Cook, R (on the application of) v General Commissioners of Income Tax & Anor

Factual and Procedural Background

In 1999, the Plaintiff established a business but quickly fell behind on PAYE and National Insurance contributions. On 18 June 2003, representatives of the Revenue visited the Plaintiff, who explained non-compliance due to business establishment and was given until 16 July 2003 to submit records. The Plaintiff claimed to have delivered three boxes of records on 26 June 2003 to the Revenue's office at Sharp Street, Northampton, but the Revenue denies receipt and states the boxes are lost if delivered.

In July 2003, the Revenue issued assessments totaling approximately £232,000 with a 30-day appeal period, which the Plaintiff did not appeal or recall receiving. In December 2003, the Revenue informed the Plaintiff the assessments were final and payable; no appeal was taken then. The Plaintiff complained in February 2004 that the Revenue had documents to make proper assessments, but the Revenue denied holding such documents. Despite notification, the Plaintiff did not appeal.

A statutory demand for the full sum was issued in October 2004 and served in November 2004, prompting the Plaintiff to instruct an accountant, who sought discussions with the Revenue but did not lodge an appeal. The Revenue issued a bankruptcy petition in January 2005 based on the statutory demand. Subsequently, an appeal was lodged out of time on 3 February 2005, asserting a lower amount due (£65,000) than assessed.

The appeal was rejected by the Revenue inspector for lateness without reasonable excuse. The Plaintiff appealed to the General Commissioners, submitting documentation in May 2005. However, the Plaintiff did not attend the hearing on 11 May 2005. The Commissioners refused the late appeal application, limiting their consideration to whether there was a reasonable excuse for delay and not assessing the merits of the appeal.

The Plaintiff then initiated judicial review proceedings challenging the refusal of extension of time by the General Commissioners and the Revenue’s pursuit of bankruptcy proceedings and enforcement of the full assessed amount. The Plaintiff had paid the uncontested sum of £65,000.

Legal Issues Presented

1. Whether the General Commissioners erred in law by restricting their discretion under section 49 of the Taxes Management Act 1970 to considering only whether there was a reasonable excuse for the late appeal, without considering the merits of the substantive appeal or prejudice to either party.
2. Whether the Revenue’s continuation of bankruptcy proceedings and enforcement of the full assessed debt, despite receiving full information from the Plaintiff’s accountant, amounted to bad faith or a breach of the Plaintiff’s human rights.

Arguments of the Parties

Appellant's Arguments

• The Plaintiff argued that the General Commissioners failed to exercise their full discretion under section 49, which includes considering the merits of the appeal and prejudice to the parties, not merely the existence of a reasonable excuse for delay.
• The Plaintiff contended that the appeal was arguable on its merits, supported by detailed documentation from the accountant showing the assessed amount was excessive and only £65,000 was due.
• Regarding the Revenue’s enforcement actions, the Plaintiff argued these were pursued in bad faith or breached human rights given the new information provided.

Respondent's Arguments

• The Revenue maintained that the discretion of the General Commissioners was restricted to determining whether there was a reasonable excuse for late appeal under section 49(1), without considering the merits or prejudice.
• The Revenue emphasized the substantial delay and the loss or absence of original records, which undermined the credibility and timeliness of the appeal.
• On enforcement, the Revenue argued that there was prejudice on both sides: the Plaintiff’s delay harmed their ability to challenge the assessment, and the Revenue’s interest in recovering the debt justified pursuing bankruptcy proceedings.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the statutory framework under section 49 of the Taxes Management Act 1970, which permits late appeals if there is a reasonable excuse and no unreasonable delay. The initial application is to an inspector, whose discretion is limited to these criteria. If refused, the matter is referred to the General Commissioners who possess a broader discretion, including balancing merits and prejudice, as confirmed in the Browallia case.

The court analyzed the hearing notes and correspondence, finding the General Commissioners restricted their decision to whether a reasonable excuse existed, without exercising the broader discretion to consider the arguability of the appeal or any prejudice. The Commissioners relied on submissions by the Revenue’s representative that merits were irrelevant to their decision, which the court held was an error in law.

The court acknowledged the Plaintiff’s delay and the Revenue’s concerns about lost records but noted that the Plaintiff had produced detailed documentation supporting a substantially lower liability. The failure of the Commissioners to consider these factors rendered their refusal of the late appeal unlawful.

Regarding the second ground about bad faith and human rights, the court noted this issue only arose if the first ground failed and did not reach a conclusion on it in this judgment.

Holding and Implications

The court QUASHED the decision of the General Commissioners refusing the extension of time for the late appeal.

The matter is to be reconsidered by the General Commissioners with proper exercise of their discretion, including consideration of the merits of the appeal and prejudice to the parties. The court declined to substitute a decision granting extension of time, as it was not satisfied that the appeal was bound to succeed, leaving the ultimate determination to the Commissioners.

The direct effect is that the Plaintiff’s appeal may proceed on its merits, and the enforcement of the full assessed amount is subject to this reconsideration. No new precedent was established beyond the reaffirmation of the application of Browallia.