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Cite as: [2006] STC (SCD) 40, [2005] UKSPC SPC00513, [2005] UKSPC SPC513

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B W Jacques v Revenue and Customs [2005] UKSPC SPC00513 (13 December 2005)

SPC00513

PENALTY NOTICE – incorrect date and misdescription of the notice with which the Appellant had failed to comply – whether valid – no

NOTICE OF APPEAL – refusal to state grounds – whether valid – no

THE SPECIAL COMMISSIONERS

B W JACQUES Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Special Commissioner: DR JOHN F AVERY JONES CBE

Sitting in public in London on 9 December 2005

Oliver Conolly, counsel, instructed by Rycroft Glenton & Co, for the Appellant

June Kennerley, HM Inspector of Taxes, HM Revenue and Customs Appeals Unit Northern England, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The Respondent requested a preliminary hearing to determine the validity (a) of a purported penalty notice and (b) of a purported notice of appeal against such penalty notice. The Appellant was represented by Mr Oliver Conolly, and the Inspector by Ms June Kennerley.

From the documents I find the following facts:

(1) On 3 August 2004 the Inspector issued a Notice under section 19A of the Taxes Management Act 1970 ("the section 19A Notice") requiring the Appellant to produce the following documents: all business records for the year ended 5 April 2003, and bank statements and building society passbooks detailing all transactions for all private accounts and investments (in sole or joint names), and credit card statements in respect of that year; and to provide information in the form of a statement of assets and liabilities at 5 April 2003. An appeal was made against that notice but was dismissed by the General Commissioners.

(2) On 24 February 2005 a penalty of £50 was imposed for failure to comply with the section 19A Notice. An appeal was made against that notice but was dismissed by the General Commissioners.

(3) By a penalty notice issued on 29 July 2005 ("the Penalty Notice") a daily penalty was purported to be imposed under section 100 arising under section 97AA(1)(b) of the Taxes Management Act 1970 at the rate of £20 per day (total £3,080) in respect of the period 25 February 2005 to 28 July 2005 (154 days) "in respect of your continuing failure to comply with a notice dated 24 February 2005 (sic) served on you under Section 19A(2) of [the Taxes Management Act 1970] to produce such documents and furnish such accounts or particulars as were specified in that notice…". The Penalty Notice stated: "Your appeal must be in writing, should state the grounds for the appeal and should be sent to the Revenue & Customs office address above."

(4) On 25 August 2005 a purported appeal ("the Notice of Appeal") against the Penalty Notice was made by the Appellant's accountant, Trevor Scott, direct to the Special Commissioners saying "We appeal against the attached penalty notice issued on 29 July 2005 under s100(1) TMA 1970. Due to the conduct of HMRC Officers we will not disclose the reasons for appeal." On 26 August 2005 Mr Scott wrote to the Inspector saying that he had made such appeal. No point is taken about the appeal being sent direct to the Special Commissioners.

(5) On 28 November 2005 (10 days before the hearing) Mr Scott wrote to the Inspector saying "Reasons for appealing against the daily penalty notice, issued under s97AA(1)(b) of Taxes Management Act 1970 by Mr Keith Longstaff on 29th July 2005 are that it is bad in law and not proportionate." He also pointed out that the penalty notice was for failure to comply with a Notice dated 24 February 2005 and asked for a copy of such Notice.

The following provisions of the Taxes Management Act 1970 (all subsequent references are to that Act) are relevant.

Section 19A

"(1) This section applies where an officer of the Board gives notice of enquiry under section 9A(1) or 12AC(1) of this Act to a person ("the taxpayer").

(2) For the purpose of the enquiry, the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice—

(a) to produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which

(i) the return is incorrect or incomplete, or

(ii) …, and

(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose…".

Section 31A:

"(1) Notice of an appeal under section 31 of this Act must be given—

(a) in writing,

(b) within 30 days after the specified date,

(c) to the relevant officer of the Board.

…

(5) The notice of appeal must specify the grounds of appeal.

(6) On the hearing of the appeal the Commissioners may allow the appellant to put forward grounds not specified in the notice, and take them into consideration, if satisfied that the omission was not wilful or unreasonable."

Section 97AA

"(1) Where a person fails to comply with a notice or requirement under section 19A(2), (2A) or (3) of this Act or paragraph 6(2) or (3A)(b) of Schedule 1A to this Act, he shall be liable, subject to subsection (4) below—

(a) to a penalty which shall be £50, and

(b) if the failure continues after a penalty is imposed under paragraph (a) above, to a further penalty or penalties not exceeding the relevant amount for each day on which the failure continues after the day on which the penalty under that paragraph was imposed (but excluding any day for which a penalty under this paragraph has already been imposed).

(2) In subsection (1)(b) above 'the relevant amount' means—

(a) in the case of a determination of a penalty by an officer of the Board under section 100 of this Act, £30;

(b) in the case of a determination of a penalty by the Commissioners under section 100C of this Act, £150…."

Section 100:

"(1) …an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty under any provision of the Taxes Act and setting it at such amount as, in his opinion, is correct or appropriate.

…

(4) After the notice of a determination under this section has been served the determination shall not be altered except in accordance with this section or on appeal."

Section 100B:

"(1) An appeal may be brought against the determination of a penalty under section 100 above and, subject to [sections 93, 93A and 95A of this Act] [and] the following provisions of this section, the provisions of this Act relating to appeals shall have effect in relation to an appeal against such a determination as they have effect in relation to an appeal against an assessment to tax.

(2) Subject to sections 93(8) and 93A(7) of this Act on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but—

(a) in the case of a penalty which is required to be of a particular amount...

(b) in the case of any other penalty, the Commissioners may—

(i) if it appears to them that no penalty has been incurred, set the determination aside,

(ii) if the amount determined appears to them to be appropriate, confirm the determination,

(iii) if the amount determined appears to them to be excessive, reduce it to such other amount (including nil) as they consider appropriate, or

(iv) if the amount determined appears to them to be insufficient, increase it to such amount not exceeding the permitted maximum as they consider appropriate."

Section 114:

"(1) An assessment [or determination], warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.

(2) An assessment [or determination] shall not be impeached or affected—

(a) by reason of a mistake therein as to—

(i) the name or surname of a person liable, or

(ii) the description of any profits or property, or

(iii) the amount of the tax charged, or

(b) by reason of any variance between the notice and the assessment [or determination]."

It may be deduced from the above facts that relations between Mr Scott and the Inspector have broken down over a matter to which I shall refer to briefly later in this decision. In these circumstances having the arguments presented by independent counsel, Mr Conolly, and by Ms Kennerley of the Northern England Appeals Unit, independently of the Inspector, has been a great advantage, and I am grateful to both of them for the moderate way in which they conducted the hearing.

Mr Conolly, for the Appellant, contends in outline:

(1) The Penalty Notice is bad both for stating the wrong date and for misdescribing it a notice to "produce such documents and furnish such accounts or particulars" as were specified therein.

(2) Section 114 cannot save the Penalty Notice as it is not in conformity with or accoutring to the intent of the Taxes Acts.

(3) The Notice of Appeal is valid because:

(a) The requirement to state grounds of appeal is directory and not mandatory.

(b) The Inspector has not suffered any prejudice by the grounds being stated late.

(c) That the requirement is directory is supported by section 31A(6) permits the tribunal to allow the Appellant to put forward grounds not specified in the notice, and take them into consideration, if satisfied that the omission was not wilful or unreasonable. He does not rely on this provision.

(d) It would be unjust to hold the appeal to be invalid; the appropriate remedy would be a costs order made against the Appellant instead. The Appellant has since specified his grounds.

(e) For human rights purposes the penalty is a criminal charge and the Appellant is being denied access to a court.

(f) The Penalty Notice stated "Your appeal must be in writing, should state the grounds for the appeal and should be sent to the Revenue and Customs office address above." [my italics] The Enquiry Manual states at 5301: "…the appeal should specify the grounds for appeal (but as for assessments this requirement should not normally be interpreted strictly…. Where the grounds for the appeal are not stated you should invite the taxpayer to provide the necessary details…". The Revenue service commitment stated that "We aim to provide…accurate and complete information in a helpful and appropriate way."

Ms Kennerley, for the Inspector, contends in outline:

(1) While the date of the section 19A mentioned in the Penalty Notice is wrong there is only one section 19A Notice and so it is clear that the date of the section 19A Notice in the Penalty Notice should have been 3 August 2004.

(2) The Penalty Notice is also saved by section 114 as being "in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts." In Austin v Price [2004] STC (SCD) 487 the wrong date was far more misleading because two penalty notices intended to be for two different years both referred to the date of the section 19A notice for one of the years. That is not the case here.

(3) The Notice of Appeal is invalid for not stating the grounds of appeal and it was too late to state them on 28 November 2005 (this did not purport to be an application for a late appeal and has not been considered as such). Since most appeals are settled between the parties it was essential for the Inspector to know what the appeal was about in order to progress the case. Here the Inspector was prejudiced because if the wrong date in the Penalty Notice had been pointed out it could have been withdrawn and reissued in August 2005. The refusal to state grounds was wilful and so section 31A(6) was not in point.

Dealing first with the validity of the Penalty Notice, since 25 February 2005 is stated to be the start date of the daily penalty, one can deduce from section 97AA(1)(b), which was attached to the notice, that that date must be the day following the imposition of the fixed penalty (of an earlier daily penalty) and so it must be the wrong date for the section 19A notice. Ms Kennerley contends that, unlike in Austin case can deduce the correct date because, as is common ground, only one section 19A Notice has been issued to the Appellant. I might have accepted this argument if the section 19A Notice had been correctly described. But the Penalty Notice refers to the section 19A Notice being a notice "to produce such documents and furnish such accounts or particulars as were specified in that notice…" (which follows the wording of section 19A), whereas it was a Notice to produce certain documents and to provide information (which I take to be the same as "to furnish… particulars"—on the meaning of which, see Accountant v Inspector [2000] STC (SCD) 522) in the form of a statement of assets and liabilities at 5 April 2003, and not to furnish any accounts. I consider therefore that too great an ambiguity has been created for the Penalty Notice to be saved by substituting 3 August 2004 as the date of the section 19A Notice.

On section 114, as I said in Austin v Price at [7] and [8]:

"7….While some errors in dates might not invalidate a penalty notice, perhaps if 18 March had been specified as 81 March when there was only one relevant notice, here the error makes the notice completely misleading by referring the taxpayer to a notice for another year, and perhaps leading him to believe that he had received a duplicate copy of a notice relating to 2000/01. I do not consider that section 114 can save the notice as being "in substance and effect in conformity with or according to the intent and meaning of the Taxes Act;" the error is not about "the person or property charged" and so the second part of subsection (1) need not be considered. It is not in substance in conformity with, or in accordance with, the intent of the Act to specify that the taxpayer has not complied with a section 19A notice giving the date of a notice relating to a different year. As Megarry J said in Fleming v London Produce at page 597I: "The likelihood of the recipient being deceived or misled would also be an important factor." Here there was such a likelihood.

8….Although it is the s 19A notice that determines what the taxpayer is required to produce, which is referred to by its date, the taxpayer is entitled to know what he has failed to do for which the penalty is being imposed; he might, for example, have partly complied with the notice in which case it would be important that what he had failed to do should be accurately specified. I do not consider that s 114 can save the notices as being 'in substance and effect in conformity with or according to the intent and meaning of the Taxes Act'…. As Megarry J said in Fleming v London Produce [1968] 2 All ER 975 at 987, 44 TC 582 at 597: 'I would be slow to accept that [the predecessor of section 144] provide[s] an impervious coverlet for gross errors'."

The mistake here is not as serious as the one in Austin where two penalty notices intended to be in respect of two separate years both referred to the date of the section 19A notice relating to one of the years, and so the taxpayer received two identical notices intended to relate to different years but with nothing to show this. The same reasoning still applies. In my view too much uncertainty has been introduced by the wrong date and the misdescription of the terms of the section 19A Notice by referring to the furnishing of accounts for it to be saved by section 114.

Accordingly I find the Penalty Notice to be invalid.

On the validity of the Notice of Appeal, this is not a case of omitting to give any grounds but deliberately failing to do so: "Due to the conduct of HMRC Officers we will not disclose the reasons for appeal." Ms Kennerley points out that he Inspector clearly needs to know what the appeal is about, particularly as most appeals are settled by agreement. The grounds can be stated in quite general terms, as in the pre-self assessment formula of the assessment being "estimated and excessive" but at least the Inspector knows that it is a dispute about the estimated figure, and not, for example, European law or the Human Rights Act. In spite of Mr Conolly's well researched and clearly presented arguments I do not consider that the Notice of Appeal is valid. In Haven Healthcare (Southern) Limited v York [2005] STC 1662 Lightman J summarised the effect of the House of Lords decision in R v Soneji [2005] 3 WLR 303 on the distinction between mandatory and directory at [8] that:

"…the classification of statutory provisions as mandatory or directory is the end of the inquiry, not the beginning, and that the task of the court was to concentrate on the consequences of non-compliance and the place of the requirement in the scheme of the legislation or regulation and whether it was the purpose of the legislation or regulation that an act done in breach of, or non-compliance with, the legislation or regulation should be invalid."

Applying these tests it seems to me that the requirement to state grounds is mandatory. Since most appeals are settled by agreement the scheme of the legislation requires that the Inspector know the grounds of appeal. While it is possible for other grounds to be added by section 31A(6) if the appeal results in a hearing this implies that there are already some grounds which the Inspector will have refused. If the section had been in issue here I would have decided that the omission was wilful ("…we will not disclose the reasons for appeal."). I see nothing unjust or contrary to the purpose of the legislation in holding the notice of appeal to be invalid in these circumstances.

So far as human rights are concerned I entirely accept that "…it follows that the right of access [to a court] constitutes an element which is inherent in the right stated by Article 6 para.1 [of the Human Rights Convention]": Golder v UK (1975) EHHR 524 at [36]. Even on the assumption (on which I would prefer not to make a decision in the absence of full argument from the Inspector) that the daily penalties are criminal charges within the Convention, I do not consider that the Appellant's human rights have been breached; he has a full right of appeal but must comply with the rules for exercising it. As Lester and Pannick, Human Rights Law and Practice (2nd ed, 2004) say at para.4.6.18: "…the limitations applied to the right of access to court must not be such that the very essence of the right is impaired; they must, moreover pursue a legitimate aim and comply with the principle of proportionality; and they should be legally certain." I cannot see that the requirement to state grounds of appeal fails any of those criteria.

The Penalty Notice made an apparent distinction that the appeal must be in writing, but merely should state the grounds and be sent to the address above, in contrast to the section 19A Notice which stated that "Your appeal must be in writing and state the grounds on which you are appealing." I am bound to construe the words of the statute which is that the Notice of Appeal must specify the grounds of appeal. The Enquiry Manual states at 5301: "…the appeal should specify the grounds for appeal (but as for assessments this requirement should not normally be interpreted strictly…. Where the grounds for the appeal are not stated you should invite the taxpayer to provide the necessary details…". This may be a less stringent interpretation than the statute requires, and in any case may not be intended to apply to a deliberate failure to provide grounds of appeal. If the Penalty Notice or the Enquiry Manual are contended to have given the Appellant a legitimate expectation that the requirement to specify grounds of appeal would be interpreted more liberally than the statute that is something that would have to be pursued in judicial review proceedings.

Accordingly I find the notice of appeal to be invalid.

I therefore find myself in the strange position of deciding at a preliminary hearing that there is no appeal but nor was there anything to appeal against. What are the consequences was not argued. Particularly as the definition of "proceedings" in the Special Commissioners (Jurisdiction and Practice) Regulations 1994 includes a preliminary hearing under regulation 9, I assume that I have jurisdiction at a preliminary hearing to decide whether I have any jurisdiction, and therefore to decide whether the Notice of Appeal is valid, as a necessary preliminary to giving directions "so as to enable the proceedings to be disposed of expeditiously, effectively and fairly." But, having decided that it is not valid, there are no longer any proceedings before me, and so I cannot have jurisdiction to do anything else. The Penalty Notice can only be set aside in an appeal (sections 100(4) and 100B), and there is now no appeal. I fear that the result may be that I have no jurisdiction to decide (as I have purported to do) that the Penalty Notice is invalid and therefore, because I have decided it has not been validly appealed against, it cannot be altered (section 100(4)), and so the penalty stands. Should the Inspector feel that he would rather give effect to the substance of my decision, particularly in circumstances where relations between him and Mr Scott are already strained, I believe that the remedy is in his hands; he can withdraw the Penalty Notice. Alternatively the Appellant could apply to the Inspector to make another appeal out of time. However, should the parties wish to argue what is the legal result of my decision (and they consider that I have jurisdiction to hear them) I give them liberty to restore the preliminary hearing for such purpose by notice to the Clerk within two months of the date of release of this decision, the long period being to give the parties the opportunity to discuss it.

Mr Conolly also applied for two directions relating first, to disclosure of what the Inspector had said to the Appellant's former accountant, which Mr Conolly contended suggested that the Appellant's confidentiality had been breached, and secondly, of tape recordings of conversations between the Inspector and the Appellant. Ms Kennerley contended that the Appellant had authorised the Inspector to approach the former accountant in a meeting on 30 June 2004 when he said "you will have to ask Mr Ingram about that." In any case Ms Kennerley contended that the Inspector did not need the Appellant's consent to obtain information from third parties. She also said that there were no tape-recorded conversations. I do not now have jurisdiction to deal with this application but I can say that I would not have made the directions. I believe that this is an attempt to involve the Special Commissioners in resolving complaints about the conduct of the Inspector. If the Appellant wishes to pursue this I suggest that he applies to the Adjudicator. I would also record that Mr Scott helpfully agreed to provide the Inspector with a tape recording and transcript of the meeting on 30 June 2004 so that the context of the quoted remark could be seen. Perhaps I could also suggest that it might help to defuse the situation if the Inspectors involved were to write to Mr Scott with an explanation of what information they gave and obtained from the former accountant, and whether they made any recordings of conversations with the Appellant.

Ms Kennerley also applied for a direction that this appeal be heard together with an application for a closure notice. This no longer arises.

Mr Conolly asked for costs which Ms Kennerley opposed. I make no order for costs.

As Mr Conolly told me that this is the first case in which the validity of a notice of appeal on account of the grounds of appeal not being stated has been raised, the Presiding Special Commissioner has authorised the publication of this decision.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER

RELEASE DATE: 13 December 2005

SC 3157/05

Authorities referred to in skeletons and not referred to in the decision:

R (on the application of Browallia Cal Ltd) v General Commissioners [2004] STC 296

King v Walden [2001] STC 822

Raymond v Honey [1983] 1 AC 1