HM Revenue and Customs v Sharp and Ors
| Jurisdiction | England & Wales |
| Judge | Mr Sutcliffe |
| Judgment Date | 17 July 2015 |
| Neutral Citation | [2015] EWHC 4272 (Ch) |
| Docket Number | Case No: 3635/2015 |
| Court | Chancery Division |
| Date | 17 July 2015 |
[2015] EWHC 4272 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
7 Rolls Buildings
Fetter Lane
London
EC4A 1NL
Mr Sutcliffe QC
(Sitting as a Deputy Judge of the Chancery Division)
Case No: 3635/2015
Mr M Mullen (instructed by HMRC) appeared on behalf of the Applicant
Mr P Jones (instructed by Turner Garrett) appeared on behalf of the Respondent
THE DEPUTY JUDGE:
Introduction
This is the adjourned hearing of the Commissioners for Her Majesty's Revenue and Customs ("the applicant")'s application under Insolvency Rule 4.70 seeking an order reversing the decision of Mr Sharp, the first respondent, acting as chairman of the meeting of creditors held on 27 April 2015, to admit the applicant's debt to the extent of £6,960 for voting purposes. The applicant had issued an assessment to corporation tax and penalties in the sum of £51,253.42 and the applicant's case is that this assessment should have been admitted in the full amount. Had it been so admitted the meeting would have resolved to appoint Mr James Dowers and Mr Nedim Ailyan as liquidators of Sharp Business Development Limited ("the company") as proposed by the applicant rather than the current liquidator Mr Stephen Franklin, the second respondent.
This court is asked to vary the chairman's decision so as to admit the whole of what is said to be the applicant's debt and appoint Mr Dowers and Mr Ailyan as liquidators. The applicant says that it is unnecessary to order a further s.98 meeting as its debt dwarfs those owed to the company's accountants (some £4,200) and Mr Sharp as director (some £6,000), allowing the applicant's vote to determine the outcome in any event.
Background facts
The applicant issued an assessment to corporation tax on 27 November 2013. On 16 January 2014 Mrs Roberts of the applicant wrote to the company and notified it of the right to an appeal and to apply for a postponement of the amount due. By a letter dated 20 February 2014 the company's accountants notified the applicant of a 'formal appeal'. On 4 March 2014 the applicant responded, noting that an appeal had been issued against the assessment and that no postponement application had been made so all the amounts outstanding remained due and payable.
The applicant's letter of 4 March 2014 went on to state that information was available to the applicant which showed the following payments as having been made to the company. There was then a list of four entities and various amounts said to have been received by the company totalling some £600,000. The letter proceeded:
"Given the discrepancy I consider it necessary to check the underlying records. To this end, please forward the documents and information requested in the schedule with my letter of 10 January 2014."
That letter and schedule were not in the bundle documents. The letter continued:
"Please also provide a full explanation as to why these discrepancies have occurred. Please provide the information as soon as possible and by 4 April 2014 at the latest so that the enquiry can progress."
On 27 March 2014 the company's accountants responded notifying the applicant that an appeal had been lodged and a postponement application made to Corporation Tax Operations in Glasgow and a copy of the letter sent to CT Operations in Glasgow on that day is attached. On 1 May 2014, the applicant responded as follows:
"To date you have not provided the documents and information requested with my letter of 4 March 2014. The figures which I have used as set out in my letter are provided by the Insolvency Practitioners appointed in respect of these companies which are now in liquidation."
Those are the companies listed in the letter of 4 March. The letter continues:
"I also note your request for postponement of the additional liability. It is my view that the liability is due and therefore I am unable to agree your postponement application and I enclose my alternative proposal.
Considering the above I now request that you withdraw the appeal."
The proposal was that an officer of the applicant who had not previously been involved in the case would carry out a review of the compliance officer, Mrs Roberts' decision. This was responded to by the company's accountants in a letter of 29 May 2014 which sought to point out the respects in which Mrs Roberts had "gone wrong". Towards the end of that letter the accountants state:
"In our previous letters we did clearly state to you that you were mixing up profit figures with turnover figures. You disagreed and did not bother to check our request. The £115,785 that you show as turnover for the period ended 29 September 2011 is actually the profit made by the company during that period on which it has paid appropriate tax to HMRC. Please note that the turnover figure of £467,336 has been shown in the corporation tax return for the period ending 29 September 2011. How wrong can HMRC calculations be? Despite our continued request no one bothered to check and see this large difference and perhaps £351,571 in your calculations."
The financial statements enclosed with that letter show clearly that, as the accountants stated, the turnover of the company for the relevant period was said to be £467,336 and the profit £115,375.
The applicant's response was by letter dated 11 June 2014 which states so far as material as follows:
"I note that you have now provided the abbreviated accounts for the year ended 29 September 2011, which shows turnover of £467,336 less global expenses of £351,571 to arrive at a taxable profit of £115,765. The CT 600 completed shows turnover of £115,765 and I enclose a copy and the electronically filed return for your information."
That form is at page 133 of the bundle and does indeed show, or purport to show, that the turnover was the figure attributed to profit. It is a figure that appears to have been mistakenly inserted by the company's accountants at some stage when preparing the return.
The applicant's letter of 11 June 2014 continues:
"Although you have provided an explanation regarding the turnover, in order to be satisfied that the return is correct, I still wish to review the underlying records. I have enclosed a copy of the schedule of documents and information which I require to complete my check, which was sent to you with my letter of 4 March 2014 which to date has not been complied with.
I can now agree your postponement application pending the outcome of the enquiry and I have advised Debt Management and Banking accordingly. Please provide the documents and information requested as soon as possible and by 11 July 2014 at the latest so that the enquiry can progress."
On 9 July 2014 the company's accountants responded with a lengthy seven page letter. Despite its length, it is notable that that letter does not supply the records which had been requested on several occasions by the applicant. On 21 August 2014 Mrs Roberts on behalf of the applicant replied to the letter of 9 July in the following terms:
"I have already explained to you that the information available to HMRC suggests that the return file for the period ending 29 September 2011 is incorrect. HMRC receives information from many sources and information is cross-referenced. I enclose a redacted copy of a document in the possession of HMRC where the director of the company states, that the profit margin of the company is 100 per cent and there are zero overheads."
There was an email dated 2 February 2011 attached to Mrs Roberts' letter sent by Mr Sharp to (it appears) a broker, involving a commercial mortgage application. This email stated in the third line:
"Average monthly turnover of £40,000, 100 per cent profit margin, zero overheads."
The letter of 21 August continues:
"Clearly this is at odds with the accounts provided, where expenses of £351,571 have been claimed. as I have already explained in previous correspondence I consider it necessary to check the underlying records in order to check the accuracy of the return and again I enclose a copy of the schedule of documents and information which I require. This information was first requested in my letter to you dated 4 March 2014. Please now provide all of the information requested in the enclosed schedule as soon as possible by 19 September 2014 at the latest so that the enquiry can progress."
On 13 October 2014 Mrs Roberts for the applicant wrote again to the company's accountants saying that she had not had a response to her letter of 21 August 2014 and indicating that if she had not received the documents and information requested in the enclosed schedule by 24 October 2014, she would be issuing an Information Notice which, if not complied with, would result in penalties.
On 22 October 2014 there was a telephone conversation between Mr Ray, the company's accountant, and Mrs Roberts, in which Mrs Roberts has recorded that he, Mr Ray, had not received her letter of 21 August and he was not happy with her indication that a formal notice would be issued as she had indicated in her letter of 13 October. He said that he needed further time to reply to her letter, but with regard to the records he said the statement regarding zero overheads was incorrect. He said that his client made a mistake. He clearly had overheads and went on to say that the director's remuneration would be a substantial part of the expenses and that the applicant would already have the records. Mrs Roberts' response was that the applicant would have the PAYE end of year returns but not the...
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