Pawlowski (Collector of Taxes) (Claimant/Appellant) v Dunnington
| Jurisdiction | England & Wales |
| Judge | Lord Justice Simon Brown,Lord Justice Aldous,Lord Justice Mantell |
| Judgment Date | 05 May 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0505-13 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CCRTF 98/0552 |
| Date | 05 May 1999 |
[1999] EWCA Civ J0505-13
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WIGAN COUNTY COURT
(HIS HONOUR JUDGE URQUHART)
Royal Courts of Justice
Strand
London WC2
Lord Justice Simon Brown
Lord Justice Aldous
Lord Justice Mantell
CCRTF 98/0552
MR T BRENNAN (MISS A PADFIELD on 5th May only) (Instructed by the Solicitor of Inland Revenue, Somerset House, Strand, London) appeared on behalf of the Appellant
MR B AKIN (Instructed by Stephensons, 10/14 Library Street, Wigan) appeared on behalf of the Respondent
This is yet another appeal concerning the relationship between public law and private law proceedings. The difficult and important point it raises is whether a taxpayer can invoke a public law defence to a claim by the collector of taxes under Part VI of the Taxes Management Act 1970 —the Part concerned with the collection and recovery of tax.
The particular circumstances in which the point now arises are as follows. During the years 1985–1993 the taxpayer (the respondent) was a director of a newly formed company, Fire Design Systems Limited (the Company). Put shortly, the time came when the local inspector of taxes discovered that the Company was not deducting PAYE from the respondent's emoluments as it was required to do. Accordingly, acting under the predecessor to regulation 49 of the Income Tax (Employments) Regulations 1993 (the Regulations), made under s.203 of the Income and Corporation Taxes Act 1988, the inspector made determinations of the tax due from the Company in respect of the years 1989/90, 1990/91, 1991/92 and 1992/93, determinations which the Company appealed but which eventually became final and conclusive.
Following the Company's failure to pay the tax determined, the Board of Inland Revenue (the Board) made a direction under regulation 49(5) that the tax should instead be recovered from the respondent. Regulation 49(5) provides:
"Where -
(a) any part of the tax determined under this regulation is not paid within 30 days from the date on which the determination became final and conclusive, and
(b) the Board are of the opinion that an employee in respect of whose emoluments the determination was made has received his emoluments knowing that the employer has wilfully failed to deduct the amount of tax which he was liable to deduct under these Regulations from those emoluments,
the Board may direct that such part of that tax as it appears to them should have been but was not deducted under these Regulations by the employer on payment of the relevant emoluments shall be recovered from the employee, and, where the Board so direct, the employer shall not be liable to pay that part of that tax to the collector."
Since it further appeared to the Board that PAYE had similarly not been deducted by the Company from the respondent's emoluments for the earlier years 1985/86, 1986/87, 1987/88, and 1988/89, they made an additional direction —this one under regulation 42(3) —that this tax too could be recovered from the respondent. Regulation 42(3) provides:
"If it appears to the Board that the amount specified in regulation 40( 2) or 41(2) which the employer is liable to pay to the collector exceeds the amount actually deducted by him from emoluments paid during the relevant income tax period and the Board are of the opinion that an employee has received his emoluments knowing that the employer has wilfully failed to deduct the amount of tax which he was liable to deduct under these Regulations from those emoluments, they may direct that the amount which they consider to constitute the excess ("the excess amount") shall be recovered from the employee, and, where the Board so direct, the employer shall not be liable to pay the excess amount to the collector."
The total tax involved is £17,293.09. It is these directions —made by the Board in the exercise of their public law powers —which the respondent contends were unlawfully made. His case in a sentence is that there was no material available to the Board upon which they could fairly and rationally form the opinion that he "received his emoluments knowing that the [Company had] wilfully failed to deduct" PAYE.
The question now arising is whether that is a defence which he can properly put forward in these particular proceedings. Before addressing it, however, it is necessary first to indicate the nature of the proceedings and also the rather unfortunate course that they have thus far taken.
The Board's directions were made on 26th April 1995. Their effect, put shortly, was to reduce to the extent of the unpaid PAYE the credit previously given to the respondent in his Schedule E assessments —see regulation 101(6)(b); thereby creating an excess tax liability under those assessments —see regulation 101(3) and (4)(a); and allowing the inspector to require the respondent "to pay the excess to the collector instead of taking it into account in determining the appropriate code for a subsequent year" —see regulation 101(2). The inspector exercised that power by notice dated 5th March 1996. At that point responsibility for recovering underpaid tax passed from the Inspector to the collector. Regulation 105(2) provides:
"Any tax which is payable to the collector under -
(a) regulation 101(2) …
shall be payable within 14 days of the date on which the collector first makes application for its payment."
Regulation 105(1) provides that: "Any tax which is payable to the collector by any employee may be recovered in the manner provided by the Income Tax Acts."
That brings me to Part VI of the Taxes Management Act 1970 which, by s.60, requires the collector to make demand of the relevant sums when tax becomes due and payable, and by s.66 provides:
"(1) Tax due and payable under any assessment may … be sued for and recovered from the person charged therewith as a debt due to the Crown by proceedings in a county court commenced in the name of a collector."
It was pursuant to s.66 of the 1970 Act that the collector (the appellant) on 8th August 1996 issued a default summons against the respondent claiming £17,294.34 plus interest. The claim for interest has long since been abandoned. It is unnecessary to explain why the claim erroneously exceeded the directions by £1.25.
On 15th November 1996 the respondent filed a defence denying that he received any payment from the Company knowing that it had wilfully failed to deduct PAYE. He was acting in person and clearly unaware of the public law nature of his defence. The appellant too was unrepresented despite the judge having expressed concern as to that at a preliminary hearing in the case. No reply was served so that in the event the collector never pleaded the case which Mr Brennan now formulates on his behalf. This is, first, that the true issue was not whether the respondent knew but rather whether the Board could reasonably conclude that he knew, and second, that in any event such an issue could only ever properly have been raised by way of a judicial review challenge to the directions and not as a defence to the recovery proceedings.
Perhaps unsurprisingly in those circumstances, when the matter finally came before Judge Urquhart in the Wigan County Court on 8th April 1998, he approached it in what is now conceded to have been the wrong way. His judgment implied that it was not sufficient for the Board to form an opinion about the respondent's state of knowledge; rather the collector had to satisfy the court that the Board's opinion was correct, and this he had failed to do. In other words, the judge undertook what amounted to a rehearing of the merits of the Board's decision and in the result dismissed the claim on an impermissible basis. In dismissing it, I should observe, he concluded that "the Revenue have put forward no evidence that he did know" but rather had stated, in a letter dated 9th January 1995:
"The Board of Inland Revenue take the view that a director by virtue of his offices has the responsibility for management which amongst other things requires that he ensures that the Company complies with its statutory obligations under the Income Tax Regulations and implies that he should ensure that PAYE is correctly operated on his own remuneration and he cannot abrogate responsibility to any other person."
Mr Brennan rightly acknowledges that such an approach could not of itself justify the Board's conclusion. Actual knowledge is required on the part of the employee. As McNeill J held in R v Inland Revenue Commissioners ex parte Chisholm [1981] 2 AllER 602:
"… the word 'knowing' means what it says and does not mean 'ought to have known' or 'should have been suspicious' or any other weakening of knowledge."
What Mr Brennan says, however, is that there was, in the evidence put before the county court, material upon which, even approaching the issue correctly, the Board could properly have concluded, as they did, that the respondent had actual knowledge of the Company's non-payment of PAYE. If, therefore, this court were to hold that a public law defence can be relied upon in these proceedings, the appellant would wish to adduce evidence to this effect and would seek a re-hearing for this purpose.
Mr Akin for the respondent, whilst conceding that the judgment cannot be upheld on its present basis, suggests that on no view of the evidence could the Board properly have found actual knowledge on the respondent's part. I for my part remain unpersuaded of that: the appellant has not hitherto needed to crystallise his response to the proposed public law defence and in my...
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