was subject to confiscation under the 2002 Act the court had to focus on the property coming to the offender, not what happened to it subsequently: see R v Ahmad [2015] AC 299. Hence, the fact that income tax or corporation tax had been paid in respect of a sum of money or an asset which had been acquired as a result of criminal activity, could not be invoked to reduce the value of the property or the sum of money when assessing what had been “obtained” for the purposes of the 2002 Act. However, it could fairly be said that, in a number of respects VAT for which a defendant had to account, and had accounted, to the revenue was in a different category from either income or corporation tax, and, a fortiori, from expenses incurred in connection with acquiring money or an asset. First, a VAT liability arose on each taxable supply, and therefore could be directly and precisely related to the obtaining of the property in question. Second, where money was paid to a defendant as a result of a transaction which was liable to VAT, the defendant was regarded under European Union law as collecting the VAT element on behalf of the revenue. The tax was intended to be neutral in its impact on taxable persons. Consistently with that approach, and indeed with the reality of the situation, it was difficult to regard output tax which had been collected and accounted for as forming part of the economic advantage derived from criminal offences. Those considerations suggested that, where a taxable person had accounted to the revenue for the tax which he collected on their behalf, there might be a degree of artificiality involved in treating him as having “obtained” the VAT in question for the purposes of the 2002 Act. No such considerations applied to income tax or corporation tax. Third, at least in some cases, the defendant would have paid VAT in the form of input tax to his suppliers. It would seem particularly harsh, even penal, in a case where a defendant had accounted for all the VAT for which he was liable, not to allow him credit for that sum, but that would be the effect of his being rendered liable to a confiscation order in respect of the output tax on his transactions. Fourth, the revenue did not as a matter of practice seek double recovery both of the excise duty due in respect of smuggled goods and a confiscation order in the same sum. Instead, they sought a confiscation order only, and did not seek to recover the duty: see R v Edwards [2005] 2 Cr App R (S) 160, paras 24–25. Those factors gave rise to a powerful argument that, at least when the VAT had been accounted for to the revenue, it, or a sum equivalent to it, had not been “obtained” by the defendant as a matter of ordinary domestic statutory construction. However, the 2002 Act was complex and difficult to interpret in any event and it was important to hold fast to the principles enunciated in R v May [2008] AC 1028, R v Waya [2013] 1 AC 294 and R v Ahmad [2015] AC 299. In the light of those observations and in the interests of minimising the risk of uncertainty as to the meaning of the 2002 Act, that argument had to be rejected.

However, the same reasoning did not justify rejecting the alternative way in which the defendant put his case, based on article 1 of the First Protocol of the Convention. Any provision which entitled the Executive to effect double recovery from an individual, although not absolutely forbidden by article 1, was clearly at risk of being found to be disproportionate. That proposition would seem to apply in relation to any sum payable pursuant to the 2002 Act, which, while intended to be deterrent, was not intended to be punitive. Although it would be appropriate under the terms of the 2002 Act as traditionally interpreted, it would be disproportionate, at least when VAT output tax had been accounted for to the revenue (either by remittance or by its being set off against input tax), to make a confiscation order calculated on the basis that that tax, or a sum equivalent to it, had been “obtained” by the defendant for the purposes of the 2002 Act. Their Lordships would leave open the position in relation to VAT for which the defendant was liable, but in respect of which he had not accounted, to the revenue.

LORD MANCE JSC delivered a concurring judgment.

LORD HUGHES and LORD TOULSON JJSC delivered judgments in which they agreed on the interpretation of the 2002 Act but dissented on the conclusion that it was disproportionate for the confiscation order to be made on the basis of the defendant’s gross receipts without first deducting the VAT element of those receipts.


William Boyce QC and Joanna Martin (instructed by Smith Leaning Ltd, Redruth) for the defendant.

Andrew Mitchell QC and Martin Evans (instructed by Crown Prosecution Service, Appeals and Review Unit) for the Crown

Reported by: Ms B L Scully, Barrister.

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