Hurley v Taylor (Hm Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE KENNEDY,LORD JUSTICE ALDOUS,LORD JUSTICE POTTER |
| Judgment Date | 23 October 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J1023-16 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | No CHRVF 98/0263/3 |
| Date | 23 October 1998 |
[1998] EWCA Civ J1023-16
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MR JUSTICE PARKER
Royal Courts of Justice
Strand
London WC2
Lord Justice Kennedy
Lord Justice Aldous
Lord Justice Potter
No CHRVF 98/0263/3
MR J MUNBY QC (Instructed by Solicitor for Inland Revenue) appeared on behalf of the Appellant
MR R ARGLES (Instructed by Messrs T G Baynes of Orpington, Kent) appeared on behalf of the Respondent
I will ask Lord Justice Aldous to give the first judgment.
The Revenue appeals against the judgment and order of Park J of 20th January 1998 and the taxpayer, Mr Anthony Cornelius Hurley, cross-appeals.
The appeal and the cross-appeal concern assessments raised by the Revenue in respect of income from the taxpayer's businesses for the years 1983/84 to 1992/93 inclusive. The taxpayer appealed to the General Commissioners against those assessments to income tax under clause I of schedule D and class 4 National Insurance contributions in respect of profits as a general dealer and in respect of a solarium business, car sales business and against assessments under clause VI of schedule D on profits from furnished lettings. The Commissioners allowed the appeal in respect of the assessments as a general dealer and in certain other aspects, but upheld in part the other assessments. The taxpayer was dissatisfied and requested the General Commissioners to state a case for the opinion of the High Court. They did. The matter came before Park J by way of that case stated. He held that the Commissioners had in part erred in law and remitted the matter back to be considered in the light of his judgment.
Pursuant to Section 34 (1) of the Taxes Management Act 1970, an assessment of tax can be made at any time, not later than six years after the end of a chargeable period to which the assessment relates. Such assessments relate to what can be conveniently called the in-time years. Section 50 (6) of the 1970 Act enables the Commissioners on appeal if it appears to them "that the appellant is overcharged by any assessment", to reduce it accordingly, "but otherwise such assessment shall stand good". It follows that a taxpayer can challenge an in-time assessment, but when doing so has the burden of establishing that he has been overcharged.
Section 36 (1) of the 1970 Act enables the Revenue to raise assessments outside the six year period laid down for in-date assessments. Such assessments are conveniently referred to as extended time assessments. They have to be made not later than twenty years after the end of the chargeable period to which the assessment relates and can only be made "for the purpose of making good to the Crown a loss of tax attributable to his [the taxpayer's] fraudulent or negligent conduct". It is accepted that when considering an extended time assessment, the burden of proof is on the Revenue to establish loss of tax due to fraudulent or negligent conduct.
Pursuant to Section 56 (6) of the Act an appeal to the High Court by way of case stated is limited to questions of law. The case for the taxpayer against the Commissioner's findings on the in-date assessments was that they were perverse in the sense that the conclusions of fact were such that no reasonable body of Commissioners could have reached the conclusion that they did. If established that amounts to an error of law (see Edwards (HM Inspector of Taxes v Bairstow and Harrison (1956) AC 14. That authority establishes that to succeed it must be shown that the Commissioners acted in what is now called a Wednesbury unreasonable manner. In this case the judge held that the taxpayer could not surmount the heavy burden of establishing that the findings of fact were perverse or as I will refer to it as Wednesbury unreasonable.
As to the Commissioner's conclusion on the extended time assessments, the judge held that the Revenue had failed to discharge the onus on them or, if they had, he held that the decision of the Commissioners was Wednesbury unreasonable. He therefore allowed the appeal in relation to the extended time assessments and referred the matter back to the Commissioners for further consideration in the light of his judgment.
The facts were fully set out in the case stated [1998] STC at p204-212. Therefore I need not repeat them. It is sufficient for me to adopt this summary from the judge's judgment:
"Mr Hurley, the taxpayer, is now in his mid-40s. He lives in Bromley. In the years in question he owned two fairly small businesses: a solarium business in Sidcup and a motor-dealing business which he conducted from home. He also received some income from lettings of properties. The customers of the solarium business usually paid in cash, and a lot of the dealings in the motor business were likewise transacted in cash. He produced audited accounts for both businesses, but he had no reliable record-keeping system.
The Revenue had investigated Mr Hurley's tax affairs in 1987, and a small settlement resulted. In (I think) 1991 a more substantial investigation commenced, and developed into a full-scale back duty inquiry. I have the impression that the Revenue were prompted to investigate Mr Hurley's tax affairs by information which they had obtained or statements which had been made to them in another investigation of a former friend of his, a Mr Stringer.
At all events the Revenue drew up capital statements for Mr Hurley for the years from August 1982 to August 1992. Taking all the years together the figures as calculated by the Revenue produced a deficiency of over £160,000. The three largest contributions to it arose as follows.
(i) In April 1986 Mr Hurley bought 5 Addison Road, Bromley. He moved there with his family and I think that he lives there still. The purchase price was £74,000 of which Mr Hurley borrowed £50,000 from Western Trust and Savings Ltd. So allowing for costs he must have put up more than £24,000 himself. Where did that money come from?
(ii) In October 1982 Mr Hurley bought 117 Amblecote Road, London, SE12. This property has always been let. As far as I know Mr Hurley still owns it. The price was £110,000, of which Mr Hurley borrowed £70,000 from Skandia Trust. So he produced over £40,000 from other sources. Where did that money come from?
(iii) Two years later Skandia Trust required him to repay the loan for 117 Amblecote Road because, contrary to the conditions of the loan, he had let the property instead of living there. The repayment, with costs and accrued interest, cost £72,055. Where did that money come from?"
The taxpayer did not accept all the figures in the capital statement which showed a discrepancy exceeding about £164,000 and I shall have to deal with a number of matters relating to them later in this judgment. However he accepted that there was a substantial deficiency. That he said was made up from loans from a Mr Stringer and his father Mr Cornelius Hurley. The Commissioners held that Mr Stringer had lent the taxpayer about £72,000 which had not been repaid, but did not accept the evidence of the taxpayer that his father had lent him about £118,000 of which about £54,000 had been repaid. The Commissioners found that in total about £36,000 had been lent to the taxpayer by his father of which just over £15,000 had been repaid. It was on that basis that they upheld the extended time assessments.
It was the Revenue's case that there was a discrepancy shown by the capital statements and that the explanation given by the taxpayer that he had received loans was not credible. In particular, the Revenue did not accept that the taxpayer's father had sufficient funds to provide the loans claimed. To meet that case the taxpayer gave evidence. His father, Mr Cornelius Hurley, had died before the hearing before the Commissioners and therefore could not give evidence. He had made a statement dated 4th December 1992 stating that he had been in possession of funds. That statement also confirmed certain loans and repayments. The taxpayer gave evidence of additional loans to those mentioned in the 4th December statement. To show that his father had sufficient money to fund the loans, the taxpayer also gave evidence as to sources amounting to over £123,000 from which the loans were funded. The Commissioners held that the taxpayer was not a credible witness and did not accept that Mr Cornelius Hurley had accumulated over £123,000 from which he could provide loans of £118,000 to the taxpayer.
Before the judge the taxpayer submitted that the Commissioners had failed to take into account a statement by Mr Cornelius Hurley dated 13th January 1994 in which he dealt at length with the loans that he had made and where the money came from. It followed, the taxpayer submitted, that the case should be remitted back to the Commissioners for further consideration in the light of the statement. The Revenue asserted and gave evidence to the effect that the statement of 13th January 1994 had not been put before the Commissioners and they submitted that it was now too late to do so. Affidavit evidence was adduced by Mr Hurley and on behalf of the Revenue as to whether the statement was before the Commissioners. The judge said at page 224 A:
"In the event I am now wholly satisfied that Mr Hurley did not read his father's statement to the commissioners. I do not suggest for a moment that he attempted to mislead me by his affidavit. He was mistaken. I believe that I know exactly how the mistake arose: Mr Hurley did read two other documents to the commissioners. One was a statement by his father on another matter to do with Mr...
To continue reading
Request your trial