The High Court held that, in deciding whether a taxpayer should be permitted to lodge an appeal against a tax assessment out of time, the general commissioners had exercised their jurisdiction improperly in applying a reasonable excuse test. The correct course was to consider the merits of the case and carry out a balancing exercise between the prejudices that would be caused to the respective parties if permission were granted.

Facts

The taxpayer set up a new business but failed to make certain PAYE and NIC payments due to the Revenue on behalf of his employees. The taxpayer was issued with a deadline for lodging the necessary documents. The taxpayer claimed that he had provided the required documents within that time-limit but the Revenue stated that they had never received them. The Revenue subsequently issued determinations in respect of the outstanding payments totalling £232,000 under the Social Security Contributions (Transfer of Functions, etc.) Act 1999, s. 8 and the Income Tax (Employments) Regulations 1993, reg. 49. The taxpayer did not appeal against those assessments within the 30-day time-limit but, when he was served with a statutory demand and bankruptcy proceedings, he sought to appeal against the assessments out of time. The proposed grounds of appeal were that the assessments were grossly excessive and based on incorrect information. The tax inspector refused his application on the grounds that there was no reasonable excuse for the delay.

The case was referred to the general commissioners for determination pursuant to TMA 1970, s. 49. The taxpayer did not appear and was not represented at the hearing but he submitted various documents to support his application. The commissioners dismissed his application and refused permission to appeal out of time on the basis that the whereabouts of the taxpayer's records did not constitute a reasonable excuse for a late appeal within TMA 1970, s. 49. The taxpayer applied to the High Court for judicial review of that decision, arguing that the commissioners had erred in law in relying on the reasonable excuse test and failing to consider the merits of his appeal in accordance with the decision of the High Court in R (on the application of Browallia Cal Ltd) v General Commissioners of Income Tax for the City of London [2004] BTC 204 (which had not been cited before the commissioners).

Issue

Whether the commissioners’ powers to permit an appeal out of time were wider than those of the tax inspector so that the commissioners had erred in law in failing to consider the merits of the taxpayer's case.

Decision

Burton J (granting the taxpayer's application) said that, pursuant to the decision in Browallia, which applied to the present case, the commissioners’ jurisdiction had been improperly exercised and their decision fell to be quashed. In Browallia, the court had held that, on the true construction of s. 49, the commissioners had a wider discretion than the tax inspector. In the absence of any express restriction, they were bound to take account of the interests of justice in deciding whether the appeal should be allowed to go ahead. They were entitled to take into account, on the one hand, the lack of prejudice to the Revenue as a result of the failure to lodge the appeal and, on the other hand, any demonstrable injustice to the taxpayer if the appeal did not go ahead. Although the existence or lack of a reasonable excuse was potentially relevant, it was not conclusive in the balancing exercise.

Under s. 49(1), an application had to be made to the inspector who could allow the appeal to be lodged out of time if he was satisfied that there was a reasonable excuse. If the inspector decided that there was no reasonable excuse, he could refer the application to the commissioners for their determination. The section gave no guidance as to how the commissioners should exercise their discretion which was in fact at large.

In the present case, the commissioners, in the taxpayer's absence, had accepted the Revenue's proposition that, although the taxpayer had provided computations of what he believed to be his correct tax liability, that was irrelevant since the commissioners had to restrict themselves to considering whether or not there was a reasonable excuse for the late appeal. In accepting and acting upon that proposition, the commissioners had applied the wrong test. They should have balanced the prejudice caused to the taxpayer by refusing permission to lodge out of time what was contended to be an arguable appeal and the prejudice to the Revenue if permission was granted. In the circumstances, the commissioners’ refusal to grant the application should be quashed and the commissioners directed to reconsider the taxpayer's appeal against the determinations in question on its merits.

Queen's Bench Division (Administrative Court).
Judgment delivered 29 January 2007.