England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
APPLICATION FOR PERMISSION TO APPEAL
AND AN EXTENSION OF TIME

		Royal Courts of Justice Strand London WC2 Wednesday, 20th February 2002

1. LORD JUSTICE ROBERT WALKER: Mr H S Soor is a director of seven trading companies ("the companies") and he is representing them this morning. Mr Soor has addressed me with great courtesy and considerable skill. I need not name the companies but their names suggest they cover quite a wide range of trading activities. They are all small companies as defined by Section 247 of the Companies Act 1985 (that is each has a turnover of not more than £2.8m, a balance sheet total of not more than £1.4m and not more than 50 employees).
2. The companies are liable to corporation tax, and estimated assessments for years ending 1995 to 1999 were outstanding and under appeal. The Inland Revenue's efforts to finalise these long overdue liabilities have resulted in a series of hearings, initially before the General Commissioners for the Beacontree Division.
3. On 21 September 2000 the hearing was adjourned after some discussion of Regulation 10 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994. That regulation enables the General Commissioners to issue a notice requiring a taxpayer to deliver particulars or to make books, accounts or other documents available for inspection. Regulation 10 (2) provides for penalties for non-compliance.
4. On 30 November 2000 the General Commissioners, after reading a draft notice to Mr Soor (who was then as now representing the companies) and after hearing submissions from him, issued notices under Regulation 10 to be complied with within 40 days.
5. On 25 January 2001 the Inland Revenue's representatives reported non-compliance by three of the companies and partial compliance (and no more) by the other four. After hearing submissions and considering the matter the General Commissioners imposed penalties totalling £1,000 (against maximum penalties of £2,100).
6. On 15 March 2001, when there had been no further compliance, the General Commissioners, after further submissions and consideration, imposed further penalties of £2,450 (against maximum penalties of more than £20,000).
7. The companies appealed to the High Court. On 6 December 2001 Lightman J dismissed the appeals, concluding that the penalties were properly imposed and were not excessive - if anything, he said, they were too modest. The judgment is reported at [2002] STC 246.
8. Mr Soor applies to this court for permission to appeal from Lightman J. His grounds of appeal are set out in a skeleton argument almost identical to that he had used before Lightman J. The essentials of the argument are in paragraphs 3 to 5 inclusive, which I will read:

"When a small-sized company submits accounts, the C[ompanies] A[ct] has provisions for small companies to produce an abbreviated Trading Profit and Loss (`TP&L') account. A full TP&L account is not required .....

The Inland Revenue is obliged to only accept accounts as required by C[ompanies] A[ct] as it would make the new C[ompanies] A[ct] legislation irrelevant and senseless if companies were still obliged to produce a full TP&L account for the Inland Revenue ..... Therefore small companies are only obliged to produce reports needed to compile the abbreviated Balance Sheet and abbreviated TP&L account. As the abbreviated TP&L does not analyse the administration expenses, there is no need to analyse these items.

It follows that I[nland] R[evenue] can only ask for information and particulars that the company has in its possession and which the company is required to produce in keeping with the current legislation as stipulated in Taxes Management Act 1970 ..... section 20 and C[ompanies] A[ct]. The I[nland[ R[evenue] have exceeded in their power in this instance when they asked for TP&L information, ie analysis of expenses, that can only be produced when preparing a full TP&L and other documents that can only be available when producing full accounts as were required under previous legislation and are required for larger companies."

9. This argument is clearly and concisely presented but it is, in my view, wholly misconceived. The purpose of the Companies Act 1985, as from time to time amended, is to regulate companies (especially those with limited liability) for the protection both of the public who may have dealings with them, and of their shareholders and employees.
10. Section 246 of the Companies Act 1985 permits small companies to produce their financial statements in an abbreviated form which does not comply with all the rigorous requirements of Schedule 4. But as Lightman J pointed out, every company, large or small, has an obligation under Section 221 to keep accounting records sufficient to show and explain its transactions. That would necessarily cover the amount it spent on administrative expenses and particulars of those expenses, which are the Inland Revenue's particular concern in this case.
11. Furthermore there is no sort of presumption that the statutory requirements imposed by company law are or should be co-extensive with what is required for computing the company's liability to corporation tax and vouching the profits figures submitted to the Inland Revenue (which, in the nature of things, has no other way of checking their accuracy).
12. Mr Soor has drawn to my attention the decision in R v O'Kane ex parte Northern Bank Ltd [1996] STC 1249. I have seen only a summary of the decision in that case, but it is plain it was concerned with a quite different provision of the Taxes Management Act 1970, enabling the Inland Revenue to obtain documents and information from a third party. In that case it was said that the Inland Revenue was subject to judicial review because it would impose on a third party bank considerable compliance costs in producing material which would be largely or wholly ignored by the inspector once it had been produced. It seems that that case was dealing not only with different statutory provisions but a different factual situation.
13. For these reasons, which are no more than a brief summary of what is set out in the full and clear reserved judgment of Lightman J, I conclude that a further appeal in this matter would be hopeless. I dismiss this application.
Order: Application refused