Schuldenfrei v Hilton (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 10 February 1998 |
| Date | 10 February 1998 |
| Court | Chancery Division |
Chancery Division.
Neuberger J.
Peter Sheridan QC, Robert Venables QC and Amanda Hardy (instructed by Gorman Lipkin) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Baylis (HMIT) v Gregory TAXTAXTAXTAX[1986] BTC 22; [1987] BTC 226 (CA); [1988] BTC 268 (HL); 62 TC 1
Bradley (HMIT) v London Electricity plc TAX[1996] BTC 95
Carlill v Carbolic Smoke Ball CoELR [1893] 1 QB 256
CL Nye Ltd, ReELR [1971] Ch 442
Felthous v BindleyENR (1862) 11 CBNS 869
R v HM Inspector of Taxes, ex parte Bass Holdings Ltd TAXTAX[1993] BTC 62; 65 TC 495
Capital gains tax - Agreement between taxpayer and Revenue - Assessment of over £3m - Amended assessment of nil issued in error - Taxpayer did not acknowledge amended assessment - Second amended assessment restored original assessment - Whether first amended assessment became final after 30 days - Whether first amended assessment and taxpayer's failure to respond constituted agreement - Whether agreement had to amount to a legal contract - Income and Corporation Taxes Act 1988 section 54Taxes Management Act 1970, s. 54.
This was an appeal by the taxpayer against a decision of a special commissioner on a preliminary point whereby the commissioner held that no agreement had been concluded between the taxpayer and the inspector of taxes under the Taxes Management Act 1970 section 54Taxes Management Act 1970, s. 54.
In 1985 the taxpayer was allotted shares in a company. In June 1986 the shares were exchanged for loan notes in another company and in March 1988 the taxpayer disposed of the loan notes. On 30 November 1988 an estimated assessment was issued for the year ending 5 April 1988 in the sum of £3,400,000 against which the taxpayer appealed on 16 December 1988. There followed discussions between the taxpayer's accountants and the inspector and payment by the taxpayer of some money on account. Meanwhile the appeal remained in abeyance.
On 25 May 1993 the taxpayer received an amended notice of assessment stating that his chargeable gains for the year ending 5 April 1988 were "nil".
In November 1993 the inspector realised his error and wrote to the taxpayer saying that the amended assessment had been a mistake. On 23 February 1994 the taxpayer replied that an agreement within theTaxes Management Act 1970 section 54Taxes Management Act 1970, s. 54 had been reached as a result of the notice of 25 May 1993 to reduce the assessment to nil, which the Revenue did not accept.
At the hearing of the appeal against the original assessment of 30 November 1988, the commissioners considered a preliminary point: whether there had been an agreement within Taxes Management Act 1970 section 54s. 54 of the 1970 Act in May 1993. They concluded that there had not and held that the appeal remained open. The taxpayer appealed against that decision.
The issue was whether a legally enforceable contract was necessary to constitute a binding agreement between a taxpayer and the Revenue, and if so, whether on the facts of this case there was such a contract.
Held, dismissing the taxpayer's appeal:
1. There should normally be a binding contract to found an agreement under Taxes Management Act 1970 section 54s. 54 of the 1970 Act and the existence of a dispute to be compromised was envisaged. Moreover, communication of acceptance of an offer was essential. Otherwise the offeree, whether the Revenue or the taxpayer, would not know if or when the offer had been accepted. The date of acceptance would be important because the taxpayer, by Taxes Management Act 1970 section 54 subsec-or-para (2)s. 54(2), had 30 days to repudiate any agreement.
2. Therefore, assuming that the amended notice constituted an offer, it could not be said that the taxpayer's inactivity and failure to take steps to accept that offer until 1994 could justify there being an agreement.
3. However, there had been no offer capable of acceptance. The amended notice of assessment merely recorded that there had been an error in the Revenue's records: it did not seek agreement or refer to the taxpayer's appeal which would have been compromised by a valid agreement under Taxes Management Act 1970 section 54s. 54.
Per curiam: under the procedure introduced in 1994 by Taxes Management Act 1970 section 56As. 56A of the 1970 Act, the possibility of remitting a case to the special commissioners pursuant to s. 56 to find further facts had disappeared. Under Taxes Management Act 1970 section 56As. 56A, SI 1965/1776 section 55 subsec-or-para (4)Ord. 55, r. (4) of the Rules of the Supreme Court the court was entitled, instead of remitting the case to the special commissioners to find further facts, to look at the evidence put before the commissioners and any note of evidence they had made.
By originating motion pursuant to the Taxes Management Act 1970 section 56ATaxes Management Act 1970, s. 56A (as substituted by SI 1994/1813 with effect from 1 September 1994), the taxpayer appealed to the High Court against the following decision on a preliminary point by the special commissioners (Mr Malcolm JF Palmer and Dr AN Brice), sitting in private (Sp C 125, Silver v Inspector of Taxes), released on 30 April 1997.
1. On 16 December 1988 the taxpayer appealed against an assessment to capital gains tax for the year 1987-88 showing estimated gains of £3,400,000 and issued in accordance with a notice of assessment dated 30 November 1988. When the appeal came on for hearing before us on 17 March 1997 it was agreed that the hearing would initially address as a preliminary issue the question whether we have jurisdiction to hear the appeal. The question of jurisdiction arises principally from the issue of whether the assessment should be treated as discharged by an agreement under Taxes Management Act 1970 section 54s. 54 of the Taxes Management Act 1970. The hearing before us on 17 and 18 March was, and this decision is now concerned with only that preliminary issue and certain related matters.
2. The taxpayer gave evidence at the hearing. We were given:
(a) a short six paragraph agreed statement of facts;
(b) a chronology of events;
(c) a 189 page agreed bundle of correspondence and documents which counsel for the taxpayer took us through; and
(d) a 34 page supplementary bundle of documents consisting of correspondence after November 1996, to which neither counsel made any reference.
3. Taxes Management Act 1970 section 54Section 54 of the Taxes Management Act 1970, which is headed "Settling of appeals by agreement" provides in so far as relevant as follows:
(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be …
-
(3) Where an agreement is not in writing-
(a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the inspector or other proper officer of the Crown to the appellant or by the appellant to the inspector or other proper officer …
4. The only other statutory provision to which we were referred wasTaxes Management Act 1970 section 29s. 29 of theTaxes Management Act 1970. This, which has the heading "Assessing procedure", in so far as relevant, provides as follows:
(1) Except as otherwise provided, all assessments to tax shall be made by an inspector …
(5) Notice of any assessment to tax shall be served on the person assessed and shall state the date on which it is issued and the time within which any appeal against the assessment may be made.
(6) After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts.
5. The principal issue for us in the hearing of the preliminary question of jurisdiction is whether the taxpayer and the inspector of taxes, in the circumstances surrounding the issue by the inspector to the taxpayer's agents on 25 May 1993 of an amended notice of assessment to capital gains tax for the year ended 5 April 1988 in a nil amount, came to an agreement within Taxes Management Act 1970 section 54s. 54 of the Taxes Management Act 1970 that the assessment issued on 30 November 1988 showing estimated gains of £3,400,000 was to be treated as discharged or cancelled, with the result that the appeal is no longer open for hearing by us.
6. We find the following facts relevant to this preliminary issue. The taxpayer qualified as an accountant in 1968, and although he has never practised as an accountant he has maintained his qualification. He has been and remains the director of numerous companies and is now a senior executive director of a public company. He is a financially sophisticated businessman and investor. On 5 February 1985 the taxpayer was allotted 450 10p shares in a company (the "shares") at a price of 10p each. On 10 June 1986 the shares were exchanged for loan notes issued by another company (the "loan notes") in a transaction that was treated as a reorganisation without a disposal for capital gains tax purposes. In September 1986 the taxpayer became a member of Lloyds, commencing underwriting in January 1987...
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