Revenue and Customs, R (on the application of) v The General Commissioners of Income Tax for the Division of Berkshire

An agreement compromising tax liabilities must be construed by identifying the meaning it would convey to a reasonable person with the relevant background knowledge. Its schedules and operative clauses determine the liabilities and periods covered. A general settlement does not prevent further enquiries where the agreement expressly preserves them or limits the liability compromised. Extrinsic evidence cannot be used to contradict clear contractual language, and an isolated communication cannot be treated as an explanatory document where it is not comparable to the document considered in the relevant authority.

The Revenue sought judicial review of decisions made by the General Commissioners following appeals against notices under section 19A of the Taxes Management Act 1970. The Commissioners had concluded that a 24 May 2004 agreement settled the interested parties’ liabilities for the relevant period and that further enquiries could not be opened.

The Revenue argued that the agreement, read with its schedules, preserved enquiries concerning specified liabilities and transactions. The central issue was whether the agreement prevented enquiries into the 2002–03 tax year.

1. The Commissioners’ decisions were quashed. They had not exercised the powers conferred by section 19A(9) of the Taxes Management Act 1970. Their task was to decide whether the documents or particulars were reasonably required for the statutory purpose. They had instead purported to close the enquiries.
2. The agreement was clear when read as a whole. Applying the principles stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, the £525,000 was payable for the liabilities and periods identified in the schedules. For the 2002–03 period, the liabilities of the individual interested parties were confined to tax arising from Bala Limited or the Maclennan Trust.
3. Clause 2(d) expressly contemplated further enquiries concerning the acquisition of the partnership business by Spring Salmon and Seafood Limited. The Commissioners’ interpretation would deprive that provision of practical purpose and was therefore erroneous.
4. The court construed the agreement without extrinsic evidence. The email of 21 May 2004 could not alter its meaning. If extrinsic evidence were admissible, it could not be confined to that single email. The email was not comparable with the explanatory document considered in Investors Compensation Scheme Ltd v West Bromwich Building Society.
5. The same reasoning applied to the partnership. Schedule 1C did not include the 2002–03 tax year, so the agreement could not preclude an enquiry into that period. A declaration as to the true interpretation of the agreement was also appropriate. A draft order was to be submitted, and there was no order as to costs.