R (Johnson) v Branigan (HMIT)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE STANLEY BURNTON |
| Judgment Date | 05 April 2006 |
| Neutral Citation | [2006] EWHC 885 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | CO/8978/2005, CO/8979/2005 |
| Date | 05 April 2006 |
[2006] EWHC 885 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Mr Justice Stanley Burnton
CO/8978/2005, CO/8979/2005
CO/9048/2005
MR LEOLIN PRICE QC and MR EVAN PRICE (instructed by Messrs Gregory Rowcliffe Milners) appeared on behalf of the CLAIMANTS
MR PHILIP JONES (instructed by the HMRC Solicitor) appeared on behalf of the DEFENDANT
Wednesday, 5th April 2006
I have before me three applications for permission to apply for judicial review of notices in similar terms, all served on the taxpayers who are the claimants in these proceedings, namely Mr David Roy Collins, Mr Graham Kevin Mitchell and Mr Malcolm Arthur Johnson, on 25th August 2005.
There are a number of common issues in the three sets of proceedings; indeed, virtually all the legal issues are common, as will be seen, and it is most convenient to deal with Mr Collins' application before proceeding to consider the other two applications.
The Notices in question were served under the provisions of section 20 of the Taxes Management Act 1970, as very substantially amended. Section 20 confers on an Inspector of what is now HMRC power to call for documents and what are referred to as "particulars" in relation to the affairs of a taxpayer.
In the case of Mr Collins, the Notice arises from and relates to his affairs and transactions that were the subject of his Tax Return for the year ended 5th April 2000. One of the transactions which was referred to in Mr Collins' Tax Return was described as follows in Box 13:
"David Collins exchanged an Endowment Trust Instrument with Paulden Activities Limited for a Capital Redemption Policy (Deferred Annuity Certain —guaranteed minimum value, payable quarterly for 5 years certain), the current market value of the right to receive guaranteed value at maturity date 4 April 2080, calculated actuarially is £139,738."
There was no actuarial valuation attached to the Tax Return. Line 13 at the page of the Tax Return which is now page 63 of the bundle for this hearing referred to a loss involving the Paulden Activities Limited Endowment Trust Instrument with a date of acquisition of 30th March 2000 and a date of disposal four days later of 3rd April 2000, both transactions therefore taking place very shortly before the end of the tax year in question. The disposal proceeds were identified as sum of £139,738. The transaction involving that Endowment Trust Instrument gave rise to a loss of £2,333,485, as set out in Box 8.1 of the Tax Return. The Endowment Trust Instrument was also referred to at what is now page 65 of the trial bundle which stated against the date 3rd April 2000:
"Capital Redemption Policy received in exchange for Endowment Trust Instrument (Paulden Activities) —Actuarial Value £139,738."
The losses generated by that transaction were set off against other gains and substantially reduced the tax payable by Mr Collins in relation to his affairs during the year in question.
Since the present system of self-assessment of Income Tax has been in place, there have been provisions of the Taxes Management Act 1970 which authorise inquiries in relation to the Tax Returns filed by a taxpayer. Specifically, section 9A authorises an officer of the Board, that is to say what was the Board of the Inland Revenue, which is now HMRC, to enquire into a Return if he gives notice of his intention to do so to the taxpayer within "the time allowed" (see section 9A(1)(b)). The time allowed is defined by section 9A(2). By way of example, the time allowed, if the Return was delivered on or before the filing date, is up to the end of a period of 12 months after the filing date (see paragraph (a)). Section 19A of the 1970 Act authorises an officer of the Board who has given a notice of an enquiry under section 9A at the same time or subsequently to serve a notice in writing requiring the taxpayer to produce:
"(a) … such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which -
(i) the return is incorrect or incomplete, or
(ii) in the case of an enquiry which is limited under section 9A( 5) or 12AC(5) of this Act, the amendment to which the enquiry relates is incorrect, and
(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose."
Section 19A, or rather the power conferred by it, is by its terms not available to HMRC where the time allowed by section 9A has expired without a notice under section 9A having been served. The Notice served on Mr Collins was purportedly served under section 20 and was so served long after the expiration of the time allowed by section 9A. The letter enclosing the Notice which is the subject of these proceedings stated that:
"A Commissioner (that is to say a Special or General Commissioner of Income Tax) gave his consent today for the issue to you of a Notice under S.20(1) Taxes Management Act 1970 requiring you to deliver to me the specified documents and particulars.
The Notice is enclosed.
In accordance with S.20(8E) Taxes Management Act 1970 I am obliged to give you a summary of reasons for applying for consent to issue you withy the Notice. The summary of reasons is attached."
The letter was signed by Dr Branigan, who was the Inspector in question. The Notice requires Mr Collins, pursuant to section 20(1), to deliver or to furnish to Dr Branigan at a specified address by a specified date all such documents in his possession or power or such particulars as are specified or described in the schedule. The schedule consists of two numbered paragraphs with a number of bullet points and a number of definitions.
"1. Copies of all correspondence and other communications in your possession or power relating to the transactions, and
2. A full explanation of the purpose of the transactions.
* where the transactions means the purchase by you of a Capital Redemption Contract and all associated or connected arrangements and in particular (but not exclusively) -
* the purchase of Capital Redemption Contract No. PA/ET1/001A dated 2 April 2000 issued by Paulden Activities Ltd.
* The financing of the premium paid of £2,400,000.00
* Any arrangements of whatever description (whether formal or informal) with TPD Taylor or any company with which TPD Taylor is associated concerning the acquisition, holding and/or redemption, encashment, transfer or disposal of the Capital Redemption Contract.
* Any loan, advance or money's worth transfer (of any description) received by you or any member of your family related, directly or indirectly, to the Capital Redemption Contract."
Then there follow a series of definitions:
"a) Reference to Paulden Activities Ltd is to be read to include any employee, director or officer of the company acting in his/her official capacity.
b) Reference to any company with which TPD Taylor is associated is to be read to include any employee, director, shareholder or advisor of any such company acting in his/her official capacity.
c) Reference to TPD Taylor is to be read to include any person employed by TPD Taylor or any advisor or agent of TPD Taylor acting in his/her official capacity.
d) Reference to you is to be read to include any advisor acting on your behalf.
e) Correspondence and other communications means letters, including any enclosures and attachments, contracts, agreements, notes of meetings, notes of telephone conversations, memoranda, faxes, telexes, emails, marketing material and proposal documents."
The summary of reasons enclosed with the letter was as follows:
"The reason given to the General Commissioner in application for consent to issue you with the S.20(1) Notice are:"
- That in the tax year 1999/00 you entered into arrangements for the purchase of a capital redemption bond contract for the purposes of avoiding tax.
—That I believe that under those arrangements you were entitled to receive by way of loans part or the entire amount invested in the bond and that there was no expectation of any repayment.
—That I believe that you may have a beneficial interest in the company entering into the capital redemption bond with you.
—That I believe that these rights are not reflected in the valuation of the bond made at the time of its acquisition.
—That I believe that there has been a preconceived series of transactions designed to produce an artificial loss.
—Accordingly I believe that the 1999/00 self-assessment may be insufficient and that a discovery assessment can be made to recover any underpayment of tax.
—The documents and particulars requested are required to establish whether the believed insufficiency in the self-assessment exists and, if it does, to enable the insufficiency to be quantified."
On 16th September 2005 Mr Collins' solicitors wrote to Dr Branigan a letter before claim objecting to the Notice and raising a number of issues in relation to it. They were summarised as follows:
"We believe that:
1. The issue of the Notice was invalid and without effect as it does not contain any grounds for invoking section 20(1), Taxes Management Act 1970 and the requirements of section 20(1) have not been satisfied.
2. There is no basis set out in the Notice for an Inspector in his reasonable opinion to reasonably require the documents requested or the provision of the...
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