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The High Court upholds penalties in Slater Ltd and others v Beacontree General Commissioners.
SLATER LTD AND six other 'small' companies appealed against penalties determined by the General Commissioners for failure to deliver documents and particulars to the Inland Revenue. The High Court dismissed the taxpayers' appeals that they were not obliged to provide any more information over and above their 'abbreviated' accounts.
The High Court upholds penalties in Slater Ltd and others v Beacontree General Commissioners.
SLATER LTD AND six other 'small' companies appealed against penalties determined by the General Commissioners for failure to deliver documents and particulars to the Inland Revenue. The High Court dismissed the taxpayers' appeals that they were not obliged to provide any more information over and above their 'abbreviated' accounts.
Background
Estimated corporation tax assessments were issued to seven 'small companies' (section 247, Companies Act 1985). In support of appeals, Mr Soor, the director and shareholder, submitted abbreviated accounts, but the Revenue could not reconcile these with accounting records and disallowed expenses under section 74, Taxes Act 1988.
At the first appeal hearing in September 2000, the Commissioners advised Mr Soor that, regardless of his argument that abbreviated accounts complied with section 247, Companies Act 1985, the companies should provide information to show that the assessments were excessive. They explained the provisions for the delivery of documents, etc. under Regulation 10, General Commissioners (Jurisdiction and Procedure) Regulations, SI 1994 No 1812.
At a subsequent meeting in November 2000, the Revenue explained that no further information had been provided and gave evidence of accounts discrepancies. Mr Soor objected that the preparation of detailed profit and loss accounts would involve extra expense but, after hearing evidence, the Commissioners issued notices requiring particulars under Regulation 10(1).
At the third hearing in January 2001, the Revenue reported that four of the companies had complied partially with the notices, the other three not at all. Taking account of the previous warnings and the availability of computerised records, the Commissioners decided that penalties of £1,000 should be levied (against a maximum of £2,100).
No further information was provided by the fourth hearing in March 2001, but Mr Soor reiterated his argument that accounting obligations under section 247, Companies Act 1985 had been met. The Commissioners levied daily penalties totalling £2,450 (against a potential total in excess of £20,000, at a maximum of £60 per day per company) for continued failure to comply with the notices.
The companies appealed to the High Court.
Decision in the High Court
Mr Soor, who represented the companies, again referred to section 247, Companies Act 1985 and argued that the Revenue could only ask for information that related to the abbreviated accounts. To do otherwise would make the Companies Act legislation irrelevant.
The Court reviewed the relevant legislation (as it stood for the years 1995 to 1999).
- Section 29(1), Taxes Management Act 1970 allowed the Inspector to make an assessment 'to the best of his judgment'.
- Section 11(1) and (1A), Taxes Management Act 1970 provided that a notice could require delivery of 'such information as may be required... which is relevant to the application of the Corporation Tax Acts'.
- Section 11(6), Taxes Management Act 1970 stated that for United Kingdom resident companies, required to prepare accounts under the Companies Act 1985, the reference in section 11(1), Taxes Management Act 1970 to the delivery of accounts is a reference 'only to such accounts... as are required under that Act'.
The Court noted that section 11, Taxes Management Act 1970 distinguished between 'accounts' and 'information' and whilst the provision of accounts was limited to those required by the Companies Acts, the provision of information was limited only to its relevance.
The Court further noted the accounting records requirements of sections 221 and 226, Companies Act 1985. Section 247 only exempts a small company from delivering a profit and loss account to the Registrar. This did not absolve the company from keeping accounting records.
Referring to the Commissioners' decisions, the Court held that they had acted reasonably in considering what information was required. Small companies should be protected from unnecessary expense, but the provision of necessary information had to override this. The Court held that the Commissioners were entitled to require the information sought and, in the absence of this, to charge the level of penalties imposed. Dismissing the appeal, the Court was of the opinion that the penalties might, if anything, be too low. 'The defaults by the companies have been deliberate, of longstanding and inexcusable'.
Decision for the Revenue
(Reported at [2002] STC 246.)
Commentary by Richard Curtis
Whilst it is difficult to read between the lines in such cases, possibly of interest is the fact that, at the Commissioners' meeting in November 2000, Mr Soor reported that the person, who had day to day control of the accounts, 'was no longer in the companies' employment'. At first sight, Mr Soor's argument does seem to have a certain logic, but one would hope that, after a second opinion from an accountant who had reviewed the relevant provisions of Taxes Management Act 1970, Mr Soor might have put aside the section 247 'spade' that he was using to dig himself into a hole which was rapidly filling up again with penalties.
