Stockler v HM Revenue & Customs

For the purposes of a tax-geared penalty under section 95 of the Taxes Management Act 1970, the additional tax payable may be established by a binding agreement between HMRC and the taxpayer. A formal assessment is not essential where the statutory machinery could otherwise have produced the same liability. HMRC’s managerial discretion permits appropriate compromises and settlements, including agreements concerning tax, interest and potential penalties. The court must distinguish between the validity in principle of such an agreement and whether the correspondence and conduct actually establish it. Where the parties agree the additional tax and the attribution of that liability, the agreed amount may constitute the difference on which the maximum penalty is calculated.

The appellant, a solicitor and representative partner of Stockler Charity, appealed on a point of law from a decision of Special Commissioner Clark. The Special Commissioner had held that HMRC had power to raise a penalty determination under section 95 of the Taxes Management Act 1970.

Earlier proceedings had established negligent insufficiency in the partnership’s statements. The partnership then made and HMRC accepted a Part 36 offer, under which tax and interest were paid. HMRC subsequently determined a tax-geared penalty against the appellant. The central issue was whether additional tax could be treated as payable for section 95 purposes when no consequential individual assessment had been made, but the amount had been agreed and paid.

1. The appeal was dismissed. The Special Commissioner had made no error of law in concluding that HMRC had power to raise a penalty determination.

2. Section 95 requires comparison between the tax payable for the relevant years and the tax that would have been payable if the relevant return or statement had been correct. The resulting difference fixes the maximum tax-geared penalty.

3. The statutory provisions do not prohibit HMRC and a taxpayer from agreeing the amount of tax payable where that amount could otherwise have been established through formal assessment machinery. Inland Revenue Commissioners v Nuttall [1990] STC 194 confirms HMRC’s wide managerial discretion and the binding effect of a properly made agreement. The agreement may establish payability even though no assessment has been issued.

4. The provisions concerning partnership returns, amendments, consequential notices and payment did not require HMRC to complete every formal step before an agreed amount could be treated as payable for section 95. The reasoning in Khan and another v First East Brixton General Commissioners and Inland Revenue Commissioners [1986] STC 331 did not address a binding agreement within the Nuttall parameters and did not produce a different result.

5. The Part 36 offer, its acceptance, the subsequent correspondence, the telephone conversation and payment established a binding agreement. The agreed sum simultaneously fixed the additional amount attributable to Stockler Charity and to the appellant. The attribution of the whole amount to the appellant was not successfully challenged.

6. IRC v Woollen [1992] STC 994 did not assist the appellant. Although a settlement sum may be recoverable contractually rather than as tax, it may still be payable as tax for section 95(2)(a). Any further reference to the Special Commissioner was limited to the appropriate percentage penalty, not attribution.

1. High Court (Chancery Division): On 22 September 2009, Sir John Lindsay dismissed the appeal from the Special Commissioner’s decision.
2. Special Commissioners: On 20 February 2009, Special Commissioner Clark held that HMRC had power to raise a penalty determination under section 95 of the Taxes Management Act 1970.