The Revenue and the taxpayer had agreed that the latter should pay andpound;15,000 in consideration of the Revenue taking no proceedings against him for tax penalties or interest. The taxpayer paid only andpound;5,000 and the Revenue sought summary judgment for the rest. The taxpayer, who claimed that the agreement made was ultra vires the Revenue, was granted leave to defend by the Master, a decision upheld by French J. The Revenue appealed to the Court of Appeal. The appeal succeeded, and summary judgment was given for the sum which the Revenue had claimed.
After citing IRC v NFSESB, Parker LJ said: ‘If it is right that the Board had power to enter into a bargain involving the ‘amnesty’ with regard to past tax, it appears to me to follow that they must also have power, had they wanted to, to make a bargain whereby some sum would have been paid in respect of that past tax.’ and
‘Although, as we have noted, the Taxes Acts offence code provides for the imposition of penalties exclusively as a judicial act whether by the Appeal Commissioners or the court, in practice most of the money collected in respect of penalties and default interest is paid without being imposed or charged formally. The record shows that over the past seven calendar years formal awards of penalties in respect of major offences have averaged just seven cases a year. What happens in practice is that taxpayers who have, in the opinion of the Board’s officers, rendered themselves liable to the imposition of interest and penalties are invited to make a settlement. The procedure is that the taxpayer makes a voluntary offer to pay a sum of money in consideration of the Board agreeing not to take formal proceedings for any tax underpaid and the interest and penalties. If such an offer is made and is accepted, a contract binding upon both the Inland Revenue and the taxpayer is brought into being.’
As to Cockerline, he said: ‘But it appears to me that if the Revenue are to have the necessary powers, as they are under s 1 of the 1890 Act, it is an incidental power to enable them to enter into an agreement to compromise an overall situation consisting partly in outstanding tax, partly in a potential liability to culpable interest and partly in potential liability to pay penalties if by that means they consider they can best recover and manage the tax which is committed to their care.
I would accordingly and for those reasons allow this appeal.’
Ralph Gibson LJ said of the taxpayer’s argument: ‘It was, I think, more than 60 years too late. It is not open to this court, having regard to the long established practice of the Revenue, and to the legislative history, to say now that the commissioners do not have the lawful power which they exercised by making this agreement with the taxpayer.’
Bingham LJ said: ‘It would seem to me extraordinary, and also regrettable, if the Revenue could not achieve by agreement that which it could undoubtedly achieve by coercion. The submission that it could not, as counsel for the taxpayer acknowledges, runs counter to the habitual practice of the Revenue recognised by the recent Royal Commission without query or criticism. But counsel fairly points to the fact that although the legislation expressly authorises the Revenue to mitigate and compound claims for penalties and default interest, it does not expressly authorise the Revenue to compromise claims for back duty save where an assessment has been made and appealed against.
I would prefer, if necessary, to accept this legislative omission as an anomaly of drafting than be compelled to a result I regard as offensive to good sense and subversive of the beneficial present practice. But there is, I think, no anomaly. The power to make agreements with taxpayers for the payment of back duty, even in the absence of assessment and appeal, is in my view a power necessary for carrying into execution the legislation relating to Revenue within the meaning of s 1 of the 1890 Act. It is, of course, a power to be exercised with circumspection and due regard to the Revenue’s statutory duty to collect the public revenue. But if in an appropriate case the Revenue reasonably considers that the public interest in collecting taxes will be better served by informal compromise with the taxpayer than by exercising the full rigour of its coercive powers, such compromise seems to me to fall well within the wide managerial discretion of the body to whose care and management the collection of tax is committed. Such informal compromise deprives the taxpayer of the locus poenitentiae provided by s 54(2), and the right to re-open assessments under s 33, but it protects him against exercise of the Revenue’s more draconian enforcement powers (eg under ss 61 and 65) and often, as here, against further liability for penalties and default interest. I have no hesitation in holding such an agreement, properly made, to be binding. There is accordingly, in my opinion, no arguable defence to the present claim.
I would reach this conclusion even if the matter were entirely free from decided authority. But it seems to me that Rowlatt J in A-G v Johnstone (1926) 10 TC 758 did sanction enforcement of an agreement which related to arrears of tax as well as penalties. In W H Cockerline and Co v IRC (1930) 16 TC 1 the Court of Appeal was not concerned with enforcement of a back duty agreement but did, as I read the judgments, uphold the validity of an agreement made in the absence of an assessment and acknowledge that a taxpayer could validly waive the requirements of at least some procedural provisions enacted for his protection. The Fleet Street Casuals’ case (see IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] STC 260, [1982] AC 617) shows the breadth of the Revenue’s discretionary powers. I think these cases provide judicial sanction for a practice which Rowlatt J over 60 years ago described as long pursued, and which s 105 of the 1970 Act implicitly acknowledges.’
Judges:
Parker LJ, Ralph Gibson LJ, Bingham LJ
Citations:
[1990] STC 194
Citing:
Cited – Regina v Inland Revenue Commissioners, ex parte the National Federation of Self-Employed and Small Businesses Ltd HL 9-Apr-1981
Limitations on HMRC discretion on investigation
The Commissioners had been concerned at tax evasion of up to 1 million pounds a year by casual workers employed in Fleet Street. They agreed with the employers and unions to collect tax in the future, but that they would not pursue those who had . .
Cited – WH Cockerline and Co v Inland Revenue Commissioners 1930
Counsel had argued about the imposition of a penalty where no assessment had yet been made. Lord Hanworth MR said: ‘In language which was, perhaps, coloured by a warmth of feeling about it, he suggested that it was entirely wrong, and, indeed, made . .
Cited by:
Cited – Stockler v HM Revenue and Customs ChD 22-Sep-2009
The taxpayer appealed against a decision confirming the Commissioners’ power to impose a penalty on him. It was said that his solicitors’ firm had negligently understated its profits. A settlement was proposed allowing a withdrawal of the return, . .
Lists of cited by and citing cases may be incomplete.
Taxes Management
Updated: 15 May 2022; Ref: scu.375137
