William Stockler v Her Majesty's Revenue & Customs, SPC 00739

Spc00739

Income tax – penalties – whether penalty could be imposed on individual partner following tax litigation settlement agreement preventing amendment of partnership’s tax returns – yes – further issues arising to be determined later

WILLIAM STOCKLER Appellant

- and -

Special Commissioner: JOHN CLARK

Sitting in public in London on 2 December 2008

Conrad McDonnell of counsel, instructed by Stockler Brunton, for the Appellant

Akash Nawbatt of Counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1. This appeal made by Mr Stockler relates to a penalty determination. The hearing on 2 December 2008 was, by agreement between the parties, listed to consider the following preliminary issue of law:

“Whether, as a matter of the construction and application of section 95 of the Taxes Management Act 1970 and in the circumstances of this case as set out in the Agreed Statement of Facts and as appears from the documents in the agreed bundle, HMRC have power to raise a penalty determination in any amount.”

2. In this decision, I follow the parties’ convention of referring to the Respondents as “HMRC”.

3. With minor editorial changes I set out in full the Statement of Agreed Facts, together with other relevant facts, including those which were established at the hearing. Mr Stockler did not give evidence on oath.

1. At all material times, the Appellant (“Mr Stockler”) was a solicitor and partner in the firm of Stockler Charity (“the Partnership”).

2. On 26th September 2005, HMRC notified the Partnership that it had amended the Partnership’s statements in respect of various periods of account from 1st May 1994 to 30th April 1998.

3. Between 31st October 2006 and 9th November 2006, the Special Commissioners heard an appeal by the Partnership against those amendments.

4. On 7th December 2006, the Special Commissioners decided that:

(a) the sums which had been deducted in computing the profits of the Partnership were not monies wholly and exclusively expended for the purpose of the Partnership’s profession within the meaning of section 74(1)(a) of the ICTA 1988, and

(b) the insufficiency of the amount of the profits was attributable to the negligent conduct on the part of Mr Stockler within the meaning of section 30B(5) of the TMA 1970.

5. On 25th January 2007, the Partnership appealed against the decision dated 7th December 2006 to the Chancery Division of the High Court.

6. On 17th May 2007, the Partnership made an offer to HMRC pursuant to Part 36 of the Civil Procedure Rules. The offer provided that, in return for the Respondents withdrawing the amendments of the Partnership’s Tax Return for the Tax Years 1996/1997, 1997/1998 and 1998/1999, the Partnership would make certain payments to HMRC. The offer was stated to relate to the whole of the appeal and, for the avoidance of doubt, to the matters raised in the Respondents’ Notice.

7. On 25th May 2007, the Solicitor to HMRC gave notice to the Partnership and the Court that HMRC accepted the Partnership’s offer dated 17th May 2007. In a letter to the Partnership of that date, the said Solicitor wrote that he was instructed to make it clear that acceptance of Part 36 Offer “is of course entirely without prejudice to any penalty determination which may follow hereafter”.

8. On 31st May 2007, the Partnership informed the Court that the appeal had been settled and on the same day wrote to the Solicitor to HMRC stating that the legal effect of an unconditional acceptance could not be altered by the incorrect assertion that it was “without prejudice” to any penalty determination. The Partnership also required the withdrawal of the amendments and asked for agreement to the figures payable pursuant to the settlement.

9. There followed correspondence between the Partnership and HMRC about those figures. Ultimately the parties agreed that the sum payable was £122,731.77. This sum was paid on 12th June 2007.

10. On 27th June 2007, HMRC confirmed to the Partnership that the amendments that had been made against the 1996-97, 1997-8 and 1998-99 Self Assessment Returns had been withdrawn.

11. On 16th October 2007, Mrs J L Becker, an investigator employed by HMRC, wrote to Mr Stockler personally at his home address informing him that she had on that day made a penalty determination in respect of incorrect returns of his liability to tax for the years 1996/1997, 1997/1998 and 1998/1999. Mrs Becker wrote that she had calculated the penalty as being 70% of the culpable tax and that that amounted to £53, 555.

12. On 31st October 2007, Mr Stockler wrote to Mrs Becker informing her that steps would be taken in the Chancery Division of the High Court to enforce the terms and effect of the settlement that had been reached under CPR Part 36 and in the meantime, in order to protect his position, requesting her to accept that letter as his appeal against both liability for the penalty and the quantum of the penalty.

13. On 7th November 2007, the Partnership applied to the Chancery Division of the High Court for a declaration pursuant to CPR Part 36.11(8) that HMRC had failed to honour the terms of the settlement and that in consequence of HMRC’s agreement to withdraw and its subsequent withdrawal of the amendments to the partnership returns, HMRC was precluded from relying on the amendments for any purpose, including the levying of penalties in respect of the relevant tax years. The Partnership also asked for a declaration that the payments by the Partnership pursuant to the Part 36 Offer were in full and final settlement of all liabilities to tax and penalties in respect of the relevant tax years.

14. The application came before Mr Justice Warren on 14th November 2007. The hearing was adjourned to permit HMRC to put in further written submissions. It did so on 27th November 2007 and on 4th December 2007 the Partnership replied.

15. On 13th December 2007 Mr Justice Warren declined to make the declaration sought by the Partnership and dismissed the application. He stated that he considered that this was a matter which was best determined in accordance with the appeal process which has been laid down by statute, namely by the Special Commissioners.

4. The decision of the Special Commissioners referred to in the Statement of Agreed Facts was reported under the name AB (a firm) v Revenue and Customs Commissioners [2007] STC (SCD) 99; the Special Commissioners were the Presiding Special Commissioner, Stephen Oliver QC, and Dr Nuala Brice. (The latter decision did not determine the quantum of the tax due in consequence of that decision.) At a directions hearing held in advance of the substantive hearing in that case, I had accepted a submission from Mr Stockler that the substantive hearing should be in private, and made a direction to that effect As a result, the decision produced after the substantive hearing had to be published in anonymised form. At the hearing on 2 December 2008, a similar request for anonymity in respect of the present proceedings was made by Mr McDonnell on Mr Stockler’s behalf. On this occasion, I refused the request.

5. I did not specify the reasons for my refusal, so set them out here. My reasons were twofold. The first was that, as a result of his firm appealing to the High Court Mr Stockler would already have accepted loss of anonymity; it would have been...