https://theses.gla.ac.uk/ Theses Digitisation: https://www.gla.ac.uk/myglasgow/research/enlighten/theses/digitisation/ This is a digitised version of the original print thesis. Copyright and moral rights for this work are retained by the author A copy can be downloaded for personal non-commercial research or study, without prior permission or charge This work cannot be reproduced or quoted extensively from without first obtaining permission in writing from the author The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the author When referring to this work, full bibliographic details including the author, title, awarding institution and date of the thesis must be given Enlighten: Theses https://theses.gla.ac.uk/ [email protected] CIVIL PENALTIES FOR TAX OFFENCES by JAMES S. MacLEOD A THESIS FOR THE DEGREE OF MASTER OF LAWS OF THE UNIVERSITY OF GLASGOW, DEPARTMENT OF TAXATION MARCH 1988 c James S. MacLeod, 1988 ProQuest Number: 10948199 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. uest ProQuest 10948199 Published by ProQuest LLC(2018). Copyright of the Dissertation is held by the Author. All rights reserved. This work is protected against unauthorized copying under Title 17, United States C ode Microform Edition © ProQuest LLC. ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 TABLE OF CONTENTS CHAPTER 1 TAX AVOIDANCE AND EVASION - THE DEVELOPMENT OF THE LAW CHAPTER 2 FRAUD, WILFUL DEFAULT, AND NEGLECT CHAPTER 3 DEFAULT INTEREST CHAPTER 4 PENALTIES CHAPTER 5 APPEALS, AND OTHER REMEDIES 2 SUMMARY This thesis contains of a review of the law of the three statutory offences of fraud, wilful default, and neglect, in direct taxation, together with an analysis of the consequences of these offences. The study is confined to offences, and their consequences, under the law of income tax, capital gains tax, and corporation tax. Value added tax law has not been considered, except to the extent that it has a bearing on direct taxation. Taxation is imposed, by statute, on the United Kingdom as a whole, but insofar as they apply to Scotland, the statutes must be construed in accordance with the common law of Scotland, except where the statutes themselves direct otherwise. Accordingly, although the three statutory taxation offences of fraud, wilful default, and neglect are common to both England and Scotland, the application of the law in Scotland may differ to that in England because of the differences in the Scots legal system. This thesis is designed to explain how the law applies in Scotland. The application of the law in England, therefore, is not studied in detail except to the extent that it applies with equal force in Scotland. Income tax is an old tax, and much of it is better understood with an appreciation of how and why it came to be there. The thesis begins, therefore, with an outline of the income tax administration and penalty code from its origin in Pitt's Act of 1799, and continues with an examination of the reports of the Royal Commissions, Parliamentary Committees, and other factors which have influenced the development of the law to its present state. The three offences of fraud, wilful default and neglect are of comparative recent origin. The words used are barely defined in the legislation itself, but a large, and at times, complex, body of case law has developed giving guidance as to what the words mean. Chapter 2 of the thesis contains an analysis of these offences, and shows how, in practice, the Courts have interpreted the statutory material. Chapter 2 also sets out the powers of the Inland Revenue to make assessments to tax on a guilty taxpayer. 3 The main consequence of fraud, wilful default or neglect in direct taxation is that the offending taxpayer may become liable to pay interest on overdue tax and a penalty based on the tax lost. These aspects are considered in Chapters 3 and 4. Chapter 4 contains, in addition to a review of the law, a comment on the practice of the Inland Revenue in exercising its jurisdiction in the application of the statutory code. The final chapter, Chapter 5, contains a review of the remedies open to a taxpayer who is accused by the Inland Revenue of fraud, wilful default or neglect. Such a review is a necessary part of the study, because much of the law on Inland Revenue offences has been developed by the Courts in considering appeals by taxpayers against assessments to tax. Although many of the legal decisions are based on their own facts, and have little value as precedents, much useful information can still be gleaned from a review of the decisions. In addition, Chapter 5 contains a summary of judicial review procedures in both England and Scotland. These procedures exist to provide justice in cases where the statutory appeals procedure is deficient, and judicial review is being increasingly used by taxpayers in situations where administrative discretion has been abused. The material studied for the purpose of this thesis, apart from the legislation itself, consists of the leading legal decisions on the statutory provisions, together with such commentaries as are available in the major text books on taxation and related subjects. A computer search of U.K. legal decisions back to 1950 was carried out. It will be apparent, however, from the thesis itself, that the application of the law by the Inland Revenue is of considerable importance, and so the study has been influenced by the writer’s experience in practice, and includes commentary and material not published elsewhere. The law is stated at December 31, 1987. 4 INDEX OF CASES Adcock v. Archibald 1925 J.C. 58 2.07 Amis v. Colls (1960) T.R. 213, 39 T.C. 148, 39 A.T.C. 249 5.15 2.37 Argosam Finance Co. Ltd. v. Oxby (1965) Ch.390, (1964) 3 WLR 774 (1964) 3 AER 561, 42 T.C. 86, 43 ATC 249 5.42 Ayrshire Pullman Motors & David Ritchie Ltd. v. IRC (1929) 14 T.C. 745 1.04 A-G v. Canter 22 T.C. 422 4.29 A-Gv. Johnstone (1926) 136 L.T. 31, 10 T.C. 2758 4.36 A-G v. Midland Bank Exec. & Trustee Co. Ltd. (1934) 19 T.C. 136 4.37 A-G v. Seccombe (1911) K.B. 688 1.03 A-G v. Sefton (1865) 11 H.L. Cases 257 1.03 A-G v. Till 5 T.C. 440 1.16 A-G v. White 38 T.C. 666 4.30 A-G of Irish Free State v. White (1931) 38 T.C. 666 3.10 Barney v. Pybus (1957) T.R. 13, 37 T.C. 106, 36 A.T.C. 14 2.15 Bolson & Son Ltd. v. Farrelly (1953) 34 T.C. 161, 22 A.T.C 80 5.25 Bookey v. Edwards 55 T.C. 486 5.11 Brentwood Commissioners (x.p. Chan) R v. 1986 STC 65 5.41 Brimelow v. Price (1965) T.R. 339, 44 A.T.C. 335, 49 T.C. 41 5.10 Broat v. Wells General Comm. The Times, Feb. 14, 1987 4.34 Brown v. I.R.C. 42 T.C. 583 2.15 Brown v. Hamilton District Council 1983 SLT396 5.53 Bruce v. Burton (1901) 85 L.T. 227, 65 J.P. 440, 4 T.C. 399 5.65 Burmah Oil Co. Ltd. IRC v. 54 T.C. 200 1.04 5 Cape Brandy Syndicate v. IRC (1921) 2 K.B. 403, 1.03 125 L.T. 108 37 T.L.R. 402, 12 T.C. 358 3.16 Carco Accessories Ltd. v. IRC (1985) STC 518 4.42 City Equitable Fire Insurance Co. (1925) Ch.407, 2.13 133 L.T. 520 40 T.L.R. 853 Clixby v. Pountney (1968) 1 Ch. 719, (1968) 2 W.L.R. 865 3.16 46 A.T.C. 398, 44 T.C. 515 Cullens Tr. v. Johnstone 1865 3m 935 2.08 Day v. Williams (1969) T.R. 409 2.18 Deacon (George) & Sons Ltd. v. IRC (1952) T.R. 21, 5.29 33 T.C. 66, 31 A.T.C. 50 Derry v. Peek (1889) 14 A.C. 337 2.08 Duchy Maternity Ltd. v. Hodgson 1985 STC 764 3.08 Edwards v. Bairstow (1956) A.C. 14, 36 T.C. 207, 5.09 34 A.T.C. 131 Fen Farming Co. Ltd. v. Dunsford (1974) STC 373 5.15 (1974) T.R. 187 49 T.C. 246 Forestside Properties (Chingford) Ltd. v. Pearce 5.04 (1961) T.R. 143 39 T.C. 665 40 A.T.C. 155 Forth Investments Ltd. v. IRC 50 T.C. 617 5.24 Fraser IRC v. (1942) 24 T.C. 498 5.08 Frowd v. Whalley 42 T.C. 599 5.06 Furniss v. Dawson 55 T.C. 324 1.04 5.10 Gibson’s Trustees 1933 S.C. 190 5.48 Gibbs I.T.C. v. (1942) A.C. 402, 1 All E.R. 415, 4.23 24 T.C. 221 6 Hammersmith and City Railway Co. v. Brand 1.03 (1869) L.R. 4 H.L. 171 Harrison v. Willis Bros. (1966) 2 W.L.R. 183 4.23 (1965) 3 All E.R.