Commissioners of Inland Revenue v National Federation of Self-Employed and Small Businesses Ltd

JurisdictionEngland & Wales
Judgment Date09 April 1981
Date09 April 1981
CourtChancery Division




(1) Commissioners of Inland Revenue
National Federation of Self-Employed and Small Businesses Ltd

Crown - Policy decision made by Commissioners of Inland Revenue - Claim by Respondent company that Inland Revenue acted unlawfully - Application for judicial review - Whether Respondent company had "sufficient interest" - RSC Order 53 Rules 1(2), 3(5).

Of some 6000 casual workers in Fleet Street, a substantial number had been drawing their pay under false names. The Inland Revenue estimated that about £1,000,000 was being lost, but had no means of identifying the names and addresses of the defaulters. The Inland Revenue decided that action was needed to stop the loss for the future. After discussions with the employers and the unions, the Inland Revenue introduced in March 1979 a special arrangement under regn 50 of the Income Tax (Employments) Regulations 1973 (SI 1973 No 334) which would ensure that for the future tax would either be deducted at source or be properly assessed. The Inland Revenue also made it clear that, if the arrangement were generally accepted and subject to certain other conditions, investigation into tax lost would not be carried out for years before 1977-78, although current investigations into incorrect returns would be unaffected. The Inland Revenue considered that an attempt to collect the whole amount due from hostile workers whose identity was unknown, for a period more than two years in the past, would have been unlikely to produce any substantial sums of money and would have delayed or even frustrated the new special arrangement.

The respondent company ("The Federation") applied by way of judicial review for a declaration that the Inland Revenue had acted unlawfully in not pursuing claims for the full amount of tax due and for an order of mandamus directed to the Inland Revenue to assess and collect income tax due from the casual workers according to the law. The Federation contended that the Inland Revenue had differentiated in its treatment of different groups of taxpayers and had acted not for any reasons of good management but simply in response to trade union pressure.

The Divisional Court granted leave ex parte, and at the hearing inter partes directed that there should be treated as a preliminary point the Inland Revenue's objection that the Federation did not have "a sufficient interest in the matter to which the application relates" within RSC Order 53, rule 3(5).

The Divisional Court, dismissing the application, held that a taxpayer cannot by legal proceedings monitor the work of the tax authorities and the Federation did not therefore have a "sufficient interest".

The Court of Appeal (Lawton L.J. dissenting), allowing the Federation's appeal, held that, on the assumption that the Inland Revenue's conduct was unlawful, the Federation could reasonably assert that it had a genuine grievance in relation to that conduct and that the Federation did therefore have a "sufficient interest".

Held, in the House of Lords, allowing the Inland Revenue's appeal and restoring the order of the Divisional Court, that, upon examination of the statutory duties of the Inland Revenue and the alleged breach of those duties of which the Federation complained, (per Lords Wilberforce, Fraser of Tullybelton, Scarman and Roskill) the Federation as a body of taxpayers had shown no sufficient interest to justify its application and (per Lord Diplock) the Federation had completely failed to show any conduct of the Inland Revenue that was ultra vires or unlawful.

per Lords Wilberforce, Fraser of Tullybelton and Roskill: The total confidentiality of assessments and of negotiations between individuals and the Revenue is a vital element in the working of the system. As a matter of general principle one taxpayer has no sufficient interest in asking the court to investigate the affairs of another taxpayer or to complain that the the latter has been under-assessed or over-assessed: indeed, there is a strong public interest that he should not. And this principle applies equally to groups of taxpayers: an aggregate of individuals each of whom has no interest cannot of itself have an interest.

The case came before the Divisional Court of the Queen's Bench Division (Lord Widgery L.C.J. and Griffiths J.) on 21 and 22 November 1979 when judgment was given in favour of the Crown, with costs.

Lord Widgery L.C.J.-In these proceedings Mr. Harvey moves on behalf of the National Federation of Self-Employed and Small Businesses Ltd. whose registered office is at 32 St. Annes Road West, Lytham St. Annes.

The relief sought in these proceedings is, first, a declaration that the Board of Inland Revenue acted unlawfully in granting an amnesty to casual workers in Fleet Street, and, secondly, an order of mandamus directed to the Board of Inland Revenue to assess and collect income tax from the said casual workers in Fleet Street according to the law.

The grounds upon which the relief is claimed are, first, that the Board of Inland Revenue has exceeded its powers in granting an amnesty to the casual workers in Fleet Street; alternatively, secondly, if, as the Board of Inland Revenue claims, it has power to grant the amnesty, the Board of Inland Revenue is bound to give reasons for the exercise thereof and that the reason given on behalf of the Board, namely that this was a reasoned commercial decision, cannot be sustained. There is a final plea that the Board of Inland Revenue is under a duty to act fairly between taxpayer and taxpayer, and that I may have to deal with later on in this judgment. That being the relief claimed, one must next consider what is the factual background of the case, and it is interesting and unusual.

The Applicant Company, as its name implies, is set up to look after the interests of small businessmen, self-employed men, small professional men, small businesses on the corner and the like. The application is made because, in the view of the Applicants, those small businessmen are not getting fair treatment from the Inland Revenue in regard to the assessment of their income tax. Attention is drawn to the fact that small businessmen operate in conditions in which their records, books and papers are readily available and they say it is not in the nature of their employment that they should often, if ever, have a little windfall from the tax collector. They say they have to pay every last penny. If that is so, it is not surprising that they resent the fact if they see a blatant case of a different kind. The alleged blatant case of a different kind arises out of Fleet Street. We are told that in Fleet Street a very large proportion of the workers are casual labourers. Although casual and although they come irregularly, one gathers that they obtain their wages gross at the end of the day. The system which has been in force for some time assumes that, if they leave their name in drawing their pay, the appropriate tax will eventually get to the collector. But of course in fact many of these chits supposed to give the names of the workmen which are handed in at the end of the day's work have names upon them which are entirely fictitious; M. Mouse, Esq. is apparently repeatedly found to be there. That being the case, the proportion of wages due for tax which get to the tax collector is very small. The fact that all this has been the subject of a programme, I think, on television, has made people who get no chance of this kind in their own business resent the fact that others get away with it. These proceedings are brought in the hope that, by their force, they can stimulate the Inland Revenue to see that something is done about Fleet Street. Of course things have been moving even while these proceedings have been pending, and any review of the facts would be incomplete without including the fact that the Revenue has made some kind of deal with the trade unions concerned, and the deal involved some kind of amnesty which has meant that arrears of tax before a certain date have not been collected. Questions may arise in the future as to whether those arrangements are lawful arrangements because there are cases getting into the books now in which the right of the Revenue to make this kind of arrangement is being challenged. But, for reasons which will appear in a moment, I do not find it necessary to go into that aspect of the matter today.

Those being the very elementary facts upon which this case arises, one must turn next to the Rules of the Supreme Court by which the present proceedings are regulated. They come in substance by the authority of Order 53 of the Rules of the Supreme Court which introduced a new phrase, I think, in our law, of "judicial review", meaning that the courts review and consider, and, if necessary, set aside, transactions which are contrary to law. I will read most of the first three rules of Order 53 because all parts of them are important. Rule 1 reads as follows:

  1. (1) An application for-(a) an order of mandamus, prohibition or certiorari, or (b) an injunction under section 9 of the Administration of Justice (Miscellaneous Provisions) Act 1938 restraining a person from acting in any office in which he is not entitled to act, shall be made by way of an application for judicial review in accordance with the provisions of this Order. (2) An application for a declaration or an injunction (not being an injunction mentioned in paragraph (1)(b) may be made by way of an application for judicial review, and on such an application the Court may grant the declaration or injunction claimed if it considers that, having regard to-(a) the nature of the matters in respect of which relief may be granted by way of an order of mandamus, prohibition or certiorari, (b) the nature of the persons and bodies against whom relief may be granted by way of such an order, and (c) all the circumstances of...

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