Spring Salmon & Seafood Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 September 2014 |
| Neutral Citation | [2014] UKFTT 887 (TC) |
| Date | 11 September 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 887 (TC)
Judge J Gordon Reid QC FCIArb, Dr Heidi Poon CA, CTA, PhD
Michael Upton, Advocate, appeared for the Appellant, instructed by Russell & Aitken, solicitors, Edinburgh
Iain Artis, Advocate, instructed by the Office of the Advocate General, appeared for the Respondents
Income tax - PAYE determinations - NICs decisions - Bonus - Effect of reference in accounts to fish stocks - Whether paper transaction - Whether contingent liability or accrual - Time bar - Deliberate conduct - Whether liability excluded by agreement and/or undertaking - Taxpayer struck off register of companies and subsequently restored to the register - Effect of restoration - Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), regs. 21, 68, 69 & 80 - Social Security Contributions and Benefits Act 1992 ("SSCBA 1992"), Social Security Benefits and Contributions Benefits Act 1992 section 8s. 8 - Social Security Contributions (Transfer of Functions etc) Act 1999 ("SSCTFA 1999"), Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8s. 8 - Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 29 section 34ss. 29, 34, and Taxes Management Act 1970 section 3636 - Companies Act 1985 ("CA 1985"), Companies Act 1985 section 228 section 245 section 653ss. 228, 245, 653 - Companies Act 2006 ("CA 2006"), Companies Act 2006 section 454s. 454 & Companies Act 2006 section 10321032.
The First-tier Tribunal dismissed the taxpayer company's appeals against a PAYE Determination and NIC Decisions for tax year 2004-05: these related primarily to tax and NIC liabilities in respect of a bonus credited to Directors' current account in the company's relevant accounts for the period to 31 January 2005.
The taxpayer company ("the Company") carried on business in the seafood industry between 1998 and about 31 January 2005 when it declared it had ceased to trade. Though not disclosed in its accounts and no documentation was provided, HMRC accepted for purposes of this appeal that in September 2004 the assets and business of the Company had been transferred to a partnership and then immediately on to a related company.
In or about August 2006, the Company resolved, retrospectively, to make payment of a bonus to two of the directors (RT and ST), in a total amount of £900,000. This sum was reflected in the Company's cessation accounts which covered the 18 month period from 1 August 2003 to 31 January 2005. Those accounts also disclosed "Staff Costs" of £178,230. The accounts were submitted to HMRC along with corporation tax returns for the 12 months to 31 July 2004, and 1 August 2004 to 31 January 2005.
During the period between 1 August 2003 and 31 January 2005, the Company declared and paid no PAYE or NICs. The payments totalling £900,000 were not mentioned in the personal tax returns of RT or ST for the tax years 2003-04 or 2004-05.
In enquiries into the personal tax returns of RT and ST, HMRC indicated to RT in a conversation that they were prepared to agree RT's proposal that on a without prejudice basis Finance Act 1989, Finance Act 1989 section 43s. 43 be applied (to deny a corporation tax deduction) if HMRC agreed not to apply PAYE and NICs to the £900,000, and would write to confirm that agreement. There was subsequent correspondence between the parties in this respect.
In August 2007, the Company was struck off the Register of Companies. HMRC subsequently applied, successfully, for its restoration, which took place in March 2011. As part of the restoration process, HMRC undertook to the Registrar to issue closure notices in respect of outstanding enquiries into the Company's liabilities, and apart from assessments made on closure of such enquiries, not to raise any other assessments in relation to the Company's trade.
Following restoration of the Company, HMRC issued a PAYE Determination (under the Income Tax (PAYE) Regulations 2003, reg. 80) and National insurance Decisions (under the Social Security Contributions (Transfer of Functions, etc) Act 1999, Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8s. 8), against the Company in respect of the two sums of £900,000 and £178,230. These HMRC Notices were the subject of the present appeal.
The Tribunal said the issues to be determined were:
(a) Whether the sums of £900,000 and £178,230 were sums in respect of which PAYE and NICs were payable at all;
(b) Whether the Determination and Decisions were time-barred;
(c) Whether an alleged agreement in 2007, during or at the end of enquiries into relevant company/personal tax returns, barred HMRC from pursuing PAYE and NIC liabilities so far as relating to the £900,000;
(d) Whether an undertaking given by HMRC in the proceedings for restoration of the Company to the Companies Register barred HMRC from pursuing such liabilities.
In the Company's accounts for the 18 months to 31 January 2005, prepared in August 2006, the "Administrative expenses" in the Profit and Loss account disclosed the accrued bonus of £900,000 (described as "Accrued bonus (180 tonnes of fish stocks)") and the staff costs of £178,230. The £900,000 bonus was credited to and included in the entry "Directors' current accounts", in "Creditors" in the Balance sheet comprised in those accounts.
The Company produced revised accounts in June 2013, excluding the entries relating to the £900,000. Neither the original accounts nor the revised accounts were audited, nor lodged at Companies House. No attempt had been made to use the revised accounts to amend the Company's corporation tax returns covering the periods from 1 August 2003 to 31 January 2005.
The Company had submitted "Nil" P35 forms for the tax years 2002-03 (in May 2003) and 2003-04 (in October 2004). There was no evidence of the Company having submitted any P35 forms since then.
Against that background, the Tribunal determined as follows in relation to the four issues:
(a) The cessation accounts made reference to the accrued bonuses totalling £900,000, which were credited to Directors' current accounts in those accounts. Such amount was unreservedly at the disposal of RT and ST (in equal shares, on the evidence of RT), and constituted "payment" for PAYE purposes. It was too late to amend the returns submitted in August 2006 which were based on those cessation accounts (Finance Act 1998, Finance Act 1998 schedule 18 subsec-or-para 15Sch. 18, para. 15(4)).
(b) The Company's argument that the amounts were only at the disposal of RT and ST on condition that the Company came by the means to transfer value (and so, in effect, contingent) was not accepted. There was no such contingency. The Company was not in liquidation, receivership or in administration, and the accounts of the Company could not be relied upon to determine solvency since they made no mention of the transfer of its business in September 2004. In any event, the Garforth test as explained and amplified in Aberdeen Asset Management plc v R & C CommrsTAX[2013] BTC 726 did not depend upon the financial soundness of the employer. The bonus of £900,000 fell four square within Garforth.
(c) Even if it were accepted that the sum at credit in the Directors' current account did not include the £900,000, it was a reasonable inference that the money had been paid out to RT and ST. There had been a persistent failure by the Company to provide a complete record of the transactions on its Directors' account.
(d) There was a "loss of tax" deliberately brought about by the Company (including in respect of £90,000 of the £178,230 which remained unaccounted for), such that the extended time limit in Taxes Management Act 1970, Taxes Management Act 1970 section 36s. 36 applied. The submission of the "Nil" P35 forms for 2002-03 and 2003-04, and failure to submit any P35 for 2004-05 or to lodge PAYE returns at all accounting for tax and NICs were deliberate acts.
(e) It was common ground that Taxes Management Act 1970 section 36s. 36 did not apply to Decisions in respect of unpaid NICs: here, the Tribunal considered that Scots law was the applicable law for NICs in the circumstances, and that the Prescription & Limitation (Scotland) Act 1973, s. 7 applied and provided for a prescriptive (or "limitation") period of 20 years.
(f) Either the Company had breached the "2007 agreement", or the conditional or qualified nature of that agreement was never purified, and so could not be relied upon by the Company because no binding rights or obligations were created.
(g) The issue of the Determination and Decisions did not breach the 2010 undertaking. Such issue did not amount to the raising of "assessments" within the meaning of the undertaking. Even if the phrase "any assessments" were construed in a non-technical sense, they would fall to be assessments raised in respect of outstanding liabilities of the Company, and not be any surprise that they could arise out of an enquiry into the corporation tax return of the Company.
Accordingly, the Company's appeals were to be dismissed and the PAYE Determination and NIC Decisions (subject to some variations in the amounts thereof) upheld.
The Tribunal took the Garforth criterion ("unreservedly at the disposal …") as the criterion to apply, and said the case was "four square" within Garforth. Whether the facts here were "four square" with those in Garforth might be argued, but the lack (and it seems, in the Tribunal's view, unreliability) of evidence provided by the Company made for difficult presentation of the Company's case.
Paragraph |
Topic |
1-5 |
Introduction |
6 |
Other procedural matters |
7-26 |
General background & Issues |
7-21 |
Background |
22-24 |
Issues |
25-26 |
Other Proceedings |
27-47 |
Statutory Background |
27-31 |
PAYE |
32-33 |
NIC |
34-40 |
Time Bar |
41-44 |
Other Relevant Statutory Provisions |
45-47 |
Company Accounts |
48 |
Records |
49-192 |
Facts |
49-58 |
The Company - General History... |
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