England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22nd September 2009

Sir John Lindsay :

1. As I shall explain in more detail below, on 20^th February of this year Mr John Clark, Special Commissioner, having heard argument on 2^nd December 2008, ruled, in answer to the preliminary issue of law put in front of him, that HMRC did have power to raise a penalty determination against Mr William Stockler, who, on point of law only, now appeals against that conclusion.
2. Mr Stockler is represented before me, as he was before the Special Commissioner, by Mr Conrad McDonnell; HMRC, as also before the Special Commissioner, are represented by Mr Akash Nawbatt.
3. Mr Stockler was at the material times, which run back to the years of assessment 1996/1997, 1997/1998 and 1998/99, a solicitor and the leading partner in the firm Stockler Charity. By an earlier decision of the Special Commissioners, in that case Sir Stephen Oliver QC and Dr Brice, they had decided that there had been negligent conduct on the part of the representative partner of that firm, Mr Stockler, in the making of the firm's partnership statements such that it contained an insufficiency in the amount of its profits. HMRC had amended the partnership statements, the firm had appealed against the amendments but the firm's appeal was dismissed in December 2006 after a hearing spread over some 4 days. On 25^th January 2007 the firm appealed against that decision, which I hope I may call the Oliver-Brice decision. Before that appeal was heard in the High Court Mr Stockler and HMRC met and the question of possible settlement arose. Recording Mr McDonnell's argument as to what had happened, the decision of 20^th February – the Clark decision – records as follows:-

"In seeking to reach a settlement, Mr Stockler had made an offer to Mrs Becker at the end of their meeting on 3 May 2007. The offer was that in exchange for the Partnership abandoning its appeal to the High Court, the Partnership would make a payment to HMRC equal to the tax in the agreed amount, together with statutory interest, but with no penalties being charged. Mrs Becker had not accepted that offer at the meeting, as she considered that the full amount of tax was payable and that, in addition, penalties of between 70% and 75% should be due."

Mrs Becker was the officer at HMRC having chief conduct of the Stockler Charity matter. It has not been said that Mr Stockler was left in doubt as to HMRC's indication of their unwillingness to accept that a payment of tax and interest might suffice to bar any claim for penalty.

4. On 17^th May 2007 Stockler Brunton, a successor firm to Stockler Charity, which was acting for Stockler Charity on the appeal against the Oliver-Brice decision, made a written offer to HMRC the material parts of which are as follows:

"We hereby offer to settle the Appeal upon the following terms:-

1. The Respondents will withdraw the amendments of the Appellant's partnership returns for the Tax Years 1996/1997, 1997/1998 and 1998/1999.

2. The Appellant will, within 21 days of the acceptance of this offer, pay to the Respondents the aggregate amount of income tax assessable on the partners of the Appellant in consequence of the decision of the Special Commissioners dated 7^th December 2006, the subject of the Appeal, less the following amounts:

2.1 The Capital Gains Tax paid by William Thomas Stockler in relation to that part of the proceeds of the Schiele painting entitled "Hockende Frau" which reflected disbursements paid by the Appellants in connection with an action in the High Court of Justice, Queen's Bench Division, the short title of which was 1993-S-No.2484.

2.2 (For the avoidance of doubt) the Income Tax payable on any disbursements recovered by the Appellant from any party in any of the proceedings referred to in paragraphs 41-44 of the Appellant's statement of case to the extent that they have been taken into account as receipts when computing the Appellant's profits for income tax purposes.

3. The Appellant will within the same period pay interest at the statutory rates on the sum set out in paragraph 2 above.

4. The Appellant will pay the Respondents' costs of the Appeal up to and including the date of acceptance of this offer on a standard basis, to be subject to detailed assessment if not agreed.

This offer is made pursuant to CPR Part 36 and is intended to have the consequences of that Part. It remains open for acceptance until 4 p.m. on 8^th June 2007, after which it will automatically be withdrawn. It relates to the whole of the Appeal and, for the avoidance of doubt, the matters raised in the Respondents' Notice."

5. It is not suggested that the form of the offer was suggested by HMRC. On the contrary, their usual practice includes a quite different form. The offer notably makes no express reference to its being intended to absolve Stockler Charity or any partner in it from liability on account of penalty. Given that as early as 7^th December 2006 HMRC had written to Mr Stockler to say that, if HMRC succeeded (as they did) at the Oliver-Brice hearing, there would be a substantial and there-specified penalty and given also that on 3^rd May Mrs Becker had responded to the then offer to say that substantial penalties should be due, it is surprising that the Part 36 offer failed to mention penalty one way or another. It may be, in the light of the later argument, that Stockler Brunton or their client Stockler Charity felt that paragraph 1 of the offer, if accepted, would plainly and without any express mention deny any claim for penalty, a strategy which later events have shown to be fraught with risk.
6. On 25^th May 2007 HMRC sent a letter to Stockler Brunton together with a notice "accepting [Stockler Charity's] offer dated 17^th May 2007 made pursuant to Part 36 of the Civil Procedure Rules". The HMRC letter included this:

"We are aware that you have previously been in discussion with our colleagues regarding financial penalties, and we are instructed to make it clear, for the avoidance of any possible doubt, that acceptance of the Part 36 offer is of course entirely without prejudice to any penalty determination which may follow hereafter. Penalties are not, of course, in issue in the present proceedings."

7. On 31^st May Stockler Brunton wrote to HMRC. After referring to the letter of 25^th May they continued:

"We express surprise at the second paragraph thereof.

Paragraph 1 of the offer dated 17^th May 2007 provides for the withdrawal by yourselves of the amendments of the Appellant's partnership return. The purpose and effect of such withdrawal is to ensure that there can be no question of any reliance on such amendments for any purpose, whether of penalties or otherwise and that the payments to be made pursuant to the offer are in full and final settlement of all the taxpayer's liabilities. Absent any amendment, pursuant to TMA 1970, Section 30B, there is no basis for making any charge to additional tax on the partners and thus any penalty pursuant to TMA 1970, Section 95A.

Further, your Mrs Becker was fully aware of the meaning of the offer, because we put it to her in identical form, in the presence of Mrs Reeve, at a meeting at our offices on 3^rd May 2007. At that meeting we made clear to her that we were prepared to pay the full amount of tax due, less the deductions set out in paragraphs 2.1 and 2.2 of our letter dated 17^th May 2007, plus interest but without any penalty.

Had you been in any doubt about the meaning of the offer, it was open to you to seek clarification pursuant to CPR 36.8(1), but you did not do so.

The offer now having been unconditionally accepted, the legal effect of such acceptance cannot be altered by your incorrect assertion that it is "without prejudice" to any penalty determination.

We now require the withdrawal of the amendments to our partnership Tax Returns for the tax years 1996/1997, 1997/1998 and 1998/1999. For our part, we attach a schedule showing the sums which we believe to be payable pursuant to numbered paragraph 2. We ask for your agreement to these figures and for your calculation of the interest payable under numbered paragraph 3.

We have notified the court of the acceptance of the offer and arranged for the hearing scheduled for 26^th June 2007 to be vacated. We attach a copy of our letter of today."

The schedule referred to concluded "Tax payable £118,121.44". The letter made no mention of Mrs Becker's rejection of the offer of 3^rd May, nor either of her then view that substantial penalties should be due.

8. On 5^th June the Court Service, having been told of an accepted Part 36 offer by Stockler Brunton on the 31^st May, indicated the 3-day hearing window for the appeal from the Oliver-Brice decision had been vacated. There began to be correspondence as to what the total tax payable pursuant to the accepted Part 36 offer should be.
9. On 8^th June 2007 Mrs Becker switched from correspondence addressed to Stockler Brunton to correspondence with Mr Stockler himself, marked "Private & Confidential" but at the Stockler Brunton address. It was plain that it had been Mr Stockler – reference "WTS" – who had been responsible for the Stockler Brunton correspondence but, more importantly, HMRC were acting by then on the footing that, within the Stockler Charity partnership, the whole of whatever was found payable under the Part 36 offer, by then accepted, was to be attributed to Mr Stockler. There would have seemed good reason to do so; the Oliver-Brice decision, by then unappealable as the appeal had been settled by the Part 36 offer and its acceptance, had held that the insufficiency in the amount of the profits of Stockler Charity in the relevant years arose because sums which were truly the personal liability of Mr Stockler had been borne by the firm. The HMRC's approach was made plain in the HMRC letter of 8^th June 2007 which includes:-

"I have made the calculations of tax due based on all the additional chargeable profits being attributed to yourself."

And a little later:

"As the tax has now been calculated on your own liability the figure differs from that previously sent to you.

I attach the computations.

Interest has been calculated from the due date to 15^th June 2007, again I attach the computations."

The letter continued:

"The total of tax and interest due is therefore £122731.77.

I am today faxing these figures to you.

If you can let me have the details re CGT payments by 12 June at the latest I will be able to make the amendments to the figures and let you have the revised amount in time for you to make your payment.

Your offer was to make payment within 21 days of acceptance. Our acceptance was sent on 25 May and I therefore calculate the due date to be 15 June 2007. This is why I have calculated interest to that date."

The computations sent were plainly referable not to Stockler Charity but to Mr Stockler yet excited no complaint that the switch was inappropriate.

10. On 11^th June 2007 there was a telephone conversation between Mrs Becker and Mr Stockler which led Mrs Becker to write that day to Mr Stockler to say:

"Following our telephone conversation this morning we are agreed that the tax and interest due are as detailed in my letter of 8 June 2007."

By fax on the same day Mr Stockler (the fax says "From William Stockler"), writing of the HMRC letter of the same day, says:

"We agree with the contents of that letter …".

and, a little below that:

"As we pointed out to your Mrs Becker today, we are prepared to comply with our duties to pay the amount set out in your letter dated 8 June 2007 without previous physical receipt of the withdrawal letter, but we need to be assured that such a letter will be coming and a letter by you to the appropriate author of such a letter will constitute sufficient assurance".

11. In a later fax, also of 11^th June, Mr Stockler spoke (my emphasis) of "our payment of the agreed sum" and another limb of HMRC wrote, under the heading "Stockler Charity v HMRC" of the understanding "that you have agreed [with Mrs Becker] that the figure of tax and interest due is £122,731.77 which you intend to pay on 15 June". On 12^th June Stockler Brunton sent Mr Stockler's personal cheque for £122,731.77 which was acknowledged to Mr Stockler by HMRC as "being the payment due in respect of your Part 36 offer".
12. In consequence, Mr Stockler rightly insisted on a "withdrawal" of the amendment to the Stockler Charity partnership statements which had ostensibly increased the firm's partners' liability to tax and that was done on 27^th June 2007.
13. If Mr Stockler had thought that, although penalties had not been mentioned one way or the other throughout implementation of the Part 36 accepted offer, he had denied HMRC the ability to raise them, he would have had an unpleasant shock on receiving HMRC's letter of 16^th October 2007 addressed to him at his home, in which Mrs Becker said the amount of "tax geared" penalty provided for in s.95 Taxes Management Act 1970 ("TMA") had been determined at "70% of the culpable tax", namely £53,555.
14. Mr Stockler took the view the penalty determination was misconceived. On 31^st October 2007 he wrote that the Part 36 offer "was expressly intended to be on the basis that there should be no ability on the part of HMRC subsequently to seek a penalty" but that was plainly not the HMRC intention and there had been nothing in the offer that was "express" on the point. He took the points also, amongst others, that in the relevant years he had been a "50%" partner (so that he was not to have the whole of the insufficiency in the partnership statements attributed to him) and that a 70% rate of penalty was too high.
15. Mr Stockler set about challenging the formal Penalty Determination and did so first by seeking a declaration in Chancery, the hearing for which came before Warren J on 14^th November 2007. That led to a judgment of 13^th December 2007. Although the Judge dealt fully with the argument and the facts he ultimately declined to decide the points raised. At his paragraph 16 Warren J, referring to the argument from Counsel who then appeared for Stockler Charity, the applicant before him, records as follows:

"I infer from Mr Deacon's written submissions that it is not accepted that Mr Stockler is liable for 100% of any additional tax. I imagine that the reason for the attribution adopted by Ms Becker is that HMRC now consider that this is the effect of the partnership agreement. In this context, it should be noted that the Special Commissioners stated in their decision that the arrangement between the partners was that, if there was an expense of the Firm which was the responsibility of only one of the partners, that expense was debited to that partner's account. In the present case, the items which were, as a result of the Special Commissioners' decision, disallowed as deductions were, on the basis of that decision, the responsibility of Mr Stockler. It follows that, if they had been properly allowable, it would have been only Mr Stockler's share of profits which would have been affected both in reality and for tax purposes. Accordingly, the disallowance of those deductions would result in an increased amount of profit being attributable to Mr Stockler so that his tax position alone would be affected."

At his paragraphs 45 and 46 Warren J said:

"45. Of course, I could decide the point on the arguments which I have heard. But as a matter of discretion I would, even if I am wrong in my first reason, decline to do so. Statute provides a scheme for tax appeals before the General or Special Commissioners. It would, I consider, be to subvert that scheme, except perhaps in the clearest of cases, for this court to pre-empt the ruling of the Special Commissioners on a matter which is properly within their territory. It would further distort the appeal process since, instead of this Court being an appellate court on the issue, with any further appeal to the Court of Appeal being a second tier appeal, it would be a court of first instance with an easier route to the Court of Appeal.

46. Accordingly, this application is dismissed."

That led to the Clark hearing; the preliminary issue before the Special Commissioner was as follows:

"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."

Mr Clark's conclusion was:-

"As a matter of the construction and application of s 95 TMA 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 do have power to raise a penalty determination."

16. Mr McDonnell's argument before me took much the same shape as his before Mr Clark. It consists of a careful look at the provisions of TMA 1970 in support of a conclusion that, for the purposes of s.95(2) TMA - the provision, as I shall come on to, which specifies the maximum a penalty can amount to and by reference to a percentage of which maximum penalties are habitually fixed - the relevant amount of additional tax "payable for the relevant years of assessment by the said person" could, firstly, only be a sum derived, in the events which had happened, from Stockler Charity's original and unamended partnership statement (the tax consistent with which had long since been paid). He added, secondly, that "the said person" throughout s.95 could not be Mr Stockler unless and until any increased chargeability of the firm had been duly attributed between the partners so as to attribute the additional amount to him, which, said Mr McDonnell, had not happened. Before I set out on the journey through TMA provisions I shall set out s.95, subsection (2) of which may be said to be the terminus.
17. Section 95, so far as here material, provides as follows:

"95 Incorrect return or accounts for income tax or capital gains tax

95(1) Where a person fraudulently or negligently–

(a) delivers any incorrect return of a kind mentioned in section 8 or 8A of this Act (or either of those sections as extended by section 12 of this Act), or

(b) makes any incorrect return, statement or declaration in connection with any claim for any allowance, deduction or relief in respect of income tax or capital gains tax, or

(c) submits to an inspector or the Board or any Commissioners any incorrect accounts in connection with the ascertainment of his liability to income tax or capital gains tax,

he shall be liable to a penalty not exceeding the amount of the difference specified in subsection (2) below.

95(2) The difference is that between–

(a) the amount of income tax and capital gains tax payable for the relevant years of assessment by the said person (including any amount of income tax deducted at source and not repayable), and

(b) the amount which would have been the amount so payable if the return, statement, declaration or accounts as made or submitted by him had been correct."

18. The argument before Mr Clark and the written skeletons now before me concentrate on s.95(2) and whether there is a "difference" of the kind to which it refers. I had thought, and I apprehend so had Mr Nawbatt, that it was common ground that s.95(1)(a) was taken as satisfied but Mr McDonnell said that was not the case. I thus look in more detail at s.95(1)(a). Mr Stockler was the representative partner of Stockler Charity. It was he who, as such, made the partnership statement which was insufficient and that insufficiency was attributable to his negligent conduct as representative partner. It was he who had claimed deductions which were truly not liabilities of the firm but were his own. That already appears in the unappealed Oliver-Brice decision and such findings were necessary if that decision could properly be as it was – see in particular paragraphs 10, 60, 61, 65, 95, 99, 107, 113 and 115 of the Oliver-Brice decision. In those circumstances it seems to me plain that s.95(1)(b) (which, by its reference to "any" claim for "any" deduction does not require that the incorrect claim for deduction should be in relation to the claimant's own tax) is satisfied. On that basis the case becomes wholly one about s.95(2).
19. The broad purpose of s.95(2) is plain enough: a comparison is required between the (likely to be greater) amount of tax which should have been paid and the (likely to be lesser) amount paid on the basis of the incorrect returns, statement or declaration. That comparison fixes the "difference" between the two and that difference establishes the maximum penalty liability - s.95(1). The penalty is thus "tax-geared", to use Mr McDonnell's phrase.
20. I do not understand there to be any difficulty about establishing the (prospectively lesser) amount "payable" if what Mr Stockler had submitted had been correct. The tax appropriate on the basis of the insufficient material first submitted – the original unamended returns made by Mr Stockler as representative partner – had long since been paid so both Stockler Brunton (including Mr Stockler) and HMRC looked only at the 95(2)(a) sum, namely what, if anything, was duly payable in addition to that.
21. It is when one focuses within s.95(2)(a) on the words "the amount of … tax… payable … by the said person (including any amount of … tax deducted at source and not repayable)" that the dispute is at its sharpest. Mr McDonnell argues the additional amount so payable can be fixed only by reference to the usual machinery for assessment; Mr Nawbatt argues that it can be fixed, otherwise than by assessment, in any other way that the law permits. Going on to their respective next steps, Mr McDonnell argues that there has been no assessment of any additional sum payable, a fortiori no assessment of any additional sum payable by Mr Stockler, whilst Mr Nawbatt says the additional sum was sufficiently fixed, for all material purposes by agreement. Mr McDonnell adds, though it is not necessary to his success, that not only has no relevant assessment yet been made but that it is now too late for HMRC to remedy that omission.
22. I shall look first at Mr Nawbatt's argument and, without looking at the specific case of s.95(2), look at the ability of HMRC and taxpayers generally to agree what tax is payable for relevant years of assessment.

Both sides referred me to Inland Revenue Commissioners v Nuttall [1990] STC 194 CA. The Revenue and the taxpayer had agreed that the latter should pay £15,000 in consideration of the Revenue taking no proceedings against him for tax penalties or interest. The taxpayer paid only £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, which allowed the appeal. At page 198 c-d Parker LJ first cited the passage from the speech of Lord Diplock in IRC v National Federation of Self-Employed and Small Businesses [1981] STC 260 at page 269 in which he had said:-

"…..All that I need say here is that the Board are charged by statute with the care, management and collection on behalf of the Crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the Board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection."

Parker LJ continued:

"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."

He continued, by reference to the Keith Report of 1983, citing at page 195 g-j, from that report as follows:-

"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."

At pages 200-202 Parker LJ referred to W.H. Cockerline & Co v IRC (1930) 16 TC 1 CA, a case where no assessment had been made. Referring to the argument of Mr Wilfrid Greene, as he then was, 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 an inroad upon the rights of the subject that there should be any sum ever accepted from the subject in discharge of a liability in respect of which there had not been the assessment, or paper imposing the assessment, served upon him. In my view that argument is unsound. I do not think it is necessary in all cases, in order to enable the Crown to receive money, that there should be an assessment actually served of that sum which is ultimately paid."

After completing a long citation from Lord Hanworth in Cockerline, Parker LJ concluded, at page 202, as follows:-

"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."

23. Ralph Gibson LJ agreed, saying, 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."

24. At page 204 Bingham LJ, as he then was, 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 & 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."

25. The outcome in Nuttall was that summary judgment was given for the sum which the Revenue had claimed – page 205g. I read Nuttall as confirming that there is a wide managerial discretion in HMRC permitting agreement, even of liability that would otherwise be determined only by formal assessment under the machinery of relevant statutory provisions, and that when such an agreement is properly made it will be binding on its parties.
26. Pausing at this juncture, and assuming that the Part 36 offer and acceptance represents an agreement properly made, I see, as yet, no reason why it should not be taken to have established an additional sum payable within the meaning of s.95(2)(a) notwithstanding that no assessment exists to fix it. But Mr McDonnell argues that due regard to the statutory provisions denies such a view.
27. He begins, looking at general provisions rather than ones relative to partnerships, with s.8(1) – personal returns for the purpose of establishing the amounts in which a person is chargeable to tax and the amount payable by him - and goes on to the self-assessment provisions of which lead to the assessment of an amount payable – s.9(1)(b). Errors are corrigible – s.9ZA and s.92B; there is no provision thus far for other amendment of the self-assessment, but HMRC may "enquire" into a return – s.9A - and that may lead to amendment under s.9B or s.9C. The enquiry leads to a closure notice which either says that no amendment of the taxpayer's return is required or makes the amendment – s.28A(2). Section 28C deals with cases in which no returns have been delivered (treating the HMRC determination as if it were a self-assessment by the taxpayer) and s.29 deals with income or gains which should have been but had not been assessed. Section 30A is procedural as to assessments and s.31 and s.31A deal with appeals against assessments. Nothing so far either in terms bars or provides for agreement taking the place of assessment.
28. Turning to the provisions of TMA relating specifically to partnerships, Mr McDonnell took me to s.12AA whereunder HMRC can require a partnership return and accounts – s.12AA(2), S.12AA(3) – to include "a partnership statement" which, inter alia, states and then breaks down the global partnership income into shares attributable to the separate respective partners – s.12AB. The partnership return, mirroring the provisions as to taxation of individuals not in partnership, can be amended by the taxpayer – s12ABA – or, as to obvious errors, by HMRC – s.12ABB - and there are corresponding provisions when a Notice of Enquiry is given, leading on to closure notices in partnership cases – s.28B. When HMRC (and for brevity I use that abbreviation throughout to cover statutory provisions relating to an officer of HMRC or HMRC) find out there are partnership profits which have not found their way into the partnership statement HMRC – S.30B - may in certain cases amend the partnership return to make good the deficiency. The certain cases include when the deficiency is attributable to negligent conduct on the part of the representative partner – s.30B(5). Mr McDonnell accepted that that condition was here made good and it was under s.30B that HMRC made the amendment to the partnership return which initially increased the overall partnership profits liable to tax which the Oliver-Brice decision upheld in principle (without their fixing any amount). Mr McDonnell draws particular attention to s.30B(2) as follows:-

"30B(2) Where a partnership return is amended under subsection (1) above, the officer shall by notice to each of the relevant partners amend–

(a) the partner's return under section 8 or 8A of this Act, or

(b) the partner's company tax return,

so as to give effect to the amendments of the partnership return."

No notice amending any partner's return, as opposed to the partnership return, has been served here, notwithstanding that s.30B(2) provides that that shall be done – see also s.50(9) where there has been an appeal.

29. So much for the assessment of tax; its payability is regulated by s.59B by reference to the relevant self-assessment or amendment thereof – s.59B(5) - which includes reference to partnership cases when the partner's initial individual return is amended under s.30(B)(2)(a) (as was not done in this case, as I have mentioned). Mr McDonnell leans heavily on s.59(B)(6) which provides:

"59B(6) Any amount of income tax or capital gains tax which is payable by virtue of an assessment made otherwise than under section 9 of this Act shall, unless otherwise provided, be payable on the day following the end of the period of 30 days beginning with the day on which the notice of assessment is given."

The payability of tax, if any, here payable is as to tax payable other than by virtue of an assessment under the s.9 self assessment as it would be or is due to tax payable by virtue of amendment of the self assessment, so that one would need s.59B(6) and its reference to a period beginning with the service of the amended assessment to provide a time limit for payment. No such notice was given to Mr Stockler.

30. It is with that legislative background that Mr McDonnell comes to s.95. He emphasises that HMRC do not rely on s.95A – "Incorrect partnership return or accounts" - but only on s.95 for their tax-geared penalty. There cannot, he says, be any tax "payable" under s.95(2)(a) – see para 17 above – other than as in Mr Stockler's original assessment (the amount of which has been long since paid) absent, firstly, amendment to the partnership statement and return and then, secondly, the consequential amendment of the individual return of Mr Stockler as the partner concerned, under s.59B(5) and the mandatory notice thereof under s.30B(2).
31. As for amendment of the partnership statement and return, that, Mr McDonnell points out, was "withdrawn" under the Part 36 offer and its acceptance so that the only existing partnership return is one the tax as to which had long since been paid. As for amendment of Mr Stockler's return, firstly, it has never been made; the notice made mandatory under s.30B(2) has never been given and, secondly, as the amendment of individual partners' returns could only be made in consequence of amendment of the partnership return then, given that amendment of the partnership return was withdrawn, there is no consequential agreement possible to be made to Mr Stockler's return and hence nothing is "payable" by him for the purposes of s.95(2)(a) as the sum payable by virtue of his unamended return has been paid in full. The conclusion of this argument, if it is right, is that no more is payable under s.95(2)(a) than would have been payable (and, indeed, was paid) had his actual returns been correct, as they must be taken to be as they remain unamended. In turn there is no difference between the amount under s.95(2)(a) and (b) and thus the maximum liability to penalty under s.95(1) is zero.
32. Mr McDonnell is in good company; he is, in effect, asserting something akin to the sanctity of assessment which Mr Wilfrid Greene, perhaps "coloured by a warmth of feeling", had, albeit unsuccessfully, advanced in Cockerline supra. But Mr Nawbatt responds by saying, firstly, that nothing in TMA or elsewhere prohibits the payability of additional tax, either in principle or as to an ascertained or ascertainable amount, arising on the part of a chargeable and assessable person by way of his agreement with HMRC rather than exclusively by way of actual amended assessment. Secondly he says that the consequence of the Part 36 offer, its acceptance and the implementation of it leading to Mr Stockler's payment – see para 11 above, of £122,731.77 – represent an agreement, binding upon Mr Stockler, such that the amount truly payable by way of tax by Mr Stockler in the relevant years of assessment was £122,731.77 greater than his returns had stated. In turn, says Mr Nawbatt, there is a substantial "difference" for the purposes of s.95(1) even after due acceptable adjustment downwards to the figure of £122,731.77 and that (though there may be argument as to the appropriate percentage of "culpable tax" to be determined as penalty, in principle (and that is all that is as yet in play) a substantial penalty can be exacted.
33. Going, numerically, beyond s.95 in the TMA, Mr McDonnell drew sections 100, 100B, 101, 102 and 103 to my attention but I do not read them as throwing light on whether, in the events which have happened, HMRC have, in principle, power here to raise a penalty. In particular, I do not see that s.101 – headed "Evidence for purposes of proceedings relating to penalties" – has the effect, in the course of deciding whether in principle a penalty is payable where there has been an incontestable holding of a negligent insufficiency in the statement of a partnership's income, of excluding evidence of an agreement (to use the language of the Part 36 offer) of the "aggregate amount of income tax assessable in consequence of" that holding. A provision as in s.101, that the amount in the unvariable original assessment is sufficient evidence that the "amounts in respect of which tax is charged in the assessment arose" does not, in my view, preclude evidence of what sums, beyond those in such assessment, have been agreed to be assessable.
34. I have not been shown anything in TMA which prohibits payability or quantification of what is payable being agreed where otherwise payability and quantification could arise or have arisen under the statutory provisions. That being so, and given the wide managerial discretion which Nuttall supra confirms as conferred on HMRC, I see no objection to HMRC and Mr Stockler short-circuiting the statutory provisions to arrive by agreement at "the aggregate amount of income tax assessable on the partners of [Stockler Charity] in consequence of the [Oliver-Brice decision]" – to use the language of para 2 of Stockler Charity's Part 36 offer. There had been amendments to the Stockler Charity returns and there could have been consequential amendments to the returns of Mr Stockler as partner and notice given to him accordingly, with related assessments made of the tax payable by Mr Stockler. I thus see no objection in principle to agreement of such a kind; why should HMRC be obliged to go through available formal process to arrive at that which a taxpayer, of his or its own initiative, was proposing should be agreed? Would it not be regrettable if HMRC could not achieve by agreement that which it could have achieved by coercion – see Bingham LJ at para 24 above. There is, in my view, nothing in Khan and another v First East Brixton General Commissioners and Inland Revenue Commissioners [1986] STC 331 per Harman J to the contrary. The judge there emphasised the importance of the assessment machinery but he was not dealing, as I am, with an argument that a binding agreement, accepted within the Nuttall parameters, had displaced reliance being put exclusively on assessment.
35. The acceptability in principle of the possibility of a relevant binding agreement is one thing, the making of one is another. Mr Nawbatt took me through the correspondence, cited above, at and after the making of the Part 36 offer. I have mentioned - paragraph 9 – the switch from payability of Stockler Charity to that of Mr Stockler on and after 8^th June 2007. That could have been objectionable. However, given the findings in the Oliver-Brice decision as to attribution within the firm, as bolstered by the observations by Warren J cited in para 15 above and given no reason having been advanced before me for a 100% attribution to Mr Stockler being wrong beyond a mere assertion that that was so, I do not see the switch as being objectionable. Even at a tribunal dealing only with a question in principle it would be reasonable to expect or require something on the issue beyond mere assertion if doubts on the point were to be taken to arise. Given the way correspondence proceeded – "profits attributable to yourself", "your own liability" and the computations personal to Mr Stockler addressed to him – I see the quantification agreed on the telephone and then in writing on the 11^th June 2007 as simultaneously fixing the additional tax payable by the partnership, Stockler Charity, and that payable by Mr Stockler himself.
36. I have failed to see why that quantification so agreed should not bind Mr Stockler as the additional amount "assessable on the partners of" Stockler Charity, to use the language of the Part 36 offer and, in turn, by reason of the unobjectionable switch, as also the additional amount assessable on Mr Stockler. A substantial difference was thus agreed to exist between the amounts in s.95(2)(a) and (b) and thus far nothing bars a liability in Mr Stockler to a penalty computable by reference to the agreed difference.
37. Mr McDonnell drew my attention to IRC v Woollen [1992] STC 994 CA. The taxpayer along with three companies associated with him made an offer to the IRC of a kind called 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 £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 – see page 946 e-f. After dealing with other issues Dillon LJ at page 947 continued:

"But apart from that 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."

He continued at page 948:

"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."

38. Nolan LJ agreed. He cited at length from Nuttall and continued:

"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."

I shall revert to Nolan LJ's reference to s.54 TMA but, to complete the citation from Woollen, Hirst LJ at page 951 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."

39. Three things may be said of Woollen. Firstly, it illustrates that taxpayers may agree their liability with HMRC in a binding way even in respect of assessable taxes and penalties; no assessment is necessarily made – page 950 g-h. That does not assist Stockler Charity. Secondly, to summarise Mr Nawbatt's argument (which I accept), nothing in Woollen precludes a sum being "payable" as tax for the purposes of s.95(2)(a) (i.e. agreed that the aggregate amount assessable on the partners in consequence of the Oliver-Brice decision) yet being, if it is unpaid, recoverable only as a contractual debt. I thus do not see it as helpful to Mr Stockler or his firm to say that the £122,731.77 would not have been recoverable as tax; it had by agreement been payable as an amount of tax and payability is what s.95(2)(a) is concerned with. Thirdly, Nolan LJ's reference to s.54 TMA deals with the case where there has been an assessment but where it had been appealed and where agreement is reached before the appeal is determined by the Commissioners. Here so far as concerns the £122,731.77 there was eventually no assessment and the agreement was made after the Oliver-Brice decision, which in any event was only one as to principle. No doubt for such reasons neither side placed any reliance before me on s.54 but I add only that one cannot, in my view, jump from the express provisions made as to agreements within s.54 to conclude, as would be contrary to Nuttall, that no other kinds of agreement between taxpayer and HMRC should be either intra vires or enforceable.
40. Accordingly I do not read Woollen as being of assistance to Mr Stockler, nor either are the general observations of Lord Browne-Wilkinson at page 356 in Reg v IRC ex parte Matrix Ltd [1994] 1 WLR 334 HL. Nor either does Lam v IRC [2006] STC 893 have anything to say as to agreements made within the Nuttall parameters.
41. For the reasons I have given, I would, left to my own devices, decline to accept Mr McDonnell's argument, but that is not the question before me which, rather, is whether the Special Commissioner erred in law. Mr Clark refers to the "sum payable" and assessable as having been agreed at £122,731.77 – his paragraphs 3(9) and 70. He found no fault in what I have called the switch from the firm's liability to Mr Stockler's liability – paragraph 75. He referred, rightly in my view, to the broad sense of the word "payable" in s.95(2) – his paragraphs 82 and 86 and, as I too would accept, he took the view that an assessment is not necessarily required to establish what is the tax payable; it is a matter which is susceptible to agreement – paragraph 89. He held, as Mr McDonnell suggested was the case, that tax liability is in practice frequently established by contract settlement without amendment to the taxpayer's self-assessment – paragraph 91. At his paragraph 97 he said:-

"97. Thus the tax "payable" by Mr Stockler for the relevant years included an amount of tax referable to the adjustment of the Partnership's tax liabilities, such adjustment having been achieved by the agreement of the amount of tax due from the Partnership following the conclusion of the Part 36 agreement. There was according a "difference" between the tax "payable" by Mr Stockler and the tax which would have been payable if his personal returns for those years had been correct as submitted."

42. There was a little reference in argument to HMRC's leaflet IR160, to the form recommended for use when a so-called contract settlement is made, and to leaflets EM6301 and EM6305. They describe HMRC's better practice but they do not exclude a response, as was made, to a taxpayer's Part 36 offer. They do not assist Mr Stockler.
43. I detect no error of law in Mr Clark's decision so I must dismiss Mr Stockler's appeal. There may, if necessary, be a reference back to the Special Commissioner but only as to the due percentage rate for the penalty and not as to the attribution, in the event, of the whole of the Stockler Charity liability to Mr Stockler.