Legal profession – Partnerships – Income tax

William Thomas Stockler v Revenue & Customs Commissioners: ChD (Sir John Lindsay): 22 September 2009

The appellant (S) appealed against a decision that, in the circumstances, the respondent commissioners had the power to raise a penalty assessment against him under section 95 of the Taxes Management Act 1970.

S was at the material times a solicitor and the leading partner in a firm. The respondent commissioners had amended the partnership tax statements for a number of years, and the firm appealed. The special commissioners decided that there had been negligent conduct on the part of S, as representative partner of the firm, in the making of the firm’s partnership statements, which contained an insufficiency in the amount of its profits for the relevant years because sums which were truly the personal liability of S had been borne by the firm.

The firm appealed against that decision. That appeal was settled on the basis that the amendments of the partnership returns were withdrawn. The tax and interest due was paid by S on the footing that, within the partnership, the whole of whatever was found due was to be attributed to him. The respondent commissioners then determined that S was liable to a penalty of 70% of the culpable tax.

He appealed to the commissioners, who decided as a preliminary issue that the commissioners did have power, in the circumstances, to raise a penalty determination.

S submitted that, since the amendments of the partnership statements had been withdrawn and there had never been any consequential amendment of his individual return, there could not be any tax ‘payable’ under section 95(2) of the act for the purposes of determining the amount of a penalty; ‘the said person’ in section 95 could not be S 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 had not happened.

Held: (1) The amount of tax ‘payable’ for the purposes of section 95(2) could be fixed by agreement as well as by assessment. The respondent commissioners had a wide managerial discretion, permitting agreement of a liability that would otherwise be determined by formal assessment, and when such an agreement was properly made it would be binding on the parties, Inland Revenue Commissioners v Nuttall (1990) 1 WLR 631 CA (Civ Div) followed. There was nothing in the act that prohibited payability or quantification of what was payable being agreed where otherwise payability and quantification could have arisen under the statutory provisions. There was therefore no objection to the commissioners and S arriving by agreement at the amount of income tax assessable on the partners in consequence of the commissioners’ first decision. There had been amendments to the partnership returns and there could have been consequential amendments to S’s returns as a partner. It would be regrettable if the commissioners could not achieve by agreement what they could have achieved by coercion.

(2) Before payment was made under the settlement agreement, the commissioners had switched from correspondence addressed to the firm to correspondence with S himself, on the basis that the additional chargeable profits were attributable to him. That switch from payability of the firm to that of S was not objectionable in the circumstances. Given the way correspondence proceeded, the quantification agreed simultaneously fixed the additional tax payable by the partnership and that payable by S himself. No reason had been advanced for a 100% attribution to S being wrong beyond a mere assertion. The quantification so agreed bound S as to the additional amount assessable on the partners of the firm and as to the additional amount assessable on him personally. A substantial difference was thus agreed to exist between the amounts in sections 95(2)(a) and 95(2)(b). It was not helpful to S or his firm to say that the settlement amount would not have been recoverable as tax; it had by agreement been payable as an amount of tax and payability was what section 95(2)(a) was concerned with (Inland Revenue Commissioners v Woollen (1992) STC 944 CA (Civ Div) considered).

Appeal dismissed.

Conrad McDonnell (instructed by Stockler Brunton) for the appellant; Akash Nawbatt (instructed by the in-house solicitor) for the respondent.