Factual and Procedural Background
The Appellant controlled Company A, which hired out construction plant. In criminal proceedings it was established that a significant proportion of that plant was stolen. A Crown Court judge found that 38 % of Company A’s turnover during a six-year period (totalling £5,159,880) derived from the unlawful hiring out of stolen plant. The judge therefore treated that proportion of the company’s receipts as the Appellant’s benefit from criminal conduct and, applying the Proceeds of Crime Act 2002 (“POCA 2002”), made a confiscation order calculated on the gross receipts, without deducting any Value Added Tax (“VAT”) that had been charged, collected or paid to HMRC.
The Court of Appeal (Criminal Division) upheld the order ([2013] EWCA Crim 1104). The Appellant obtained permission to appeal to the Supreme Court, which heard the matter before Judge Neuberger (President), Judge Mance, Judge Reed, Judge Hughes and Judge Toulson.
Legal Issues Presented
- Whether, for the purposes of section 76(4) POCA 2002, the VAT element included in payments received by the Appellant/Company A should be excluded when calculating the value of the “benefit obtained”.
- If VAT forms part of the benefit, whether it is nevertheless disproportionate—and therefore incompatible with Article 1 of Protocol 1 (“A1P1”) to the European Convention on Human Rights—to make a confiscation order that includes sums already paid or accounted for to HMRC.
Arguments of the Parties
Appellant’s Arguments
- He never “obtained” the VAT element because it was collected on behalf of the state; alternatively, any interest he had in that element was nil.
- If the VAT was obtained, deducting it from the confiscation order was required to avoid double recovery and ensure proportionality under A1P1.
- Including VAT would compel the court to treat him as having retained monies that had in fact been remitted to HMRC, contrary to fairness and the statutory purpose.
Respondent’s Arguments
- POCA 2002 targets the gross value of property obtained through crime; statutory language, reinforced by decades of authority, precludes deduction of expenses such as VAT.
- VAT liability is simply a cost of carrying on business and is indistinguishable, for confiscation purposes, from other taxes or outgoings.
- No issue of “double recovery” arises; the benefit assessed is what the Appellant received, not what he ultimately retained.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| R v May [2008] UKHL 28 |
A person “obtains” property if he owns it or assumes the rights of an owner. |
Used to confirm that money in a company bank account is obtained by the owner/controller for confiscation purposes. |
| R v Allpress [2009] EWCA Crim 8 |
Clarified ownership of monies in bank accounts for POCA purposes. |
Supported the conclusion that the Appellant obtained the gross receipts, including VAT. |
| R v Ahmad [2014] UKSC 36 |
Prohibition on double recovery when co-defendants are jointly liable. |
Distinguished; court held inclusion of VAT did not create true double recovery. |
| R v Sharma [2006] EWCA Crim 16 |
Legal nature of bank account credits as choses in action. |
Cited to reinforce that the company (and hence the Appellant) owned the funds on receipt. |
| R v Smith (David) [2001] UKHL 68 |
The relevant time for assessing benefit is the moment property is obtained, not how it is later spent. |
Relied on to reject deductions for subsequent VAT payments. |
| R v Waya [2012] UKSC 51 |
a) Focus on benefits received, not expenses; b) A1P1 requires proportionality and avoidance of double recovery. |
Used both to affirm gross-receipt approach and to analyse proportionality under A1P1. |
| R v Banks [1997] 2 Cr App R (S) 110 |
Statutory language directs attention to gross, not net, proceeds. |
Analogous reasoning applied to section 76(4) POCA 2002. |
| R v Smith (Ian) [1989] 1 WLR 765 |
“Any payments” means gross payments; avoiding complex accounting. |
Cited as part of an “unbroken line of authority” favouring gross-benefit calculation. |
| Jennings v CPS [2008] UKHL 29 |
Meaning of section 71(4) CJA 1988 mirrors POCA provisions. |
Supported continuity of the gross-benefit approach through statutory re-enactment. |
| Jahn v Germany (2005) 42 EHRR 1084 |
States enjoy a wide margin of appreciation under A1P1. |
Used to uphold the proportionality of the confiscation regime. |
| Elida Gibbs Ltd v Customs & Excise Comrs (C-317/94) [1996] ECR I-5339 |
Traders act as VAT collectors for the state. |
Relied on by the Appellant; the Court distinguished the point, noting the trader is not a trustee of HMRC. |
Court’s Reasoning and Analysis
1. Statutory Construction. Section 76(4) POCA 2002, a re-enactment of earlier legislation, focuses on what the defendant “obtained”. The Court held that, upon receipt, the entire invoiced amount—including VAT—became the company’s property and therefore the Appellant’s benefit.
2. Gross versus Net Receipts. Citing a “long and unbroken line of authority” (e.g. Banks, Smith (Ian)), the Court reaffirmed that confiscation targets gross receipts. Allowing deductions for VAT would contradict that principle and invite unmanageable accounting exercises.
3. Timing of Acquisition. Following Smith (David), benefit is fixed when the money is obtained; later outgoings, including VAT payments, do not diminish that benefit.
4. Proportionality under A1P1. The Court recognised that confiscation orders must not be disproportionate. However, it distinguished true “double recovery” (as discussed in Ahmad and Waya) from the present situation. VAT remittances were characterised as the Appellant’s expenditure of criminal proceeds, not as restoration of identical property to the state. Consequently, including VAT did not breach A1P1.
5. Policy Considerations. Allowing deductions would undermine the deterrent and deprivation aims of POCA and encourage intricate disputes over business expenses. Parliament had repeatedly re-enacted the relevant wording with knowledge of judicial interpretation, reinforcing the gross-benefit approach.
Holding and Implications
HELD: Appeal dismissed; the certified question answered in the negative.
Direct Effect: The confiscation order will be recalculated on the basis that the entire 38 % share of gross receipts, inclusive of VAT, constitutes the Appellant’s benefit.
Broader Implications: The judgment confirms that, under POCA 2002, VAT (and by analogy other taxes or expenses) is not deductible when computing criminal benefit. It reinforces the gross-receipts doctrine and clarifies that such an approach is compatible with A1P1, thereby limiting future attempts to reduce confiscation orders by reference to outgoings.