The taxpayer and three associated companies offered to the IRC an ‘investigation settlement agreement’. The amount agreed to be payable jointly and severally to IRC was not paid in full and the IRC obtained summary judgment for over andpound;119,000. The companies went into administrative receivership. The taxpayer complained that the Revenue had failed to require that the outstanding sum should be treated as a preferential debt by the Receivers. He claimed that his position was analogous to that of a surety and, by reason of the Revenue’s failure to claim preference, that he was altogether released from performing the agreement.
Held: Dillon LJ said: ‘I take the view that the practice of the Revenue not to claim as preferential amounts claimed under investigation settlement agreements is a valid practice in law, because any claim to treat as preferential such sums under a settlement agreement in the form of that we have in the present case, which is a standard Revenue form, would be invalid.’ and
‘The validity of the practice of the Revenue in settling claims for outstanding tax and possible penalties and interest by investigation settlement agreements such as that in the present case was upheld by this court in IRC v Nuttall [1990] STC 194, [1990] 1 WLR 631. They did not there need to go into the precise points we have here but there are certain observations which are helpful.
As I see it, when a settlement agreement of this type is entered into, the Revenue have a new cause of action, namely, a cause of action for the sums agreed to be paid by the agreement according to the terms of that agreement. Thus immediately after entering into the agreement, the Revenue could not have sued for anything until the first instalment became due under the terms of the agreement. If that instalment was not duly paid within 30 days of the date of the letter notifying acceptance of the offer, the only remedy available to the Revenue would have been to sue for the amount of that instalment by an action in debt, presumably in the Queen’s Bench Division. There could be no question of seeking enforcement by levying distress or by proceedings in the Magistrates Court under s 61 or s 65 of the Taxes Management Act, as Bingham LJ points out ([1990] STC 194 at 205, [1990] 1 WLR 631 at 643-644) in the Nuttall case. There are observations of Parker LJ ([1990] STC 194 at 200, [1990] 1 WLR 631 at 638) to the same effect.’
Nolan LJ agreed: ‘Thus here again, as it seems to me, what is being said is that there is a distinction-narrow it may be but crucial in principle-between what the Revenue collect under the contract and what they might otherwise be entitled to collect under the statute.
Tax liability can only originate from a statute. It cannot originate from a contract. Under the special provisions of s 54 tax liability duly originating from an assessment under the statute can by special statutory provision be determined by agreement. Indeed, most assessments, without any need for a formal appeal, are assessments made by agreement between the taxpayer and the party. It is true still, by and large, to say that the people of this country are taxed by consent. But it is a very different thing, it seems to me, to attribute to the instalments payable under the contract in the present case the quality as to any part of tax or interest or penalties. No assessment of the tax liability is necessarily made in these cases at all and if an assessment is made, as we are told it has been in the present case, what is payable under the agreement is not the result of a final determination of the statutory claim but a compromise between the parties in their contractual capacity.’
Hirst LJ said: ‘It follows that the whole foundation of the taxpayer’s case here disappears since his liability under the agreement sounds in debt and not in tax.’
Judges:
Dillon LJ, Nolan LJ, Hirst LJ
Citations:
[1992] STC 994
Jurisdiction:
England and Wales
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: 02 May 2022; Ref: scu.375140
