Pawlowski (Collector of Taxes) v Dunnington

JurisdictionEngland & Wales
Judgment Date05 May 1999
Date05 May 1999
CourtCourt of Appeal (Civil Division)

Court of Appeal (Civil Division).

Simon Browm, Aldous and Mantell LJJ.

Pawlowski (HM Collector of Taxes)
and
Dunnington

Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.

Barrie Akin (instructed by Stephensons, Wigan) for the taxpayer.

The following cases were referred to in the judgment:

Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223

Boddington v British Transport Police WLR[1998] 2 WLR 639

Bragg v Oceanus Mutual Underwriting Association (Bermuda) LtdUNK[1982] 2 Ll Rep 132

British Steel plc v C & E Commrs UNK[1997] 2 All ER 366

Dennis Rye Pension Fund (Trustees) v Sheffield City CouncilWLR[1998] 1 WLR 840

IR Commrs v Aken TAXWLR[1990] BTC 352; [1990] 1 WLR 1374

IR Commrs v Pearlberg WLR[1953] 1 WLR 331

IR Commrs v Soul TAX(1975) 51 TC 86

Mercury Communications Ltd v Director General of TelecommunicationsWLR[1996] 1 WLR 48

R v IR Commrs, ex parte Chisholm TAX(1981) 54 TC 722

Roy v Kensington and Chelsea and Westminster Family Practitioner Committee ELR[1992] 1 AC 624

Vandervell Trustees Ltd v White ELR[1971] AC 912

Wandsworth London Borough Council v Winder ELR[1985] AC 461

Woolwich Building Society v IR Commrs TAXELR[1992] BTC 470; [1993] AC 70

Income tax - PAYE - Tax not deducted from taxpayer's emoluments - Determination made on company - Company failed to pay - Direction made that tax should be recovered from taxpayer - Taxpayer raised defence that there was no evidence that he had "received his emoluments knowing that [the company] had failed to deduct" PAYE - Whether taxpayer entitled to defend collection proceedings involving legality of directions - Taxes Management Act 1970 section 66 subsec-or-para (1)Taxes Management Act 1970, s. 66(1);SI 1993/744 section 42 subsec-or-para (3) section 49 subsec-or-para (5)Income Tax (Employments) Regulations 1993 (SI 1993/744), reg. 42(3), 49(5).

This was an appeal by the the collector of taxes against a decision of Judge Urquhart in the Wigan County Court dated 8 April 1998.

The inspector discovered that a company (currently in liquidation) had failed to deduct PAYE from the taxpayer's emoluments in the years 1985-86 to 1991-92. He therefore made determinations of the tax due from the company under the predecessor to SI 1993/744 section 49reg. 49 of the Income Tax (Employments) Regulations 1993 (SI 1993/744) which the company appealed but which eventually became final.

The company did not pay the tax and in April 1995 the Board of Inland Revenue made directions under SI 1993/744 section 42 subsec-or-para (3) section 49 subsec-or-para (5)regs. 42(3) and 49(5) that it should be recovered instead from the taxpayer himself.

In March 1996, the inspector exercised his power under the regulations to require the taxpayer to pay the amount of tax due to the collector instead of taking it into account in a later year. At that point it became the responsibility of the collector to recover the tax.

The taxpayer sought to defend a summons issued by the collector in the County Court on the ground that there was no evidence that he had "received his emoluments knowing that [the company] had failed to deduct" PAYE.

The judge dismissed the Revenue's claim on the ground, admitted to be incorrect, that it was not sufficient for the Board to form an opinion about the taxpayer's state of knowledge; rather the collector had to satisfy the court that the Board's opinion was correct.

The issue before the Court of Appeal was whether a defendant to collection proceedings was entitled to raise a public law defence putting in issue the legality of the directions underlying the assessment.

The Revenue contended the true issue was whether the inspector had reasonable grounds to believe the taxpayer's knowledge, and that could only have been raised by way of proceedings for judicial review.

The Revenue contended the following. A public law defence should not be raised in recovery proceedings by the collector where there was no pre-existing contractual relationship between the parties: the only relief available would be by way of judicial review. The determination of liability should not be confused with recovery of a debt: it was the inspector's task to determine liability which was only to be challenged under the statutory machinery provided, while the collector's task was to recover the amount as finally determined. A defence raised in collection proceedings was a claim as of right, while relief in judicial review proceedings was discretionary so that the Revenue would be deprived of the opportunity to argue that relief should be refused as a matter of discretion. The direction might be held invalid as against the employee, but since, by a direction under the regulations, "the employer shall not be liable to pay [the relevant amount] to the collector", the tax could not be recovered from anyone.

Held, allowing the Revenue's appeal against the judge's decision, but remitting the matter to the County Court to be reheard.

The taxpayer should be allowed to defend the collection proceedings as of right. It made no difference that there was no contractual relationship between the parties; nor that the Revenue should be deprived of the possibility of persuading the court to exercise its discretion in their favour; nor that the effect would be to challenge an assessment by means other than the statutory machinery (Wandsworth London Borough Council v Winder ELR[1985] AC 461 followed).

JUDGMENT

Simon Brown LJ: 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 Taxes Management Act 1970 section 60Pt. 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 was a director of a newly formed company, Fire Design Systems Ltd ("the company"). Put shortly, the time came when the local inspector of taxes discovered that the company was not deducting PAYE from the taxpayer's emoluments as it was required to do. Accordingly, acting under the predecessor toSI 1993/744 section 49reg. 49 of the Income Tax (Employments) Regulations 1993 (SI 1993/744) ("the regulations"), made under Income and Corporation Taxes Act 1988 section 203s. 203 of the Income and Corporation Taxes Act1988, 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 SI 1993/744 section 49 subsec-or-para (5)reg. 49(5) that the tax should instead be recovered from the taxpayer. SI 1993/744 section 49 subsec-or-para (5)Regulation 49(5) provides:

Where-

  1. (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

  2. (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 taxpayer's emoluments for the earlier years 1985-86, 1986-87, 1987-88, and 1988-89, they made an additional direction - this one under reg. 42(3) - that this tax too could be recovered from the taxpayer. SI 1993/744 section 42 subsec-or-para (3)Regulation 42(3) provides:

If it appears to the Board that the amount specified in SI 1993/744 section 40 subsec-or-para (2)regulation 40(2) orSI 1993/744 section 41...

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