The Advocate General For Scotland V. Dennis Montgomery
| Jurisdiction | Scotland |
| Judge | Lady Paton |
| Neutral Citation | [2006] CSOH 123 |
| Court | Court of Session |
| Published date | 08 August 2006 |
| Year | 2006 |
| Docket Number | 1988/89 |
| Date | 08 August 2006 |
| OUTER HOUSE, COURT OF SESSION [2006] CSOH 123 | |
| OPINION OF LADY PATON in the cause THE ADVOCATE GENERAL FOR SCOTLAND Pursuer; against DENNIS HENRY MONTGOMERY Defender: ________________ |
Pursuer: Artis, Advocate; H.M. Milne, Solicitor (Scotland) H.M. Revenue and Customs
Defender: P.J.D. Simpson, Advocate; Turcan Connell
8 August 2006
Introduction
[1] In this action the Advocate General for Scotland on behalf of the Commissioners for Her Majesty's Revenue and Customs ("the Revenue") seeks payment from a taxpayer of (1) income tax of £305,455.63; (2) interest thereon of £271,669.24; (3) surcharges of £14,023.12; and (4) interest thereon of £417.77.
[2] During a debate on 26 and 27 April 2006, the Revenue sought decree de plano in respect of all four sums, failing which, all sums except interest of £271,669.24 as second concluded for (which would go to proof). The defender opposed decree de plano, arguing that a proof before answer at large was required. The defender also argued that the claims for surcharges and interest thereon were irrelevant and should be excluded from probation.
Income tax for years 1988-89 to 1995-96
[3] The defender is an American citizen. He lives in Appin, Argyll. During the 1980s and 1990s, he worked for a company called Inexco Limited ("Inexco"). As Inexco was incorporated in the Channel Islands, it was not obliged to operate the "Pay As You Earn" (PAYE) system in respect of income tax in terms of the Income Tax (Employments) Regulations 1973 and 1993. Accordingly the defender received payments from Inexco without any deduction in respect of income tax.
[4] The Revenue issued several assessments relating to the defender for the years 1983-84 to 1995-96. The assessments were alternative - either Schedule D (self employed) or Schedule E (employed). The defender appealed the assessments. By a determination dated 6 July 2004, the General Commissioners for the Division of Edinburgh North held that the pursuer had not made Schedule D profits, but had received Schedule E emoluments during the tax years 1988-89 to 1995-96. The General Commissioners determined the income tax due as follows:
" Income tax
Emoluments Amount paid remaining payable
Year and Benefits Amount due to account and unpaid
1988/89 £ 88,333.00 £30,781.64 £23,499.32 £ 7,282.32
1989/90 £108,834.00 £34,531.67 £ 7.48 £ 34,524.19
1990/91 £114,982.00 £35,952.55 - £ 35,952.55
1991/92 £120,000.00 £42,381.81 - £ 42,381.81
1992/93 £125,000.00 £44,180.44 - £ 44,180.44
1993/94 £130,000.00 £44,925.33 - £ 44,925.33
1994/95 £135,000.00 £47,205.09 - £ 47,205.09
1995/96 £140,000.00 £49,003.90 - £ 49,003.90
£305,455.63"
The total of £305,455.63 is the sum first concluded for.
[5] The defender appealed to the Court of Session. A case was accordingly stated, and a hearing arranged for December 2005. The defender then abandoned his stated case.
Payments to account, and attribution of those payments[6] The defender avers in Answer 2 that he has made certain payments to account:
"Explained and averred that the defender has made the following payments to the pursuer in respect of the tax liabilities to which the present proceedings relate:
Date Amount (£)
20th May 1999 100.63
20th October 1999 100.39
24th November 1999 50,000.00
15th March 2000 100.36
16th October 2000 100.00
20th July 2001 100.00
28th August 2001 102.42
20th March 2002 3,626.04
27th September 2002 212.90
30th January 2003 18,440.02
27th August 2003 20,000.00
2nd October 2003 20,000.00
29th October 2003 20,000.00
27th November 2003 5,000.00
Accordingly, the defender has paid £137,882.76 to the pursuer in respect of the amounts sought by the pursuer in these proceedings. These sums fall to be deducted from the amount first concluded for. As hereinafter condescended upon, the payment of these sums also requires the amount of interest and surcharges sued for to be decreased."
[7] In Article 2 of Condescendence, the Revenue admits that the defender has made payments totalling £137,882.76. The Revenue explains that those payments have been:
"taken into account in calculating the defender's liability to the pursuer as follows: (1) to discharge the defender's liability for fixed penalties and interest thereon for the years 1997/98, 1998/99, 1999/00 and 2000/01, the total liability being £816.70, payments made in May and October 1999 totalling £201.02, the payments in March and October 2000 totalling £200.36, the payments in July and August 2001 totalling £202.42, and the payment in September 2002 of £212.90; (2) of the payment of £50,000 in November 1999, (a) £23,499.32 has been allocated to the defender's Schedule E liability for 1988/89 as set out in Article 2, (b) £1,500.68 has been allocated to the interest on said assessment for the period to 31 January 2001, and (c) £25,000 has been allocated against the tax liabilities of the defender's spouse, as requested by the defender and as agreed by him at a meeting attended by the defender, his accountant and Officers of Revenue and Customs on 3 March 2005; (3) against self-assessment liabilities for the years 1996/97 to 2002/03, payments in March 2002, January 2003, August 2003, early October 2003, late October 2003 (part) and November 2003 (part) totalling £71,144.45; and (4) against surcharges and interest thereon for the years 1996/97 to 2000/01, part of the payments in late October 2003 and November 2003 totalling £15,921.61. A Schedule of Payments setting out the payments and allocations is produced, referred to for its terms which are held as incorporated herein."
[8] In Answer 2 as unamended, the defender does not admit those averments. In particular, he does not admit that he requested that £25,000 be allocated against his wife's tax liabilities, and that he agreed such an allocation at a meeting attended by himself, his accountant and officers of Revenue and Customs on 3 March 2005. His response, as pled, is "Quoad ultra denied."
[9] A Schedule of Payments number 6/17 of process (incorporated by reference in the pleadings) gives further detail of the payments to account and their allocation. Paragraph 3 of the schedule notes:
"3. The payment of £50,000 on 24 November 1999 has been credited as follows:
Assessment for 1988/89 £23,499.32 (see Cond 2)
Interest thereon to 31 January 2001 1,500.68
Against Mrs Montgomery's liability 25,000.00
£50,000.00"
Issues in dispute[10] Counsel for the defender accepted that certain sums in respect of income tax and interest were due and owing by the defender to the Revenue. However, the following points were taken:
1. The Revenue had wrongly allocated payments totalling £71,144.45 against the self-assessment liabilities outlined in sub-paragraph (3) in paragraph [7] above, as those self-assessment liabilities were currently the subject of dispute in an appeal before the General Commissioners. The £71,144.45 accordingly fell to be deducted from the income tax said to be due (i.e. £305,455.63, the sum first concluded for).
2. The Revenue, through its Compliance Officer, Steve Armitt, had agreed to reimburse the defender with £20,000 in respect of the costs of an abortive hearing before the General Commissioners in June 2003. That £20,000 accordingly fell to be deducted from the income tax said to be due (£305,455.63, the sum first concluded for).
3. The above deductions (of £71,144.45 and £20,000) would have the effect of decreasing any interest on the income tax due (the sum second concluded for, namely £271,669.24) and any surcharges and interest thereon (the third and fourth conclusions).
4. In any event, the Revenue was not entitled to impose any surcharges for the reasons set forth in the defender's submissions in paragraphs [50] to [55] below. Accordingly the third conclusion for payment of £14,023.12 and supporting averments should be excluded from probation.
5. It followed from the above that the Revenue was not entitled to impose any interest in respect of unpaid surcharges. Accordingly the fourth conclusion for payment of £417.77 and supporting averments should be excluded from probation.
Statutory provisions
Income tax due
[11] Section 56(9) of the Taxes Management Act 1970 provides:
"Where a party to an appeal against an assessment has required a case to be stated under regulation 20(1) of the General Commissioners Regulations, then notwithstanding that the case has been required to be stated or is pending before the High Court, tax shall be paid in accordance with the determination of the Commissioners who have been required to state the case."
[12] Section 56C(1) of that Act provides:
"Regulations made under section 56B [about the practice and procedure to be followed in connection with appeals before the Commissioners] may include provision for -
(a) the award by the Special Commissioners of the costs of, or incidental to, appeal hearings before them,
(b) the recovery of costs so awarded, and
(c) appeals against such awards ..."
[13] Section 70(1) of that Act provides:
"Where tax is in arrear, a certificate of the inspector or any other officer of the Board that tax has been charged and is due, together with a certificate of the collector that payment of the tax has not been made to him, or, to the best of his knowledge and belief, to any other collector, or to any person acting on his behalf or on behalf of another collector, shall be sufficient evidence that the sum mentioned in the certificate is unpaid and is due to the Crown; and any document purporting to be such a certificate as is mentioned in this subsection shall be deemed to be such a certificate until the contrary is proved."
Interest on income tax due
[14] Section 86 of the Taxes Management Act 1970 provides:
"(1) The following, namely -
(a) any amount on account of income tax which becomes due and payable in accordance with section 59A(2) of this Act, and
(b) any income tax ... which becomes due and payable in accordance with section 55 or 59B of this Act,
shall carry...
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