[2010] UKFTT 509 (TC)

TC00764

Appeal number TC/2010/02508

Application by HMRC for notice of appeal by taxpayer to be struck because assessment agreed and disposed of by taxpayer’s trustee in bankruptcy under s.54 TMA 1970 – HMRC claim taxpayer had no locus standi to appeal – agreement under s.54 disputed by taxpayer – application to strike out upheld.

FIRST-TIER TRIBUNAL

TAX 

	DAVID MCNULTY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Mr Michael S Connell (Tribunal Judge)
		Mr Alan Redden FCA  (Member)

				

Sitting in public at Newcastle on 03 September 2010
 
Mr Christopher on behalf of the Appellant 
Mr Branigan, Senior Officer of HM Customs and Excise for the Respondents 

© CROWN COPYRIGHT 2010

DECISION

1.	This is an application by HMRC for a determination that Mr McNulty’s notice of appeal should be struck out on the grounds that the assessments giving rise to the appeal have already been disposed of by an agreement between Mr McNulty’s Trustee in Bankruptcy and HMRC pursuant to the provisions of s.54 of the Taxes Management Act 1970.

2.	The appeal which Mr McNulty wishes to pursue is against an amendment to his 1997/98 self-assessment.  Mr McNulty claimed a capital loss on his 1997/98 return.  The loss was acquired from The Castle Trust as part of a marketed tax avoidance scheme.  HMRC investigated the arrangements and concluded, by agreement with the Trustees of the Trust, that there was no capital loss and that, as a result, Mr McNulty’s claim to have acquired a proportion of the loss failed.  Mr McNulty appears to have accepted the position in this regard in early 2004 during an exchange of correspondence between himself, KPMG who acted on behalf of The Castle Trust and HMRC.

3.	In January 2004 Mr McNulty was approached by HMRC with proposals for settlement of his tax liabilities on the assumption that his claim for capital losses failed.  The proposals were conditional upon Mr McNulty accepting them within a specified time limit.  Mr McNulty did not accept the proposals within the specified time limit and, on 17 May 2004, a closure notice and a Revenue amendment to his self-assessment was made.  The assessment was for £951,790.80 capital gains tax and a penalty tax of 40% of the tax due, to which Mr McNulty objected.  Mr McNulty referred the matter to the Parliamentary Ombudsman complaining that HMRC had not given him a clear deadline for acceptance of the Revenue’s proposals and that the penalty imposed upon him was unnecessary and vindictive.  The Parliamentary Ombudsman disagreed with Mr McNulty and considered that HMRC’s decision to issue the closure notice on 17 May 2004 and the amendment to Mr McNulty’s self-assessment was not a matter the Ombudsman could consider.  The Ombudsman found no mal-administration in the handling of Mr McNulty’s case.

4.	On 02 June 2004 Mr McNulty appealed the amendment to his self-assessment.  The appeal was accepted by HMRC on 03 June 2004.  Mr McNulty also sought full postponement of the tax charged by the amendment.  HMRC did not accept the application, which was referred to the General Commissioners.  Postponement applications were heard in September and November 2004.  The Commissioners determined that no part of the tax charged should be postponed.

5.	Collection of the tax due was sought by HMRC, which ultimately resulted in the bankruptcy of Mr McNulty.  Judgment was obtained for the outstanding tax in Durham County Court on 08 February 2005.  Mr McNulty had not appealed the judgment obtained on 08 February.  He had instructed Eversheds Solicitors the next day, who simply sought extensions of time to pay.  A bankruptcy petition was presented on 07 March 2006; firstly for the judgment debt, secondly for a sum described as self-assessment tax and/or national insurance contributions for the year 2002/03 in the sum of £3,206.00 plus interest of £549.13 and thirdly self-assessment surcharges imposed under s.59(c)(2) and 59(c)(3) of the Taxes Management Act 1970 arising from the failure to pay tax on the 1997/98 assessment and interest thereon.  The bankruptcy petition was heard on 08 December 2006 and the bankruptcy order confirmed.

6.	Mr John Bell of Messrs Clarke Bell Limited of Parsonage Chambers  3 The Parsonage  Manchester  M3 2HW was appointed Mr McNulty’s Trustee in Bankruptcy.  HMRC wrote to the Trustee in Bankruptcy, explaining that Mr McNulty’s ‘underlying appeal against the assessment remains open’ and that HMRC had taken no further action with regard to listing the appeal, pending an appeal against the bankruptcy order which had been made by Mr McNulty.  Leave to appeal had been refused and therefore HMRC explained that they were writing to the Trustee in Bankruptcy to ask how they proposed to deal with the appeal, in particular because Mr McNulty had sought to apply to the General Commissioners for jurisdiction to be transferred to the Special Commissioners. The Trustee in Bankruptcy responded that the Trustee ‘had no knowledge nor did we approve of the application of appeal made by Mr McNulty’, which appeared to overlook the fact that the appeal had been made prior to the bankruptcy order being made.  Nonetheless, HMRC interpreted that response as being that the Trustee in Bankruptcy had not authorised the request to have the appeal heard by the (Special) Commissioners.  

7.	HMRC then asked the Trustee in Bankruptcy whether he agreed and accepted the closure notice and amendment to the 1997/98 self-assessment or wished to ask that the appeal be heard by the General Commissioners.  The Trustee in Bankruptcy responded that he did not intend to be a party to ‘any proposed litigation in this respect’ and, on 19 September 2007, agreed the Revenue’s unsecured claim of £1,599,449.39.  There is no copy of this ‘agreement’ by way of copy correspondence or otherwise with the bundle of documents submitted by HMRC, but nonetheless it must be taken that the Trustee in Bankruptcy accepted and agreed the Revenue’s claim.  Accordingly, on 05 March 2008, HMRC confirmed to the Trustee in Bankruptcy that, pursuant to s.54 TMA, the appeal should be treated as discharged or cancelled, with the result that the like consequences ensued for all purposes as would have ensued as if the Commissioners had determined the appeal and upheld the assessment.

8.	Shortly prior to the s.54 TMA agreement between the Trustee in Bankruptcy and HMRC, Mr McNulty had been discharged as a bankrupt on 08 December 2007.  However,  there was then no further communication between HMRC and the Trustee or Mr McNulty and HMRC concerning the amendment to the self-assessment until receipt of Mr McNulty’s notification of appeal to the Tribunal in March 2010.

9.	The issue before the Tribunal was whether Mr McNulty’s original appeal had been settled by agreement between HMRC and his Trustee in Bankruptcy and whether he had any right to pursue that appeal.

10.	Mr McNulty contended that there had been no agreement under s.54 TMA 1970 and that his Trustee in Bankruptcy’s letter of 25 February 2005 saying that he did not wish to be a party ‘to any proposed litigation’ was evidence of that.  Mr McNulty argued that, as there was no other creditors involved in his bankruptcy, the effect of the Trustee in Bankruptcy’s letter was to disclaim any interest in appealing the amendment to the self-assessment allowed him to do so.  The whole purpose of Mr McNulty’s appeal to the Tribunal was that, if he was allowed to appeal the original amendment to the self-assessment and was successful, he would no longer be a bankrupt and that consequently the whole process would be undone.  He contended that he had an interest in proceedings and should have been involved in any purported agreement between his Trustee in Bankruptcy and HMRC under s.54 TMA 1970.  He said he had subsequently spoken to Ms O’Grady, the person who had dealt with matters at the offices of the Trustee in Bankruptcy, who he says confirmed that the Trustee in Bankruptcy had not ‘abandoned’ the appeal.  However, it appears that Ms O’Grady was simply saying that the Trustee in Bankruptcy would not be a party to any appeal as the cost of pursuing an appeal would lay with the Trustee in Bankruptcy and there were insufficient or no funds with which to do that.

11.	Mr Branigan on behalf of the Respondents said that the Tribunal was not the correct forum to hear the arguments and issues being raised by Mr McNulty.  He argued that the Tribunal had no jurisdiction to hear the appeal on the basis that Mr McNulty had no interest in the appeal and that, if Mr McNulty objected to the s.54 agreement between the Trustee in Bankruptcy and HMRC, the proper course of action was to apply to the High Court under s.303 of the Insolvency Act 1986.  S.303(1) states ‘if a bankrupt … is dissatisfied by any act, omission or decision of the Trustee of the bankrupt’s estate he may apply to the court; and on such an application the court may confirm, reverse or modify any act or decision of the Trustee, may give him directions or may make such other offer as it thinks fit’.

12.	The effect of s.306 of the Insolvency Act 1986 under which a bankrupt’s estate vests in the Trustee in Bankruptcy immediately upon his appointment is that the bankrupt is divested of his interest in his property and any liability for his debts.  The Trustee has sole responsibility for determining the debts outstanding and for accepting or discharging them.  Accordingly, it would be the Trustee who commenced any proceedings in that regard.  Therefore, Mr McNulty’s assets and liabilities vested in the Trustee in Bankruptcy on the date of the Trustee’s appointment.  From that date, as Mr McNulty was no longer liable for his bankruptcy debts, any proceedings would have to be commenced in the name of the Trustee in Bankruptcy and, although the Trustee had said that it did not wish to become involved in any litigation, he had not specifically given Mr McNulty authority to deal with those tax affairs.  He had simply indicated that if Mr McNulty wished to pursue the issue he would have to be responsible for all attendant costs.  Under the principles of Heath v Tang [1993] 1WLR1421, the conduct of any appeal would have to be undertaken on behalf of the Trustee.  Mr McNulty had no personal interest in the appeal, either with regard to reassessments or penalties imposed.

13.	Mr McNulty appears to have taken legal advice on the possibility of asking the Trustee to assign to him any continuing rights to appeal but had not taken this any further.  It was therefore for the Trustee and not Mr McNulty to decide whether to pursue the appeal out of time, or for example to seek judicial review in respect of any alleged incorrect application of tax or insolvency legislation.  Mr McNulty’s remedy would have been to apply to the bankruptcy court under s.303 Insolvency Act 1986 to quash the agreement which had been reached under s.54 and obtain a direction for the Trustee to bring judicial review proceedings, or allow Mr McNulty to do so on his own behalf subject to providing sufficient evidence for the purposes of securing permission to bring such judicial review proceedings. 

14.	Mr McNulty’s Trustee in Bankruptcy was ‘a person acting on behalf of the Appellant in connection with the appeal’ within the meaning of s.54(5) TMA 1970 and therefore could enter into an agreement on behalf of the taxpayer.  It was clear to the Tribunal that the Trustee, acting on behalf of Mr McNulty, and HMRC had come to an agreement in writing that the amendments to Mr McNulty’s self-assessment for the year 1997/98 should be treated as agreed and upheld.  The Trustee had therefore settled the appeal by agreement under s.54.

15.	For the above reasons, the Tribunal upheld the Respondents’ application to strike out Mr McNulty’s notice of appeal. 

	This Decision contains full findings of fact and reasons for the decision.  A party wishing to appeal this decision must apply within 28 days of the date of release of this Decision.  The parties are referred to ‘Guidance to Accompany a Decision from the First-tier Tribunal (Tax Chamber)’ which accompanies and forms part of this Decision Notice.

       
          MICHAEL S CONNELL
TRIBUNAL JUDGE 

RELEASE DATE: 21 OCTOBER 2010

Amended pursuant to rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on 14 March 2011.