Stockler v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Sir Mark Waller,Lord Justice Mummery |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWCA Civ 893 |
| Docket Number | Case No: A3 2009/2226 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2010 |
[2010] EWCA Civ 893
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
ON APPEAL FROM THE SPECIAL COMMISSIONERS
Sir John Lindsay
(Mr John Clark)
Before: Lord Justice Mummery
Lord Justice Lloyd
and
Sir Mark Waller
Case No: A3 2009/2226
Conrad McDonnell (instructed by Stockler Brunton) for the Appellant
Akash Nawbatt (instructed by the Solicitor for HM Revenue and Customs) for the Respondent
Hearing date: 26 May 2010
Approved Judgment
Lord Justice Lloyd:
Introduction
Mr Stockler, the appellant, was the representative partner of a firm of solicitors practising under the name Stockler Charity. Since the period relevant for these proceedings one of the three partners, Mr Charity, has retired, and there has since then been a firm under the name Stockler Brunton. The present appeal arises from the tax affairs of Stockler Charity and of Mr Stockler himself. I will refer to the respondent as HMRC, regardless of whether, at the material time, that was the correct label. (I will also use the same label, in referring to statutory provisions, even though in some cases the reference should be to an officer of HMRC.)
The appeal is brought, with permission of Rimer LJ, against a judgment of Sir John Lindsay given on 22 September 2009, [2009] EWHC 2306 (Ch), itself given on appeal from a decision of the Special Commissioner (Mr John Clark) released on 20 February 2009 (Spc00739). The proceedings arise from the consequences of previous litigation. I will tell the story in outline.
Stockler Charity submitted partnership returns in respect of income tax for various periods of account. HMRC took the view that some of these were incorrect. In September 2005 they amended the partnership return for three periods, so as to exclude deductions which they said could not properly be made. They did not proceed to amend Mr Stockler's own return consequentially.
Stockler Charity appealed against these amendments to the Special Commissioners. Their appeal was dismissed on 7 December 2006, by Sir Stephen Oliver Q.C. and Dr Brice. They appealed further to the High Court. On 17 May 2007 Stockler Charity made an offer under CPR Part 36 to HMRC to settle the appeal. The terms of the offer were as follows:
i) HMRC will withdraw the amendments of the partnership's returns for certain specified years.
ii) The Appellant (Stockler Charity) will pay (within a given time) “the aggregate amount of income tax assessable on the partners of the Appellant in consequence of the decision of the Special Commissioners”, the subject of the appeal, subject to certain uncontroversial adjustments.
iii) The Appellant will pay, within the same time, interest at the statutory rates on the sum so payable.
iv) The Appellant will pay HMRC's costs of the appeal up to acceptance of the offer.
On 25 May 2007 HMRC accepted the offer. It sent the appropriate notice under cover of a letter in which it said that acceptance of the offer was “entirely without prejudice to any penalty determination which may follow hereafter”, penalties not being in issue in the proceedings. The sum of principal due was agreed in due course as £76,508.75; together with interest at statutory rates the agreed sum was £122,731.77. This was paid (by Mr Stockler), and the amendments to the partnership returns were withdrawn. There were some technicalities about the process of withdrawal but, fairly, HMRC did not rely on any of those to detract from the position that, as required by the terms of the Part 36 offer, the amendments had been withdrawn.
I doubt that it is relevant or admissible, but there had in fact been previous discussions between the parties in the course of which HMRC stated that they expected to levy penalties in consequence of the under-declaration of income, and Mr Stockler said that he would not agree to pay anything by way of penalty.
On 16 October 2007 HMRC issued a penalty determination in respect of Mr Stockler in respect of incorrect returns of his liability to tax for three years, the penalty being 70% of the tax due, and amounting to £53,555.
Stockler Charity applied to the High Court seeking an order precluding HMRC from levying penalties based on the amendments which had by then been withdrawn. The application came before Warren J, who refused it on the grounds that the proper recourse was an appeal to the Special Commissioners: [2007] EWHC 2967 (Ch). Mr Stockler therefore appealed to the Special Commissioners. Mr Clark treated the hearing before him as devoted to a preliminary issue, namely whether HMRC had power to raise a penalty determination. As he held that it did, other issues could arise, as to quantum, but those were held over pending appeal. His decision led eventually to the present appeal.
The issue on the appeal
I will need to set out several provisions of the Taxes Management Act 1970 ( TMA). At the heart of the case is section 95 which is the provision relied on as creating liability to a penalty. The relevant part is as follows:
“95(1) Where a person fraudulently or negligently–
(a) delivers any incorrect return of a kind mentioned in section 8 or 8A of this Act (or either of those sections as extended by section 12 of this Act), or
(b) makes any incorrect return, statement or declaration in connection with any claim for any allowance, deduction or relief in respect of income tax or capital gains tax, or
(c) submits to an inspector or the Board or any Commissioners any incorrect accounts in connection with the ascertainment of his liability to income tax or capital gains tax,
he shall be liable to a penalty not exceeding the amount of the difference specified in subsection (2) below.
(2) The difference is that between–
(a) the amount of income tax and capital gains tax payable for the relevant years of assessment by the said person (including any amount of income tax deducted at source and not repayable), and
(b) the amount which would have been the amount so payable if the return, statement, declaration or accounts as made or submitted by him had been correct.”
On behalf of Mr Stockler, Mr McDonnell argues that “the amount of income tax … payable for the relevant years of assessment by” the appellant has to be determined by reference to what is his liability under the relevant legislation, which depends on the amount of a subsisting assessment. He does not dispute that the £122,000 odd was due from Mr Stockler to HMRC, but he says it was not “income tax … payable for the relevant years of assessment”, and was therefore not to be brought into account under section 95(2)(a). Accordingly, he argued, the amount under section 95(2)(a), following the withdrawal of the amendments, is the same as the amount under section 95(2)(b), and that the maximum penalty is therefore nil.
The Special Commissioner and Sir John Lindsay both disagreed with this, but Mr McDonnell has mounted a substantial challenge to their conclusions and to HMRC's position. In order to address the points arising it will be necessary to refer to various provisions of TMA, and to some decisions of this court. I will start with the legislation.
The relevant legislation
For this purpose it is necessary to look at the legislation about self-assessment both for individuals and for partnerships. Before 1996 self-employed persons would put in a tax return, on which HMRC would make an assessment. The assessment set out the taxpayer's liability, subject to any appeal. The introduction of the self-assessment system in 1996 changed all of that.
Under TMA section 8 persons chargeable to income tax (and capital gains tax, but I need not mention cgt separately in future) for a year of assessment may be required by notice to make a tax return containing information specified in the notice, reasonably required for the purpose of establishing the amounts in which the person is chargeable to income tax for the relevant year.
Correspondingly, where a trade, profession or business is carried on by a partnership, HMRC may give notice to the partnership, or to any partner, requiring a tax return, under section 12AA. By section 12AB every partnership return is to include a partnership statement. This must state amounts of income or loss from each relevant source which has accrued to or been sustained by the partnership and, in the case of each of the partners, the amount which is equal to his share of the income or loss.
Returning to section 8, by sub-section (1B) a person who is a partner in a trade, profession or business must include in his return under section 8 the amount which, in any relevant partnership statement, is stated to be equal to his share of any income or loss for the relevant period.
By section 9(1), any return under section 8 must include a self-assessment, defined as follows:
“(a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and
(b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and [tax credits]”
Tax returns by individuals may be altered in various circumstances. It is not necessary to go into those, because there was no such alteration in this case. Instead, action was taken in relation to the partnership return. Under section 12ABA the taxpayer may...
To continue reading
Request your trial
-
Stockler
...response from two more appeals to his case in Stockler v R & C CommrsTAX[2009] BTC 566 ("Stockler 2009") and Stockler v R & C CommrsTAX[2010] BTC 692, which were both dismissed. The latter decision ruled that HMRC had the power to raise a penalty determination under the Taxes Management Act......
-
Kenny Lee v The Revenue Commissioners
...determination of issues regarding the latter. None of these principles, I should say, are affected by the decision in Stockler v. IRC [2010] STC 2584 which was referred to at the hearing of this appeal. There, it was held that the particular compromise in issue in that case did not preclude......
-
William Stockler v The Commissioners for Her Majesty's Revenue & Customs, TC 02099
...the Court of Appeal against Sir John Lindsay’s judgment. That appeal, Stockler v Revenue and Customs Commissioners [2010] EWCA Civ 893, [2010] STC 2584, was not successful. The Court of Appeal (Lloyd 20 LJ dissenting) held that the penalty HMRC had power to raise a penalty determination in ......