Committee Reports > List of Committees > Dáil > 1983 > Committee of Public Accounts > Interim and Final Report - Appropriation Accounts 1978 - 1979

APPENDIX 14

Memorandum (October, 1982) by the Revenue Commissioners on the question of collecting interest on tax not paid in due time.

History of interest charge

1. Interest on tax not paid in time was first imposed by section 8* of the Finance (No. 2) Act, 1959. That Act provided the legislative background for the introduction of the PAYE scheme and section 8 imposed an interest charge of one per cent per month (12 per cent. per annum) in respect of PAYE tax which an employer deducted from his employees’ remuneration but failed to pay over in accordance with the statutory requirements.

2. In 1962, an interest charge for delayed payment of tax (but at a rate of one-half per cent. per month, viz. 6 per cent. per annum) in respect of a person’s own tax liability (whether to income tax, sur-tax or corporation profits tax) was imposed by section 14** of the Finance Act, 1962.

3. Value-added tax was introduced in 1972 and provision was made in section 21 of the Value-Added Tax Act, 1972, for an interest charge of 1 per cent. per month (the rate applicable to PAYE tax) in respect of delayed payaments of VAT. (There had been a similar interest charge in respect of turnover tax under section 55 of the Finance Act, 1963).

4. The rate of interest in all of these cases was raised to 1.5 per cent. per month (18 per cent. per annum) by section 28 of the Finance Act, 1975, and was reduced to 1.25 per cent. per month (15 per cent. per annum) by section 46 of the Finance Act, 1978.

5. The 1978 provision was the subject of a query in the Seanad as to why a different interest rate was not being applied in the case of the employer who withheld PAYE tax in comparison with the ordinary taxpayer who was overdue with his own tax. In reply the Minister said that the problem of a differential rate of interest was administrative. There was also the difficulty that a taxpayer who overpaid his tax (on foot of an assessment) was entitled to a refund of the tax overpaid with interest at the same rate as was chargeable (a provision introduced in 1976) and, if the rate of interest was very high, he could be tempted deliberately to overpay his tax and get a refund with interest at 18 per cent. Having regard to these difficulties and the necessity to have some degree of penal rate involved, the proposed level (15 per cent. per annum) was about as good as could be got.

Purpose of interest charge

6. When introducting the interest charge, the Minister for Finance made it clear that the purpose of the provision was not to collect interest but simply to make it unattractive for people to withhold tax. The charge was in the nature of a penalty and was to be looked at as such. Subsequent Ministers for Finance expressed similar views. Statements made by them in the matter are set out in Attachment A. Following are relevant extracts:

1959

”…this is really more in the nature of a penalty. The Revenue Commissioners are not looking for interest. They want the tax paid.”

”Some penalty is necessary to ensure prompt payment in such cases. That is the way in which we must look at this provision.”

”…it is considered more a penalty that a method of compensating the Revenue Commissioners for outstanding accounts.”

1975

”We are not concerned with charging interest. What we are concerned with is making it unattractive to withhold tax.”

”Some people, very expert in financial matters, are known to have withheld tax and placed the money to earn for them attractive rates of interest.”

”We are concerned with prompt payment, not with collection of interest.”

1978

”Having regard to the necessity on the one hand to have an inducement, and some degree of penal rate involved … this level is probably about as good as we can get.”

Application of the provision

7. The Revenue Commissioners, in administering these interest provisions, had regard to the statements made by the various Ministers for Finance as indicating the will of Parliament as to the manner in which the provisions enacted were to be applied. Accordingly, they applied the provisions on the basis that—

(a)the interest charge was a measure designed to ensure prompt payment of tax and was not a head of duty in respect of which the duty was required to be collected in every instance.

(b)since the special charge was regarded as a penalty it was, in line with other penalties, to be pursued and collected only in cases where the circumstances so warranted and might be left in abeyance if special factors were present in any particular case which justified such a course.

8. Accordingly, where it was found that tax had not been paid in due time, because of the financial circumstances of the taxpayer and an arrangement was being made under which—

(a)current tax payments would be met as they arose, and

(b)the tax arrears would be paid by instalments,

the Commissioners were prepared to leave the interest charge in abeyance so long as the terms of the arrangement were kept. In such cases, it was the practice to inform the taxpayer to that effect. Another type of case where collection of interest (even though it might amount to a substantial sum) would not be collected was one where a state-sponsored body or government agency was concerned. If that body or agency was dependent for its receipts on Government grants, the pursuit and collection of an interest charge would mean that the body or agency would have to go back and seek an additional grant to meet the interest charge. The Commissioners took the view that it was unproductive to engage in such recycling of moneys and that their resources would be better employed in the collection of tax generally.

9. Apart from these special type of cases, it was also the practice not to pursue the collection of interest where, after some delay, the taxpayer had paid the tax but not the interest. The diversion of staff resources from the collection of tax to the collection of small amounts of interest in such cases was regarded as unproductive, and this interest would not be pursued unless the taxpayer concerned continued to delay payment of his taxes.

Comments of Comptroller and Auditor General and views of Public Accounts Committee

10. In his report on the Appropriation Accounts 1977, the Comptroller and Auditor General said that in the course of a test examination of cases in which interest was statutorily due in respect of late payment of tax under the PAYE system (and also in the case of VAT payments) it was noted that interest relating to the years from 1967-70 onwards remained uncollected in some cases.

11. The matter was discussed at some length when, on 17 May, 1979, the Accounting Officer was examined by the Public Accounts Committee (pars 154-168 of the minutes of evidence attached to the Committee’s Report (Prl. 8562)). As to the authority of the Revenue Commissioners for their practice in the matter, the Accounting Officer stated (par 155):

“We have no precise discretion in the actual statutory provisions which impose interest, but we regard ourselves as having general discretion under the “Care and Management” provisions.”

Later, in dealing with the non-pursuit of interest in relation to delayed VAT payments, he said (par 168):

“Taking the broad view, it would not be in the interest of the Exchequer to put a source from which we derive revenue out of business, if there is some way which is not in breach of the statutes of avoiding that.”

12. In their Report (of 29th November, 1979), the Committee stated (pages 49-51) that it had difficulty in accepting unreservedly the Accounting Officer’s view that the “Care and Management” provisions allowed the Revenue Commissioners discretion not to pursue the collection of statutory interest on overdue PAYE. It felt that there must be some limits as to what these provisions comprehend and would welcome some clarification as to the extent of these powers. The Committee’s comments applied equally to the discretion claimed in relation to the non-pursuit of interest on VAT.

13. In a minute* of 19 March, 1980 to the Committee dealing with the comments made in its report of 29th November, 1979, the Minister for Finance said (page 285 of the Committee’s Report on the Appropriation Accounts 1978) that he was advised by the Revenue Commissioners that, in exercising their powers of “care and management” in regard to the collection of taxes and sums expressed to arise by way of interest on such taxes, they had felt obliged to have regard to statements by the Minister for Finance when the relevant legislation was being introduced. These statements clearly indicated that it was not the intention of the legislation that large amounts of interest at very high rates should be collected from the persons concerned; the interest was to be considered more as a penalty than as a method of compensating the Commissioners for outstanding accounts.

14. The Minister’s comments were the subject of further discussion when the Accounting Officer was being examined (24th April, 1980) in relation to the Appropriation Accounts 1978 (pages 179-180 of the Committee’s Report). The background to and the extent of the Commissioners’ powers of “care and management” as well as their practice of having regard to the intention of legislation was considered. In their Report of 3 December, 1980, the Committee questioned this practice (pages 33-5) in view of the fact that interpretation of legislation was normally a matter for the Courts which, when interpreting a statute, would not take cognisance of statements made by a Minister during the progress of the relevant Bill through the Oireachtas. The Committee asked if the advice of the Attorney General had been obtained in regard to the present procedure of the Revenue Commissioners in relation to the non-collection of interest on overdue tax.

15. In a minute to the Committee dealing with its Report of 3 December, 1980, the Minister said it was accepted that, in any conflict of interpretation between the Commissioners and a taxpayer, the final decision lay with the Courts. However, in applying and administering legislative provisions enacted by the Oireachtas, the Commissioners considered that, in the first instance, the provisions should be applied in accordance with the will and intention of the legislature in enacting those provisions. He went on to say that, in the light of the Committee’s comments in the matter, the Commissioners had initiated a review of the interest procedures with a view to establishing new guidelines and that it was their intention to have discussions with the Department of Finance and the Comptroller and Auditor General and, if considered desirable, to seek the advice of the Attorney General.

Present position

16. In the light of the Committee’s comments, the Commissioners felt that they could no longer continue their practice — at least until the matter had been finally clarified — under which they would agree not to pursue collection of outstanding interest where they were satisfied that—

(a)the taxpayer had put his house in order, was paying current tax liabilities in due time and was likely to continue to do so, or

(b)the financial circumstances of the taxpayer were such that insistence upon collecting outstanding interest in respect of past defaults was likely to undermine the viability of the business.

17. The change in practice led to protests by various traders who had suffered financial problems over the last few years and they claimed that, if the Commissioners held to the new procedures, their businesses would have to go into liquidation and there would be consequential loss of employment. The point was made that it could not be the wish or intention of Parliament that the interest provisions should be applied in such a strict manner as to close down businesses and put people out of employment. This was particularly relevant, it was argued, in cases where there had been a re-organisation of the business leading to viable production. The aid of Parliamentary representatives was also enlisted in support of a more reasonable approach to the interest question. Details of some of these cases are set out in Attachment B.

“Care and Management”

18. The annual Finance Acts enacted by the Oireachtas contain a special provision dealing with “care and management”, viz.

“All taxes and duties imposed by this Act are hereby placed under the care and management of the Revenue Commissioners” (see, for example, section 104, Finance Act, 1982).

What constitutes “care and management” is not set out in any enactment but reference might be made to the Revenue Commissioners Order, 1923 (No. 2 of 1923) (par. 8) and the Inland Revenue (Adaptation of Taxing Acts) Order, 1923 (No. 4 of 1923) (par. 8) which conferred on the Revenue Commissioners “all the jurisdictions, powers and duties which on the 6th day of December, 1921, were conferred or imposed by law” on the [British] Commissioners of Customs and Excise and the [British] Commissioners of Inland Revenue.

19. The care and management powers of the British Commissioners are not spelt out in any statute but a recent case which went to the House of Lords (Inland Revenue Commissioners v. National Federation of Self-Employed and Small Businesses Ltd.

— All England Law Reports 12 May, 1981, p. 93 et seq.) dealt with the matter at considerable length. In that case, colloquially known as “the Fleet St. casuals case”, a challenge was launched contesting the right of the Inland Revenue Commissioners to make an arrangement in relation to tax owed by a certain group of employees (casual employees on national newspapers) who, with the connivance of their employers, had for a number of years evaded payment of tax on remuneration from their casual employment. The agreement ensured that tax would be paid on current and future earnings, that correct names and addresses and amounts of payments would be given which would enable the tax due for the previous two years to be assessed and collected and that the Revenue would not seek to go back further than those two years. The federation (of self-employed) initiated legal proceedings seeking (i) a declaration that the Revenue had acted unlawfully in making the arrangement and (ii) an order of mandamus directing the Revenue to assess and collect tax on the newspaper employees as required by law.

20. The House of Lords rejected the federation’s claims and accepted the Revenue’s argument that what had been done was an exercise of “good management” pursuant to their powers of care and management. Extracts from several of the judgments dealing with the question of “care and management” are set out in Attachment C. Particular reference might be made to the following statements:

“His [the Chairman of the Inland Revenue Commissioners] evidence is that it is impossible for the Board to collect all the tax that is due, and that decisions have to be taken by way of ‘care and management’ of the taxes to collect as much as is practicable, by cost-effective methods.”

“On the evidence as a whole, I fail to see how any court considering it as such and not confining its attention to an abstract question of locus standi could avoid reaching the conclusion that the Inland Revenue, through Mr. Hoadley, were acting in this matter genuinely in the care and management of the taxes, under the powers entrusted to them.” (Lord Wilberforce)

“All that I need say here is that the Board [the Inland Revenue Commissioners] are charged by statute with the care, management and collection on behalf of the crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the Board have a very wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection.” (Lord Diplock)

“He (the Lord Advocate] rightly observed that in the daily discharge of their duties inspectors are constantly required to balance the duty to collect ‘every part’ of due tax against the duty of good management. This conflict of duties can be resolved only by good managerial decisions, some of which will inevitably mean that not all the tax known to be due will be collected.” (Lord Scarman)

“The Revenue were in no way arrogating to themselves a right, or inviting assumption of an arrogation to themselves of a right, not to comply with their statutory obligations under the statutes to which I have referred. On the contrary, their whole case was that they had made a sensible arrangement, in the overall performance of their statutory duties in connection with taxes management… . To my mind it is clear beyond argument when one reads the affidavits of Sir William Pile and Mr. Hoadley that what was done was a matter of taxes management, and I can see no shadow of dereliction of duty by the Revenue or any suggestion of improper or unlawful conduct on their part. On the contrary, what they did seems to me to have been a matter of administrative common sense.” (Lord Roskill)

Review of interest procedures

21. The amount of interest collected by the Revenue Commissioners in relation to the various taxes is as follows:

The interest collected represents 12% of a total interest figure of £98m. originally calculated as due but which would have been difficult to collect, and would have caused great administrative problems, including the diversion of considerable staff resources, if attempts to collect it were to be made in every case. The percentage figures in respect of each heading are: Income tax (other than PAYE) 32%, Corporation Tax 21%, VAT 8%, PAYE 5%, PRSI 4%.

22. It may be pointed out that, of the £11.6m. interest collected over a period of almost 20 years (10 years in the case of VAT), over 30% of it (£3.7m.) was collected in the last 2½ years. The figures are—

23. The application of the interest provisions over the years was dealt with on a case-by-case basis and statistics were not kept which would give an overall view of the collection position or the numbers of cases where collection of interest was not pursued. A survey has now been carried out and the information collected is set out in Attachment D.

Suggested guidelines

24. Having regard to

(a)the views expressed by Ministers for Finance in relation to the interest charge when introducing the relevant legislation.

(b)the comments of the Comptroller and Auditor General and the Committee of Public Accounts regarding the non pursuit of interest in various instances,

(c)the resources of the Revenue Commissioners which are primarily to be devoted to the collection of tax for the benefit of the Exchequer in the most cost-effective manner possible,

(d)the need to ensure that businesses are not closed down, with the consequent loss of employment, due to an over-rigid application of the interest provisions, and

(e)the impossibility of framing simple amending legislation which would enable the different types of cases and individual circumstances to be properly dealt with,

it is suggested that guidelines might be set down which would govern the administration of the interest provisions. These guidelines would have regard to the following principles—

(i)the interest charge is a penalty measure to ensure against the deliberate withholding of tax,

(ii)where a taxpayer is in financial difficulties and does not have the resources to pay over the tax due, the interest charge has failed to achieve its objective and, to some extent, has lost its relevance,

(iii)priority must be given to the collection of tax and the Revenue Commissioners’ resources must be devoted primarily to this function,

(iv)the taxes which must be remitted by employers and traders, viz. VAT, PAYE and PRSI, must be considered specially since the sheer volume of payments falling within the relevant periods (monthly for PAYE and PRSI and two-monthly for VAT) and attracting interest make it essential that the approach to interest collection be structured in some way.

25. The following guidelines would meet the situation satisfactorily and are, it is considered, within the powers of “care and management” conferred on the Revenue Commissioners:

The assessed taxes (taxpayers’ own liability)

(a)The non-pursuit of interest on delayed payments of tax should be countenanced only where it is clear that excessive hardship would result from its imposition. Elderly persons on fixed incomes, for example, and fathers of large families living in reduced circumstances, following business failures, would be considered under this heading.

From the Revenue viewpoint, collection of the assessed taxes is now, in a cash-flow sense, critically dependent on provisional payments and the timely flow of these provisional payments is secured by application of the interest provisions.

(b)Where outstanding tax is paid, but not the interest, a selection process should be operated whereby cases of recurring default, or where there are large accumulations of interest, should be pursued regardless of the fact that the tax liability has been paid. The extent to which this is done will be dependant upon the resources available from time to time.

PAYE/PRSI and VAT

(c)Late payment of PAYE/PRSI and of VAT generates interest charges in great numbers. These cases fall to be dealt with as set out at (b).

Pleas to leave the interest charge in abeyance would be disregarded unless (i) it is clear that the circumstances of the late payments were beyond the control of the taxpayer and (ii) the taxpayer provides a written undertaking to pay future liabilities on time. Where the undertaking is not adhered to, the interest left in abeyance would come back into the reckoning.

Interest and instalment arrangements

(d)Where there is an accumulated default and an instalment arrangement is entered into, the arrangement should include the following terms—

(i)Liability arising during the period of the arrangement must be met as it arises.

(ii)Interest, at the statutory rate, must be paid on the outstanding tax throughout the period of the arrangement (otherwise the taxpayer who borrowed from his bankers to pay his tax would be discriminated against),

(iii)If the instalment arrangement is kept, collection of interest accrued prior to the commencement of the arrangement may be left in abeyance.

Attachment A

STATEMENTS BY THE MINISTER FOR FINANCE AS TO THE PURPOSE OF THE INTEREST PROVISIONS CONCERNING DELAYED PAYMENT OF TAX

Finance (No. 2) Bill, 1959

1. On the introduction of PAYE, provision was made for an interest charge of one per cent per month (12 per cent per annum) in respect of delayed payments of PAYE tax deducted by employers. In replying to the debate on the Seanad Reading of the Bill in Dáil Éireann, the Minister said:

“With regard to the question of interest, I do not quite like putting it this way because I may find myself in more trouble, but this is really more in the nature of a penalty. The Revenue Commissioners are not looking for interest. They want the tax paid…

There is no intention of charging interest if the money comes in a day or two days late. There may, however, be some difficulty with employers who may hold the money, perhaps carelessly, perhaps intentionally, against their overdraft and not send it until a good part of the collection due in the following month is made…

Some penalty is necessary to ensure prompt payment in such cases. That is the way in which we must look at this provision.” (Official Report, 26 November, 1959, Cols. 552-3).

2. In the Seanad, the Minister said:

“The next point raised was in regard to the interest payable. I explained in the Dáil that giving the Revenue Commissioners power to collect one per cent per month on amounts outstanding was not an attempt to collect a large amount of interest from the people concerned. It was put in to prevent their holding up accounts, so that they would pay promptly and, as Senator O’Brien pointed out, it is considered more a penalty than a method of compensating the Revenue Commissioners for outstanding accounts”. (Official Report, 16 December, 1959, Col. 1327).

Finance Bill, 1975

3. In the Finance Bill, 1975, the interest charge on outstanding tax was raised (by section 28) to 1.5 per cent per month (18 per cent per annum). In the course of the Committee Stage debate on the section, the Minister said:

Dáil Éireann

“I have already given a number of reasons why it is desirable to have a higher rate than 1 per cent. The principal reason is that, if the interest charged on tax arrears is not higher than the going bank rate, then people will withhold tax as a source of borrowed moneys”. (Official Report, 22 April, 1975, Cols. 41-2).

“We are not concerned with charging interest. What we are concerned with is making it unattractive to withhold tax”. (Col. 56).

“Some people, very expert in financial matters, are known to have withheld tax and placed the money to earn for them attractive rates of interest”. (Col. 57).

Seanad Éireann

“The State is not interested in collecting interest on overdue tax. The State is interested in getting all tax promptly paid…

But some cases have been brought to my notice, without names, where tax payable was deliberatly withheld from the Revenue Commissioners for the purposes of using the taxes withheld to the advantage of the person withholding it. In one case a sum running into five figures, which did not belong to the person who had the obligation to pay over the tax… used that money to extend his own private premises…

Some of the worst offenders under this system were finance houses themselves who were able to place the money at a rate of interest far in excess of what it cost them were they to have paid the tax on time or paid interest on the money if they had borrowed it elsewhere…

We are concerned with prompt payment, not with collection of interest. Even with the arrears running at such a high level, the amount of interest collected is neither here not there in relation to the annual budget. What is important is some distincentive…” (Official Report, 8 May, 1975, Cols. 1268-9).

Finance Bill, 1978

4. In the Seanad, when dealing with the reduction of the interest rate to 1.25 per cent per month (15 per cent per annum) the Minister said:

“The problem of a differential rate of tax* is administrative. There is another problem. I do not say it is a major one in practice, but I would be afraid it might so develop. It is an inherent problem in setting the interest rate here too high. If a taxpayer overpays his tax, he is entitled to a refund of tax at the same level if the rate of interest is very high, he could be tempted to deliberately overpay it and get a refund of interest at, say, 18 per cent…

Having regard to the necessity on the one hand to have an inducement and some degree of penal rate involved, and on the other hand to have some regard to current interest rates which are changing frequently, and still to have regard to the other difficulty I mentioned, this level is probably about as good as we can get”. (Official Report, 29 June, 1978, Col. 1236).

Attachment B

NOTE OF SOME CASES IN WHICH IT IS CLAIMED (SEE PAR. 17 OF MEMORANDUM) THAT PURSUIT OF OUTSTANDING INTEREST WILL AFFECT THE VIABILITY OF THE TRADER’S BUSINESS

Case A

A group of manufacturing companies which employes in the region of 150 employees has had financial problems and has received IDA and Foir Teo assistance. It is claimed that the running of the business will now make it viable. There remains, however, the problem of outstanding tax together with interest on that outstanding tax. The position is:

While the group is prepared to enter into an instalment arrangement to pay off the outstanding tax, together with current liabilities, and have already taken steps to do so, it is claimed that if the outstanding interest is pursued, or if it has to be shown in their accounts as a liability, the group will be insolvent and will have to go into liquidation.

Case B

A manufacturing/retailing company has over 100 employees and is negotiating with IDA and Foir Teo for financial assistance. The tax position is as follows:

Again, the company is willing to pay the outstanding tax but claims that, if the outstanding interest is pursued and if interest continues to be charged on the arrears, the company will have the greatest difficulty in continuing.

Case C

A company engaged in manufacturing clothing now has fewer than 50 employees following severe redundancy cut-back. It is negotiating with IDA and a possible buyer but, again, it is claimed that insistence on the collection of interest on outstanding tax will put an end to the company’s future. The tax position is:

Case D

A company engaged in food-processing has a large work force but redundancies have occurred and more are anticipated. The company has received IDA and Foir Teo assistance.

Case E

A company engaged in an assembly business had a work-force upwards of 100 at one stage but there have been redundancies. It has been assisted by Foir Teo but, again, the interest question has proven to be a stumbling block.

Attachment C

ALL ENGLAND LAW REPORTS 12th MAY 1981

Extracts from British Case “The Fleet Street Casuals.”

INLAND REVENUE COMRS V NATIONAL FEDERATION OF SELF-EMPLOYED AND SMALL BUSINESSES LTD

House of Lords

Lord Wilberforce, Lord Diplock, Lord Fraser of Tullybelton, Lord Scarman and Lord Roskill

10th, 11th, 12th, 16th March, 9th April 1981

Judicial review — Declaration — Locus standi — Sufficient interest — Revenue introducing special arrangement to prevent tax evasion by certain casual workers in future — Revenue agreeing not to assess and collect tax due from workers in respect of years prior to April 1977 — Taxpayers’ association applying for judicial review in form of declaration that Revenue acting unlawfully in agreeing not to assess and collect tax due from workers — Whether applicants having ‘sufficient interest’ to apply for judicial review — RSC Ord 53, r 3 (5).

There was a long standing practice in Fleet Street for casual employees on national newspapers to receive their wages without deduction of tax and to supply fictitious names and addresses when drawing their pay in order to avoid tax. Their true identities were known only to their unions which operated a closed shop and controlled all casual employment on the newspapers. In order to prevent the evasion of tax by the casual employees, the Revenue made a special arrangement with the employers, the employees and the unions whereby the employees were required to register with the Revenue and submit tax returns for the previous two years (1977-78 and 1978-79) in return for an undertaking by the Revenue that they would not investigate tax evaded prior to 1977. The applicant, a federation of self-employed persons and small businessmen which claimed to represent a body of taxpayers, applied for judicial review under RSC Ord. 53a seeking (i) a declaration that the Revenue had acted unlawfully in making the arrangements and (ii) an order of mandamus directing the Revenue to assess and collect tax on the newspaper employees as required by law. The Revenue opposed the application on the ground that the applicant did not have a ‘sufficient interest in the matter’ relating to the application as required by Ord 53, r 3 (5) for the court to grant it the necessary leave to apply for judicial review. The Divisional Court upheld that contention and refused the applicant leave. The applicant appealed to the Court of Appeal ((1980) 2 All ER 378) which held that as a preliminary issue and on the assumption that the Revenue had acted unlawfully and therefore had a sufficient interest for the purposes of r 3 (5). The Revenue appealed, contending that the duties imposed on them by the tax legislation, including in particular the duty of confidentiality as between the Revenue and each individual taxpayer, precluded the possibility of any other taxpayer or group of taxpayers from having any ‘sufficient interest’ in the performance by the Revenue of their statutory duties.

HELD — The appeal would be allowed for the following reasons—

9th April. The following opinions were delivered.

LORD WILBERFORCE. My Lords, the respondent federation, whose name sufficiently describes its nature, is asking for an order on the Commissioners of Inland Revenue to assess and collect arrears of income said to be due by a number of people compendiously described as ‘Fleet Street casuals’. These are workers in the printing industry who, under a practice sanctioned apparently by their unions and their employers, have for some years been engaged in a process of depriving the Inland Revenue of tax due in respect of their causal earnings. This they appear to have done by filling in false or imaginary names on the call slips presented on collecting their pay. The sums involved were very considerable. The Inland Revenue, having become aware of this, made an arrangement, which I explain in more detail later, under which these workers are to register in respect of their casual employment, so that, in the future, tax can be collected in the normal way. Further, arrears of tax from 1977-78 are to be paid and current investigations are to proceed, but investigations as to tax lost in earlier years are not to be made. This arrangement, described inaccurately as an ‘amnesty’, the federation wishes to attack. It asserts that the Revenue acted unlawfully in not pursuing the claim for the full amount of tax due. It claims that the Board exceeded its powers in granting the ‘amnesty’; alternatively that, if it had power to grant it, reasons should be given and that those given cannot be sustained; that the Board took into account matters to which it was not entitled to have regard; that the Board ought to act fairly as between taxpayers and has not done so; and that the Board is under a duty to see that Income tax is duly assessed, charged and collected.

The Commissioners of Inland Revenue are a statutory body. Their duties are, relevantly, defined in the Inland Revenue Regulation Act 1890 and the Taxes Management Act 1970. Section 1 of the 1890 Act authorises the appointment of commissioners ‘for the collection and management of inland revenue’ and confers on the commissioners ‘all necessary powers for carrying into execution every Act of Parliament relating to inland revenue’. By Section 13, the commissioners must ‘collect and cause to be collected every part of inland revenue and all money under their care and management and keep distinct accounts thereof’.

The 1970 Act provides (s 1) that ‘Income tax … shall be under the care and management of the Commissioners’. This Act contains the very wide powers of the board and of inspectors of taxes to make assessments on persons designated by Parliament as liable to pay income tax. With regard to casual employment, there is a procedure laid down by statutory instrument, the Income Tax (Employment) Regulations 1973, Sl 1973 No. 334, reg 50, by which inspectors of taxes may proceed by way of direct assessment or in accordance with any special arrangements which the Commissioners of Inland Revenue may make for the collection of the tax. As I shall show later, it was a ‘special arrangement’ that the Commissioners set out to make in the present case.

From this summary analysis, it is clear that the Commissioners of Inland Revenue are not immune from the process of judicial review. They are an administrative body with statutory duties, which the courts, in principle, can supervise. They have indeed done so: see R v Income Tax Special Comrs (1888) 21 QB 313 (1886-90) All ER Rep 1139 (mandamus) and of Income Tax Special Comrs v Linsleys (Established 1894) Ltd (1958) 1 All ER 343, (1958) AC 569, where it was not doubted that a mandamus could be issued if the facts had been right. It must follow from those cases and from principle that a taxpayer would not be excluded from seeking judicial review if he could show that the Revenue had either failed in their statutory duty toward him or had been guilty of some action which was an abuse of their powers or outside their powers altogether. Such a collateral attack, as contrasted with a direct appeal on law to the courts, would no doubt be rare, but the possibility certainly exists.

The total confidentiality of assessments and of negotiations between individuals and the Revenue is a vital element in the working of the system. As a matter of general principle, I would hold that one taxpayer has no sufficient interest in asking the court to investigate the tax affairs of another taxpayer or to complain that the latter has been underassessed or overassessed; indeed there is a strong public interest that he should not. And this principle applies equally to groups of taxpayers; an aggregate of individuals each of whom has no interest cannot of itself have an interest.

That a case can never arise in which the acts or abstentions of the Revenue can be brought before the court I am certainly not prepared to assert, nor that, in a case of sufficient gravity, the court might not be able to hold that another taxpayer or other taxpayers could challenge them. Whether this situation has been reached or not must depend on an examination, on evidence, of what breach of duty or illegality is alleged.

Sir William Pile gives a general description of the scope and nature of the duties of the Inland Revenue with regard to the assessment and collection of taxes. He draws attention to the large number of potential taxpayers (about 25 million), the huge sums involved, and the limitations on the Board’s manpower. His evidence is that it is impossible for the Board to collect all the tax that is due, and that decisions have to be taken by way of ‘care and management’ of the taxes to collect as much as is practicable, by cost-effective methods. He denies any discrimination as between self-employed and other taxpayers. Such differences as exist are ascribable to difference of law and of fact. The cases cited by Mr. Payne are in his opinion contentious. As regard the ‘casuals’, the Board approved the proposals made by Mr. Hoadley and considered that it had good and sufficient justification for doing so. This was clearly a ‘management’ decision.

On the evidence as a whole, I fail to see how any court considering it as such and not confining its attention to an abstract question of locus standi could avoid reaching the conclusion that the Inland Revenue, through Mr. Hoadley, were acting in this matter genuinely in the care and management of the taxes, under the powers entrusted to them. This has no resemblance to any kind of case where the court ought, at the instance of a taxpayer, to intervene. To do so would involve permitting a taxpayer or a group of taxpayers to call in question the exercise of management powers and involve the court itself in a management exercise. Judicial review under any of its headings does not extend into this area.

LORD DIPLOCK. My Lords, this appeal provides the House with its first occasion to consider what changes, if any, to public law in England have been made by the new RSC Ord 53, which came into effect on 11th January 1978 and provides for applications for judicial review of the legality of action or inaction by persons or bodies exercising governmental powers.

As respects the statutory powers and duties of the Board of Inland Revenue, these are described and dealt with in several of your Lordships’ speeches. It would be wearisome if I were to repeat what already has been, and later will be, better said by others. All that I need say here is that the Board are charged by statute with the care, management and collection on behalf of the Crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the Board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection. The Board and the inspectors and collectors who act under their directions are under a statutory duty of confidentiality with respect to information about individual taxpayers’ affairs that has been obtained in the course of their duties in making assessments and collecting the taxes; and this imposes a limitation on their managerial discretion. I do not doubt, however, and I do not understand any of your Lordships to doubt, that if it were established that the Board were proposing to exercise or to refrain from exercising their powers not for reasons of ‘good management’ but for some extraneous or ulterior reason that action or inaction of the Board would be ultra vires and would be a proper matter for judicial review if it were brought to the attention of the court by an applicant with ‘a sufficient interest’ in having the Board compelled to observe the law.

As respects what were alleged to be breaches of their statutory duty by the Board on which the federation relied, the evidence as to the way in which the Board and their inspector in charge of the negotiations dealt with the problem of the Fleet Street casuals and as to the reasons why they acted as they did, is set out in all necessary detail in Lord Wilberforce’s speech. All this evidence was before the Divisional Court and the Court of Appeal had they chosen to look at it. It is enough for me to say that I agree with my noble and learned friend that no court considering this evidence could avoid reaching the conclusion that the Board and their inspector were acting solely for ‘good management’ reasons and in the lawful exercise of the discretion which the statutes confer on them.

For my part, I should prefer to allow the appeal and dismiss the federation’s application under Ord 53 not on the specific ground of no sufficient interest but on the more general ground that it has not been shown that in the matter of which complaint was made, the treatment of the tax liabilities of the Fleet Street casuals, the Board did anything that was ultra vires or unlawful. They acted in the bona fide exercise of the wide managerial discretion conferred on them by statute. Since judicial review is available only as a remedy for conduct of a public officer or authority which is ultra vires or unlawful, but not for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise, there is a sense in which it may be said that the federation has not a sufficient interest in the matter to which its application related; but this is not a helpful statement: it would be equally true of anyone, including the Attorney Generaal, who sought to complain.

The Attorney General, although he occasionally applies for prerogative orders against public authorities that do not form part of central government, in practice never does so against government departments. It is not, in my view, a sufficient answer to say that judicial review of the actions of officers or departments of central government is unnecessary because they are accountable to Parliament for the way in which they carry out their functions. They are accountable to Parliament for what they do so far as regards efficiency and policy, and of that, Parliament is the only judge; they are responsible to a court of justice for the lawfulness of what they do, and of that, the court is the only judge.

I would allow this appeal on the ground on which, in my view, the Divisional Court should have dismissed it when the application came to be heard, instead of singling out the lack of a sufficient interest on the part of the federation, viz that the federation completely failed to show any conduct by the Board that was ultra vires or unlawful.

LORD SCARMAN. My Lords, the National Federation of Self-Employed and Small Businesses Ltd is an applicant for judicial review. The federation seeks a declaration and I pass now to the two critical issues. (1) The character of the duty on the Revenue and the persons to whom it is owed. Is it legal, political or merely moral? (2) The nature of the interest which the applicant has to show. It is an integral part of the Lord Advocate’s argument for the Crown that the existence of the duty is a significant factor in determining the sufficiency of an applicant’s interest.

He submitted that one must examine what he appropriately described as ‘the statutory code’ to determine whether a duty owed to the applicant is expressly or impliedly recognised by the law. If this be an invitation to consider the relevant statutory provisions against a general background of legal principle developed by the judges. I accept it. For this is the common law approach to statute law.

First, then, ‘the statutory code’. It is to be found in the Inland Revenue Regulation Act 1890 and the Taxes Management Act 1970. Commissioners are appointed for the collection and management of inland revenue’: see SI(1) of the Inland Revenue Regulation Act 1890. They ‘shall collect and cause to be collected every part of inland revenue’: see s 13 (1). ‘Inland revenue’ means the revenue and taxes ‘placed under the care and management of the Commissioners’: see s. 39. The Taxes Management Act 1970 places income tax under their care and management and for that purpose confers on them and inspectors of tax very considerable discretion in the exercise of their powers. It also imposes on them the very significant duty of confidence in investigating, and dealing with, the affairs of the individual taxpayers. Indeed, the Lord Advocate relied on the exercise of this duty as an indication that the statute imposed no duty owed to a taxpayer (or the general body of taxpayers) in respect of the collection of taxes due from another taxpayer, and he made particular reference to ss 1 and 6 of and Sch 1 to the Act. He rightly observed that in the daily discharge of their duties inspectors are constantly required to balance the duty to collect ‘every part’ of due tax against the duty of good management. This conflict of duties can be resolved only by good managerial decisions, some of which will inevitably mean that not all the tax known to be due will be collected.

While I reject his conclusions, I accept much, but not all, of his submission. The analysis of the statutory provisions is clearly correct. They establish a complex of duties and discretionary powers imposed and conferred in the interest of good management on those whose duty it is to collect the income tax. But I do not accept that the principle of fairness in dealing with the affairs of taxpayers is a mere matter of desirable policy or moral obligation. Nor do I accept that the duty to collect ‘every part of inland revenue’ is a duty owed exclusively to the Crown. Notwithstanding the Treasury case in 1872, I am persuaded that the modern case law recognises a legal duty owed by the Revenue to the general body of the taxpayers to treat taxpayers fairly, to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise, to ensure that there are no favourites and no sacrifical victims. The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect.

I am, therefore, of the opinion that a legal duty of fairness is owed by the Revenue to the general body of taxpayers. It is, however, subject to the duty of sound management of the tax which the statute places on the Revenue.

LORD ROSKILL. My Lords, at an early stage of his submissions, the learned Lord Advocate accepted that the question raised in the instant appeal involved the performance by the Revenue of a public duty. In my opinion that concession (if concession be the right word) was clearly properly made. But once it is made. I find it difficult to see how it can be said that there is no jurisdiction of the court to allow relief against the Revenue by way of a judicial review. The Revenue are, and must as a public body charged with the performance of a public duty of crucial importance be, amenable to the general law and liable to possible correction if their statutory powers are exceeded, or their statutory duties are not lawfully discharged. But to say that, and to accept that there is jurisdiction to grant relief against the Revenue in a proper case, is a very different matter from saying that in the instant case relief should be granted to the federation as being posessed of that ‘sufficient interest’ which is a condition precedent to its obtaining the relief which it seeks.

The Revenue were in no way arrogating to themselves a right or invition assumption of an arrogation to themselves of a right not to comply with their statutory obligations under the statutes to which I have referred. On the contrary, their whole caase was that they had made a sensible arrangement in the overall performance of their statutory duties in connection with taxes management, an arrangement made in the best interests of everyone directly involved and, indeed, of persons indirectly involved, such as other taxpayers, for the agreement reached would be likely to lead ultimately to a greater collection of revenue than if the agreement had not been reached or ‘amnesty’ granted.

To my mind it is clear beyond argument when one reads the affidavits of Sir William Pile and Mr. Hoadley that what was done was a matter of taxes management, and I can see no shadow of dereliction of duty by the Revenue, or any suggestion of improper or unlawful conduct on their part. On the contrary, what they did seems to me to have been a matter of administrative common sense. Instead of wasting public time and money in seeking to collect taxes from persons whose names were unknown and whose ability to pay was therefore equally unknown, they made an arrangement which enabled taxes not hitherto able to be collected or in fact collectible in the future at a cost to the general body of taxpayers of forgoing the collection of that which in reality could never have been collected.

ATTACHMENT D

ENFORCEMENT OF INTEREST ON LATE PAYMENTS — REVIEW OF CASES ON HANDS

VAT

759cases were identified where interest in excess of £2,000 had accrued after September/October 1980. Of these, 247 were already under individual control in the special category section or in the context of instalment arrangements.

The remaining 512 cases are being worked with the following results to date—

13interest paid on demand

48sought deferment

—25 granted on undertaking to pay future taxes on time

—14 under consideration

— 9 refused

423in course of demand or awaiting referral to Revenue Solicitor

28referred to Revenue Solicitor

— 9 appeals for deferment of which 5 granted, 3 refused, 1 under consideration

— 6 paid

—13 no response as yet

PAYE

Annual File

1,072 cases where interest in excess of £1,000 had accrued in the period 1971/72 to 1980/81 have been identified. These break down as follows:

less then £5,000 (interest) — 866 cases

£5,000 to £10,000 — 112 cases

£10,000 to £20,000 — 62 cases

£20,000 to £100,000 — 30 cases

£100,000 up — 2 cases

These 1,072 cases are presnetly being examined with a view to producing an analysis as in the VAT cases (above).

Monthly file

Cases remitting more than £50,000 PAYE tax per month — 608 of these at present — are controlled individually. It is convenient to respond to the revised policy on interest in the PAYE monthly context by centering interest pursuit exclusively on these cases. Demands have just issued to 62 of these cases in respect of interest on late payment of the tax due for the month ended 5th May, 1982. The amount of interest involved is £93,000.

CORPORATION TAX

Warrants have issued in four cases involving a total of £24,000 interest. A further 28 cases involving £190,000 interest have been identified and the identification process, which is not automated for this tax, is continuing.

INCOME TAX

Amounts of interest in these cases (taxpayers’ own liability) is not comparable with other taxes. One case has come to light and is under consideration for enforcement.

* now section 129, Income Tax Act, 1967.

** now section 550, Income Tax Act, 1967, and section 145, Corporation Tax Act,

* Copy of the Minister’s minute is included as Appendix 2 (pages 276 et seq.) to the Committee's Report on the Appropriation Accounts 1978 (Prl. 9442).

* “interest” rather than “tax” is obviously intended.