R v Commissioners of Inland Revenue, ex parte McVeigh
| Jurisdiction | England & Wales |
| Judgment Date | 06 December 1995 |
| Date | 06 December 1995 |
| Court | Crown Court |
Queen's Bench Division (Crown Office List).
May J.
Christopher Sokol (instructed by Rotheras, Nottingham) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following case was referred to in the judgment:
R v IR Commrs, ex parte Chisholm TAX(1981) 54 TC 722
Income tax - PAYE - Loans to director of company - Loans stated to have been grossed-up bonuses paid under deduction of tax - PAYE not paid by company - Whether director liable to pay the tax - Income Tax (Employments) Regulations 1993 (SI 1993/744SI 1993/744), reg. 49(5).
This was an application by a company director, seeking judicial review of a direction made by the Revenue under the Income Tax (Employments) Regulations 1993 (SI 1993/744SI 1993/744), reg. 49(5) that he should pay tax on bonuses credited to him by the company in the years 1989-90 and 1990-91 in respect of which the company had failed to deduct PAYE.
The taxpayer was a director of and employed by a construction company. In the years 1989-90 and 1990-91 bonuses were declared of £25,200 and £25,000 respectively but the company did not account for and pay the appropriate tax under PAYE. Nor did the taxpayer declare the bonuses in his personal returns.
The bonuses were said to have been calculated as a gross amount which, if tax was deducted, would produce an amount equivalent to sums which the taxpayer had drawn as loans from the company.
It was accepted that the company had failed to account to the Revenue and pay the tax in relation to the bonuses in accordance with the regulations.
On 16 September 1994, after extensive correspondence and the taxpayer having been given the opportunity to make representations, the Revenue made a direction under the Income Tax (Employment) Regulations 1993 (SI 1993/744SI 1993/744), reg. 49(5). It was common ground that there was no statutory right of appeal to the appeal commissioners against a direction made under reg. 49 of the regulations and in principle an application for judicial review was open to the taxpayer.
The taxpayer contended that tax had been deducted. The bonuses were shown in the accounts as including National Insurance contributions and the gross amount reflected the amount of the loans net of tax. Accordingly, what he received were the bonuses from which tax had been deducted.
The Revenue contended that, since there was no movement of money at any time, there was no positive evidence that the deductions had been made. It could not be said that net credits of amounts, whose calculation might or might not have been related to tax, evidenced any deduction in accordance with the regulations. Moreover, since the taxpayer's own returns were completed without including amounts referable to the bonuses, the proper conclusion was that the company had wilfully failed to deduct tax in accordance with the regulations.
Held, dismissing the application:
On the date when the payment was treated as having been made, there was no actual payment, and accordingly no deduction in the normal sense, constituted by the payment of a net sum against a pre-existing entitlement to gross pay. A net sum might have been treated as having been made if the tax had been accounted for and paid to the Revenue. But, to the taxpayer's knowledge, the company wilfully neither accounted for nor paid the tax. It would be a misuse of language to say that the book-keeping and accounting alone, without actual payment and without any compliance with the regulations, constituted a deduction of tax from a gross payment.
May J: This is an application, on behalf of Mr Michael McVeigh, for judicial review of a decision of the Inland Revenue in a direction dated 16 September 1994 under the Income Tax (Employments) Regulations 1993 (SI 1993/744SI 1993/744). This direction required Mr McVeigh to pay tax for the year 1989-90 of £8,766 and for the year 1990-91 of £8,6755.65 under reg. 49(1) and (2), the direction stating that it appeared to the Revenue that this tax should have been, but was not, deducted by McVeigh Construction (Nottingham) Ltd ("the company"). Leave to move for judicial review was granted by McPherson of Cluny J on 17 February 1995.
Mr McVeigh was one of two directors of the company (McVeigh Construction (Nottingham) Ltd). The other director was Mr Crossland. Each of them owned half of the issued shares. Mr McVeigh's evidence is that Mr Crossland was concerned with the books and financial matters and that he (Mr McVeigh) was unaware of the matters that are the subject of this application.
The application concerns tax that should have been paid on Mr McVeigh's director's bonuses. He and Mr Crossland, in the relevant years, were paid salaries of £12,000. They were also voted bonuses. In the years prior to 1989-90, when the amount of their bonuses appears to have been quite small, the appropriate tax was accounted for and paid to the Revenue by the company in accordance with tax legislation and regulations and Mr McVeigh declared the receipt of these bonuses, together with his salary, in his own personal tax returns.
For the years 1989-90 and 1990-91 bonuses were, it seems, declared of £25,200 and £25,000 respectively, but the company did not account for and pay the appropriate tax, and Mr McVeigh did not declare the bonuses in his own tax returns.
On 5 February 1992 the Revenue made determinations obliging the company to pay the tax. The company, now in liquidation, did not do so.
On 16 September 1994 the Revenue, having aired the question extensively in correspondence and given a number of opportunities to those advising Mr McVeigh to make representations, directed him to pay the tax personally. That direction was given under SI 1993/744reg. 49(5) of the Income Tax (Employments) Regulations 1993. Although in numerous other matters taxpayers are given rights of appeal to commissioners, it is common ground that there is no right of appeal against a direction under this regulation and that in principle an application for judicial review is open to Mr McVeigh.
The relevant legislative framework is briefly as follows. The statute is the Income and Corporation Taxes Act 1988. This has been amended since it was enacted. The former regulations were the Income Tax (Employments) Regulations 1973 (SI 1973/334SI 1973/334). These were replaced by the 1993 regulations, which came into force on 6 April 1993. The facts of this case straddle that date. I shall refer to the amended version of the statute and of the 1993 regulations, it being agreed that, apart from one amendment to the statute to which I shall refer, there is no material difference introduced by amendments to the statute or by the 1993 regulations, although the paragraph numbers of the regulations have changed.
Income and Corporation Taxes Act 1988 section 203Section 203 of the 1988 Act (as amended) provides for income tax by way of pay as you earn. Parts of it are as follows:
(1) On the making...
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