McNulty v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 May 2012 |
| Neutral Citation | [2012] UKUT 174 (TCC) |
| Date | 25 May 2012 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2012] UKUT 174 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Arnold J.
Philip Engelman (instructed by Tax NetWorks Ltd) for the appellant.
James McClelland (instructed by the Solicitor to HMRC) for the respondents.
The following cases were referred to in the decision:
Ahajot v Waller [2005] BPIR 82
Heath v TangWLR [1993] 1 WLR 1421
Hurren, ReWLR [1983] 1 WLR 183
Jussila v FinlandHRC (2007) 45 EHRR 39
Ord v UptonELR [2000] Ch 352
R (on the application of Singh) v R & C CommrsTAX [2010] UKUT 174 (TCC); [2010] BTC 1,548
Sidabras v LithuaniaHRC (2006) 42 EHRR 6
Soul v IR CommrsTAX (1966) 43 TC 662
Van Marle v NetherlandsHRC (1986) 8 EHRR 483
Wordsworth v Dixon [1997] BPIR 337
Capital gains tax - Appeal - Bankruptcy - Standing to appeal - Tax avoidance scheme - Taxpayer challenging refusal of claim for loss relief - HMRC issuing closure notice - Attempts to collect tax and surcharges - Taxpayer declared bankrupt - Trustee in bankruptcy appointed - Trustee settled appeal - FTT deciding taxpayer had no standing to appeal - Whether taxpayer's right of appeal personal by reason of Human Rights legislation - Whether FTT correct to strike out notice of appeal - Taxes Management Act 1970, Taxes Management Act 1970 section 54s. 54 - Human Rights Act 1998, Human Rights Act 1998 section 3s. 3 - European Convention on Human Rights, art. 6, Protocol 1, art. 1.
This was an appeal by the taxpayer against a decision of the First-tier Tribunal ([2010] UKFTT 509 (TC); [2011] TC 00764) that he had no standing to appeal against a capital gains tax assessment where the right of appeal had vested in his trustee in bankruptcy and the trustee had settled the appeal in accordance with TMA 1970, s. 54.
The taxpayer was a chartered accountant who participated in a tax avoidance scheme known as the Castle Trust. In his 1997-98 self-assessment, he claimed a capital loss generated by the scheme. Having investigated the scheme, HMRC concluded that the loss was artificial and refused the claim for relief. They issued a closure notice amending the taxpayer's self-assessment resulting in a tax liability of £951,790. The taxpayer appealed against the closure notice and HMRC accepted that appeal.
The taxpayer applied unsuccessfully to postpone the tax due. HMRC sought to collect the tax but it was not paid. As a result of non-payment, surcharges were incurred. HMRC obtained judgment against the taxpayer for tax, interest and costs and the taxpayer was made bankrupt. The trustee indicated by letter that there was no intention to pursue the taxpayer's appeal and HMRC replied stating: "I hereby determine the appeal against the closure notice issued for the enquiry into the 1997/1998 return in accordance with S.54 Taxes Management Act 1970."
The taxpayer later filed a notice of appeal and HMRC applied to strike it out. The First-tier Tribunal struck out the notice ([2010] UKFTT 509 (TC); [2011] TC 00764) on the basis that the taxpayer had no standing because the right of appeal had vested in the trustee, and the latter had in any event settled the appeal.
The taxpayer appealed, arguing first that he had standing to pursue the appeal because the right of appeal was personal to him by virtue of the European Convention on Human Rights, art. 6(3). Either the surcharges or the assessment the subject of the closure notice were "criminal offences" for the purposes of art. 6(3) and the taxpayer would be denied the protections afforded by art. 6(3) if he was not permitted to appeal personally rather than having to rely on the trustee. Secondly, the taxpayer's right to pursue his profession as an accountant was a property right within ECHR, Protocol 1, art. 1 and/or an aspect of his private life within art. 8; the taxpayer's bankruptcy prevented him from pursuing his profession; accordingly the exclusion of personal rights from the definition of "property" in s. 436 of IA 1986 recognised in Heath v Tang [1993] 1 WLR 1421 should be interpreted more widely pursuant to s. 3 of the Human Rights Act 1998 as extending to the appellant's rights of appeal. Thirdly, the trustee had assigned the right of appeal to the taxpayer.
Held, dismissing the taxpayer's appeal:
1.When a trustee in bankruptcy was appointed, he was automatically vested with the bankrupt's estate by s. 306 of the Insolvency Act 1986. By virtue of s. 436(1), the property comprising the bankrupt's estate included causes of action and rights of appeal. The effect of those provisions on rights of appeal in tax cases was that the bankrupt had no further interest in the matter and could not in his own name appeal from a judgment against him which was enforceable only against the estate vested in the trustee.
2.The taxpayer had never appealed against the surcharges. As regards the assessment, the taxpayer's argument that it was a "criminal offence" because it was backed by criminal sanctions and/or state force under the Magistrates' Courts Act 1980 would have the startling consequence that all assessments for income tax, capital gains tax and corporation tax constituted criminal offences for the purposes of art. 6(3). By virtue of s. 96(1) of the 1980 Act, an order for committal to prison or other detention in default of payment of a sum enforceable as a civil debt would only be made where the taxpayer had deliberately or negligently not paid despite having the means to do so, i.e. it was a sanction for wilful or negligent non-payment. Even if a complaint alleging wilful or negligent non-payment attracted the protections of art. 6(3) (which it was not necessary to decide), it did not follow that the tax assessment itself was a criminal offence which engaged art. 6(3).
3.The taxpayer's bankruptcy did not in fact prevent him from pursuing his profession. By the time it came to the attention of his professional body, he had been discharged and was in a position to obtain readmission. However, even if the bankruptcy had had that effect, it did not mean that the tax liability the subject of the appeal had that effect. Thus there was no reason to give a wide interpretation to the personal rights exclusion established in Heath v Tang.
4.Section 306 of the Insolvency Act 1986 involved a direct interference with the bankrupt's rights under art. 1 of the First Protocol and, to the extent that they were engaged, his rights under art. 8. Both those Convention rights were qualified rights, however. The interference with them was prescribed by law, necessary and proportionate in the pursuit of legitimate purposes, namely the protection of creditors and the orderly management of personal insolvency. It could not be suggested that s. 306 as a whole was non-compliant with the ECHR. The vesting of the bankrupt's rights of appeal in his trustee was inherent in the scheme created by s. 306, since if appeal rights existed which permitted assets to be recovered or liabilities abated, then they were rights properly to be exercised by the trustee for the benefit of the estate, and hence the creditors. The bankrupt was protected by s. 303(1).
5.There was no evidence that the trustee had assigned the right of appeal to the taxpayer and there was no suggestion that the taxpayer had given any consideration for the supposed assignment.
6.The question whether a s. 54 agreement had been concluded was a question of fact for the tribunal and, on the evidence, it had been entitled to reach the conclusion it had and no error of law in its reasoning had been identified. Further, the question whether a notice had been given complying with TMA 1970, s. 54(3) was a question of fact for the tribunal. On the evidence, it had been entitled to reach the conclusion it had and no error of law in its reasoning had been identified. Read in the context of the correspondence, and having regard to the express reference to TMA 1970, s. 54, HMRC had given notice that the trustee had agreed that the assessment the subject of the closure notice should be upheld without variation.
Arnold J: Introduction
1.This is an appeal from a decision by the First-tier Tribunal (Tax) (Tribunal Judge Michael S Connell and Alan Redden FCA) ("the Tribunal") dated 21 October 2010 ([2010] UKFTT 509 (TC); [2011] TC 00764) to strike out the appellant's notice of appeal to the Tribunal. The Tribunal held that (1) the appellant had no locus standi to bring the appeal because any right to appeal had vested in his trustee in bankruptcy and (2) the appeal had been settled by the appellant's trustee in bankruptcy in accordance with Taxes Management Act 1970 section 54s. 54 of the Taxes Management Act 1970 ("TMA 1970"). It is common ground that the appellant must overturn both of these conclusions in order to succeed on this appeal.
2.The appellant is a chartered accountant by profession. He participated in a tax avoidance scheme known as the Castle Trust ("the Scheme"). In his 1997/1998 self-assessment he claimed a capital loss purportedly generated by the Scheme. Having investigated the Scheme, the Respondents (at that time the Commissions for Inland Revenue, "HMRC"), concluded that the loss was artificial. Accordingly HMRC refused the appellant's claim for relief.
3.HMRC engaged in settlement discussions with the various taxpayer participants in the Scheme. In common with other taxpayers, in January 2004 the appellant was offered a settlement on the basis that his claim for capital loss arising from the Scheme failed. Those proposals were conditional upon the appellant accepting the offer within a specified period. The appellant did not do so.
4.Accordingly, on 17 May 2004 HMRC issued a closure notice amending the appellant's self-assessment resulting in a tax due of £951,790.80.
5.On 20 May 2004 HMRC imposed a penalty of 40% of the tax due amounting to £380,716. That penalty was subsequently vacated, however, and forms no part of the liabilities...
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