The Commissioners of HM Revenue and Customs (Petitioner/Respondent) v Andrew William Harris (Debtor/Appellant)
| Jurisdiction | England & Wales |
| Judge | Mr William Trower QC,Mr. William Trower QC |
| Judgment Date | 24 November 2011 |
| Neutral Citation | [2011] EWHC 3094 (Ch) |
| Date | 24 November 2011 |
| Court | Chancery Division |
| Docket Number | Appeal Ref: CH/2010/0595 |
[2011] EWHC 3094 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
IN BANKRUPTCY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. William Trower QC
(sitting as a Deputy Judge of the High Court)
Appeal Ref: CH/2010/0595
Petition No 9658 of 2008
Mr Mark Fell (instructed by HM Revenue & Customs, Solicitor's Office) for the Petitioner
Mr Steven Walsh (instructed by the Debtor in person) for the Debtor
Hearing date: 20 th October 2011
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A paragraph 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an appeal against an order of Registrar Simmonds dated 28 August 2010 by which he dismissed the Debtor's notice of opposition to a petition presented against him by the Commissioners of Her Majesty's Revenue and Customs ("HMRC") as long ago as 2 October 2008. The notice of opposition to which the order relates is dated 20 August 2009 and was filed pursuant to rule 6.21(a) of the Insolvency Rules 1986. It appears that no order giving effect to the Registrar's decision was ever drawn up, although I have been shown a written judgment signed by him, which recites that this is the order he made on hand-down.
The notice of opposition challenges the existence and amount of the petition debt on the grounds that no such sums are due to HMRC on a proper accounting. The Debtor contends that he is not justly and truly indebted to HMRC in the amount claimed in the petition.
Where a petition is founded on a presently payable debt the court may not make a bankruptcy order unless it is satisfied that the debt was indeed payable at the date of the petition (or has become payable since that time) and has been neither paid nor secured or compounded for (section 271(1)(a) of Insolvency Act 1986 (" IA 1986")). In the normal course, if the debt is bona fide disputed on substantial grounds, the court will not make a bankruptcy order, although it is often more appropriate for any such challenge to be made on an application to set aside the statutory demand.
The legislation makes no provision for any consequence to flow from the dismissal of a notice of opposition. It seems, however, that the Registrar's decision was reached at a hearing when he was invited to determine whether the Debtor's contention that he was not indebted to HMRC in an amount sufficient to justify the making of a bankruptcy order was established. In these circumstances, I propose to treat the Registrar's decision as a determination that it was not appropriate to dismiss the petition on those grounds. As I understood it, both counsel for HMRC and counsel for the Debtor accepted that this is the right approach.
It may well be that, if the Registrar's decision is to stand, and the Debtor is unable to make arrangements to pay the petition debt, then the consequence will be that a bankruptcy order will be made. HMRC contend that this is what the Registrar indicated when making the order against which this appeal has been launched. However, that question is not before me. I have simply heard argument on whether the Registrar was correct to conclude that HMRC had established the existence and amount of the petition debt (or in any event an amount sufficient to justify the presentation of a bankruptcy petition against the Debtor).
The statutory demand referred to in the petition was dated 30 May 2008 and claimed payment of the sum of £30,347.90. It was served on the Debtor on 12 June 2008. The amounts included in the Particulars of Debt were 35 separate amounts payable in respect of VAT and income tax assessments, interest, surcharges and penalties with issue dates between 5 April 1998 and 25 October 2007. The assessments identified in the demand were a self-assessment dated 5 April 1998 for £1,893.20, an officer's assessment dated 26 July 2002 for £17,819.94 and a number of separate assessments dated 5 October 2007 totalling £6,000.
By the time the petition was issued the amount claimed to be payable by the Debtor to HMRC had reduced to £18,870.68. Thereafter, the precise amount of the petition debt reduced from time to time, as credits generated by the submission of further VAT returns were allocated against the VAT element of the amount outstanding and amounts were cleared following the processing of self-assessment returns. Thus, by 22 July 2009, the petition debt had reduced to £16,132.68 (VAT of £12,287.76 and direct tax of £3,844.92). The figures included in and with an HMRC letter of this date listed the credits generated from the submission of VAT returns for the periods ending 11/06 to 05/09 in reduction of the original officer's assessment on which the VAT element of the petition debt was based. The figure in its entirety is explained in detail in a witness statement dated 27 August 2009 made by Ms Hulme of HMRC's enforcement and insolvency service.
The crediting of further VAT reclaims for successive periods effected further reductions in the petition debt – these amounted to £1,291.98 for the period ending 08/09. By the time of the hearing in front of the Registrar the petition debt had reduced yet further to £14,025.01.
For reasons which will become apparent, it is necessary to refer briefly both to the statutory machinery by which VAT, income tax and landfill tax become payable to HMRC and to the principles on which the bankruptcy court proceeds where such a liability has become payable.
In relation to VAT, section 73(9) of the Value Added Tax Act 1994 (" VATA") provides that, where an amount has been assessed and notified to a person under any of the previous subsections of section 73, it shall (subject to the appeal provisions in VATA) be deemed to be an amount due from that person and may be recovered accordingly unless and until the assessment is withdrawn or reduced. The assessment under section 73 of VATA and its amount is appealable to the First Tier Tribunal under section 83(p) of VATA. There are similar provisions in relation to landfill tax in sections 50 and 54 of the Finance Act 1996.
The position in relation to income and capital gains tax is governed by the Taxes Management Act 1970 (" TMA"). The taxpayer is required by section 9(1) of TMA to include a self-assessment in the personal return, which he makes under section 8 of TMA. Any such return can then be enquired into by HMRC and the assessment may then be amended as a result of the enquiry, which itself is concluded with the issue of a closure notice ( s.28A of TMA). The taxpayer's obligation to pay the amount contained in the self-assessment is set out in sections 59A and 59B of TMA. For all relevant purposes, in any case in which an assessment is amended or an assessment is made which is not a self-assessment, the taxpayer has a right of appeal under section 31 of TMA.
Long before the enactment of these provisions, it was an established principle that the bankruptcy court will not go behind a tax assessment for the purposes of determining the existence or amount of a proof of debt ( In re Calvert [1899] 2 QB 145). The assessment gives rise to a statutory debt and any challenge is to be made through the machinery laid down in the taxes legislation. The same principle is applicable where the taxpayer seeks to reopen in the context of ordinary High Court proceedings the question of whether he should be treated as indebted to HMRC in respect of the amount of a tax assessment which has not been successfully appealed: IRC v. Pearlberg [1953] 1 WLR 331 in which Denning LJ summarised the position as follows:
"If there has been no appeal to the Commissioners the debts become absolute and conclusive and their legal effect cannot be denied"
It is also well established that these basic principles are applicable not just in the context of HMRC's right to prove, but also on the hearing of a bankruptcy petition where the debtor seeks to challenge a petition debt derived from an assessment, which has not been successfully appealed. Where such an assessment has been made, and therefore a statutory debt has arisen, the bankruptcy court cannot remedy the position, even if it were to conclude that an appeal under the taxes legislation might have succeeded. In the case of a tax assessment, those appeal procedures are the only mechanism by which the debt established by the assessment can be challenged ( Cullinane v. IRC [2000] BPIR 996). As Blackburne J explained in IRC v. Lam [2009] BPIR 301 at paragraph 13:
"It is not open to the Bankruptcy Court to review the manner in which the assessment has been made, much less to investigate the merits of the assessment"
The principle is applicable whatever the nature of the issue that is said to justify a conclusion that the debt ought not to have arisen. Examples of the circumstances in which the principle has been applied are where the taxpayer alleged that he did not engage in the relevant taxable activity and was a bankrupt ( Pearlberg) and where the taxpayer alleged that he was in fact employed and not self-employed ( Lam). The underlying principle is a broad one: does the issue raised by the taxpayer amount in substance, whether or not in form, to an appeal against the assessment? If it does, the court will not inquire into the matter because that might lead to the negation of an assessment otherwise than in accordance with the statutory code (cf Lord Nicholls in Autologic plc v. IRC [2005] UKHL 54 at para [12]).
Although most of the cases in this area deal with income tax assessments, the same principles apply in relation to VAT assessments (see the decision of the Court of...
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