Schuldenfrei v Hilton (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 16 July 1999 |
| Date | 16 July 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Evans and Schiemann LJJ and Jonathan Parker J.
Peter Sheridan QC, Robert Venables QC and Amanda Hardy (instructed by Lipkin Gorman) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Investors Compensation Scheme Ltd v West Bromwich Building SocietyWLR[1997] CLC 1243; [1998] 1 WLR 896
R v Inspector of Taxes, ex parte Bass Holdings Ltd TAXTAX[1993] BTC 62; 65 TC 495
Capital gains tax - Assessment - Assessment of over £3m - Amended assessment of nil issued in error - Taxpayer did not acknowledge amended assessment - Whether first amended assessment became final after 30 days - Whether taxpayer's failure to respond constituted agreement - Whether "agreement" had to amount to contract in law - Taxes Management Act 1970 section 54Taxes Management Act 1970, s. 54.
This was an appeal by the taxpayer against the decision of Neuberger J ([1998] BTC 156), dismissing the taxpayer's appeal from the decision of a special commissioner, that an amended notice of assessment to capital gains tax, erroneously reducing the original assessment to nil from £3.4m, did not amount to an offer capable of acceptance after 30 days in the absence of any communication by the taxpayer.
In March 1988 the taxpayer disposed of loan notes for a cash sum of about £3.4m. He submitted a capital gains computation for the year 1987-88 listing a number of disposals showing a net chargeable gain of some £3m. On 30 November 1988 the Revenue issued a capital gains assessment in the estimated sum of £3m which the taxpayer appealed on the ground that his losses had not been taken into account.
On 25 May 1993 ("the May 1993 notice") the Revenue sent to the taxpayer what purported to be an amended notice of assessment for 1987-88 showing net capital gains tax payable as nil.
The taxpayer was advised that if the May 1993 notice stood unaltered for 30 days it might become effective. He deliberately took no action, hoping that by doing nothing he might be treated as accepting an offer to settle as nil his capital gains liability.
By November 1993 the inspector realised his mistake and by a letter of 18 November he wrote to the taxpayer explaining that the gain from the disposal of the loan notes should have been included in the computation of gains for 1987-88, apologising for the mistake and enclosing an "amended notice of assessment" based on gains of some £3.3m.
On 23 February 1994, after having received the second amended assessment, the taxpayer wrote to the Revenue purporting to confirm his acceptance of the May 1993 notice.
It was common ground that the May 1993 notice had no statutory effect, since the November 1988 assessment, once under appeal, could only be altered either by determination by the appeal commissioners or by agreement under the Taxes Management Act 1970 section 54 subsec-or-para (1)Taxes Management Act 1970, s. 54(1). At the date of the May 1993 notice the November 1988 assessment had not been validly altered in any way. It was also common ground that the second amended notice of assessment of November 1993 also lacked statutory effect.
Held, dismissing the taxpayer's appeal:
1. The question whether the Revenue and the taxpayer had "come to an agreement" within Taxes Management Act 1970 section 54 subsec-or-para (1)s. 54(1) of the 1970 Act in relation to the assessment under appeal was to be considered in a statutory, not a common law context. However, common law concepts such as "offer" and "acceptance" were of assistance in addressing the question. It did not follow from the mere fact that parties were in agreement in relation to a particular matter, that they had concluded an agreement.
2. The notion of parties having "come to" an agreement implied not merely that they were of the same mind, but also that their minds had met so as to form a mutual consensus resulting from a process in which each party had to some extent participated. Adopting that approach, to construe the May 1993 notice as containing an offer or proposal by the Revenue capable of acceptance would be to turn it into something that it was not. The May 1993 notice did not invite any response from the taxpayer. It came out of the blue in the sense that it was not the product of any discussion, still less negotiation. While there had been negotiations as to the amount of the taxpayer's capital gains liability, it was never suggested that his liability was nil.
3. As to "acceptance", all that happened was that the taxpayer did not correct the Revenue's obvious mistake in the hope, belief or expectation that if he did nothing for 30 days the mistake would result in his liability being completely discharged. Even if the May 1993 notice was an offer, in the circumstances of this case, it was not an offer capable of acceptance by mere silence.
4. Per Evans LJ: It was possible to regard the May 1993 notice as an implied offer to reduce the assessment to nil if the taxpayer agreed. But it was impossible to say that the offer dispensed with the need for communication of acceptance by the taxpayer. If it was regarded as an offer, and there was no prior agreement to which it could refer, then the inspector would expect an acknowledgement or reply. There were no grounds for inferring that the inspector was prepared to treat 30 days' notice as an acceptance. The 30-day period was part of the statutory scheme, but it did not apply to the May 1993 notice, which was outside the scheme.
Jonathan Parker J: Introduction
1. This is an appeal by the taxpayer, Mr Henry Schuldenfrei, against an order made by Neuberger J dated 10 February 1998 ([1998] BTC 156). By that order, Neuberger J dismissed the taxpayer's appeal against a decision of the special commissioners released on 30 April 1997 on a preliminary issue arising on the taxpayer's appeal against an assessment to capital gains tax for the year 1987-88. The issue was whether the appeal had been settled by agreement, within the meaning ofTaxes Management Act 1970 section 54 subsec-or-para (1)s. 54(1) of the Taxes Management Act 1970 ("the Act"). The taxpayer contended that it had, and that in consequence the special commissioners were not competent to proceed to hear it. The Revenue contended to the contrary. The special commissioners held in favour of the Revenue, and the taxpayer appealed to the judge. The judge upheld the decision of the special commissioners. The taxpayer appeals to this court.
2. The factual background which gives rise to the preliminary issue is, briefly, as follows.
3. On 10 June 1986 the taxpayer exchanged a holding of shares for loan notes. That transaction was treated by the Revenue as not giving rise to a disposal chargeable to capital gains tax, with the consequence that liability for capital gains tax was deferred until the loan notes were themselves disposed of. In March 1988 the taxpayer disposed of the loan notes for a cash sum of around £3.4m. On 22 November 1988 the taxpayer submitted to the Revenue a capital gains computation for 1987-88, listing a number of disposals (including the disposal of the loan notes) and showing a net chargeable gain for the year of around £3m. On 30 November 1988 the Revenue issued a capital gains tax assessment for 1987-88 in the estimated sum of £3.4m. On 16 December 1988 the taxpayer appealed against that assessment.
4. Thereafter, over the next four years or so, correspondence took place between the Revenue and the taxpayer's accountants, Messrs Wilder Coe, concerning the assessment. Numerous points were raised and discussed, but it is to be noted, in the light of what happened subsequently, that at no stage was it asserted on behalf of the taxpayer that his capital gains tax liability for 1987-88 was nil.
5. In February 1989 the taxpayer made a payment on account of his capital gains tax liability for 1987-88 in the sum of £150,000. He further agreed to set off against that liability a further sum of £150,000 which he was due to receive by way of repayment of income tax.
6. On 4 December 1992 the Revenue wrote to Wilder Coe asking for their latest computation of the taxpayer's net chargeable gain for the year 1987-88. No response was received to that letter, and it is not clear whether it was received by Wilder Coe. On 15 April 1993 the Revenue sent a reminder. On 25 May 1993, no response having been received to the reminder, the Revenue sent the taxpayer what purported to be an amended notice of assessment for 1987-88 recording that adjustments had been made to the capital gains assessment and showing the net capital gains tax payable as nil. It is on this document that the taxpayer bases his contention that his appeal against the original assessment has been settled by agreement; the agreement being (he contends) that his capital gains tax liability for the relevant year is nil.
7. The notice dated 25 May 1993 (which I will call "the May 1993 notice") consists of a standard printed form on which entries have been made in manuscript. It is addressed to Wilder Coe, and refers to Mr Schuldenfrei's capital gains tax liability for 1987-88. Under the heading "Amended notice of assessment", the following appears:
This statement shows the adjustments which have been made to the assessment. Where tax remains payable, after taking into account any payments already made, this is payable to the collector. You are reminded of the general rule that interest is chargeable on tax paid late.
8. There then follows a printed form of calculation of the capital gains tax liability, with the amounts left blank, to be completed in manuscript. The inspector has inserted noughts in the spaces for "chargeable gains for the year", "total chargeable gains", "total tax", and "net tax payable".
9. It is common ground that the May 1993 notice had no statutory effect, since...
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