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AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

October 2012.

After the appearance of my last piece on this subject, I was rather expecting to observe something of a public reaction: the wailing and lamentation of those misguided souls who had fallen into error by buying PEPs, or ISAs, or National Savings Certificates, or making payments into personal pension funds or by way of professional subscription, and then claiming relief from income tax. The streets should have been blocked by processions of individuals heading for Collectors of Tax in order to atone for their sins by confession, payment, penalties, and interest. To my surprise, I have not seen even one barefoot individual, and ankles chained together, going to make their payment.

The reason for this, of course, is that people will not pay a penny more to the state than the law requires. The Court of Session and the House of Lords have made it abundantly clear that there is absolutely no obligation upon them to do so. It is axiomatic, of course, that they should not pay a penny less, either; and it is the task of the official to determine, according to the law, what payment is due from each person or entity, and to ensure that such sum (and no other) is accounted for.

And in carrying out that task, it must follow that the personal political prejudices (or views) of the individual officer should be left at home: they have no place in the office. This is exactly the same thing as wicked lawyers have to do when advising their even more wicked clients. The law as it stands must be applied, unless it can be shown to be in error. If it is so shown, or if it is believed, genuinely, to be forensically wrong, then the proper course is either to take a case through the courts, or to draw the matter to the attention of Parliament.

A cautionary instance of this has come to my attention in the wake of the Makro case, when I heard two very senior Revenues practitioners groaning: “It's the end of life as we know it”. Of course, it is not. Whether or not you agree with the decision of the High Court, the judge there is also a judge of the Upper Tribunal (Lands Chamber) and therefore knows his own way round the concept of rateable occupation, as well as of the maxim that occupation of part of a hereditament constitutes occupation of the whole – a maxim once applied, zealously, by Revenues officers in collecting rates from householders who had moved out but who had left a pair of curtains hanging, in order to deter vandals. That decision was not appealed, and must therefore be regarded as constituting a correct statement of the law, until it is challenged and distinguished or disapproved, or Parliament acts to abrogate it.

Now, before I move on to look at some of the “tricks of the avoidance trade”, I ask you to bear in mind the difference between evasion and avoidance, that the High Court in Makro declared that the principles of Furniss –v- Dawson have no application in rating, and that that of de minimis is unlikely to do so. I also remind you that the weakest limb of the ingredients of rateable occupation, is likely to be that of beneficial occupation.

One of the most common methods of seeking to avoid liability has been to store within a property items belonging to a third party which then declares itself to be in occupation. The nature of this occupation is something which will need to be measured, the test, apparently, being whether or not the occupation is of benefit to the actual occupier. This test has been explored in a number of cases before magistrates; but the results have been inconsistent. There have been cases in which the same piles of files were moved by a company from one building into another, and then out again on two or three occasions; and that was held, in substance, not to amount to beneficial occupation. On the other hand, the documents in Makro were held to be documents which were required to be retained by the company for tax purposes, and therefore their retention on site was of benefit to that ratepayer.

This issue has become blurred, in the minds of some billing authorities, with the requirement (in cases where charitable relief is sought) that the hereditament was being "wholly or mainly used" for the purpose of the charity. These billing authorities have looked at the proportion of floor area actually being used, and not at whether or not there was any other use being made of the property at the time. Thus, I have encountered cases in which relief was refused where weight loading restrictions prevented total use of a floor, where the presence of asbestos in upper floors rendered those upper floors incapable of or at least inappropriate for use for storage.

Relief was even refused by one authority where the items stored was a 30 ton articulated lorry (albeit in a large warehouse), although, in fairness, when the same warehouse was subsequently given over to a company of enforcement agents who had seized several large commercial vehicles and their contents secure loaded with goods against payment of judgment debts, the council concerned accepted that the enforcement agents, who needed to keep the vehicles and their contents secure, were in rateable occupation. The essential point here, is that it is the quality of occupation which counts, and not the quantity. I never tire of reminding practitioners that the maxim that occupation of part is the same as occupation of the whole is one which applies against billing authorities now as much as ever it are applied in their favour for two centuries before the present empty rate came along.

At this point it is perhaps appropriate to dispose of another red herring which is currently being waved around by some billing authorities who have sought to apply tax anti-avoidance cases to rating. At paragraph 28 of his judgment in Makro Judge Jarman QC dealt with the matter in this way:-

"The district judge’s reference in the case stated to the issue is complicated by his express reliance on Furniss –v- Dawson. That in my judgment was a very different case which involved the fiscal consequences of a pre-ordained series of transactions, intended it to operate as such. The proper approach to such transactions was, the House of Lords held, to consider the result of the series as a whole and not to dissect the scheme or to consider each individual transaction separately. That principle in my judgment is of no assistance in considering the question of intention in this case and [Counsel for the billing authority] properly in my judgment did not seek to support reliance upon it."

There was also quite an argument about the application of the "de minimis" principle. This will have been commented upon elsewhere; but while it is right to say that the principle can, in theory, be applied in rating cases, but only in the following way (at paragraphs 42 and 43)

"42. I accept that the starting and finishing point should be the consideration of occupation "of part" or, conversely of "none" of the warehouse..... Moreover, in my judgment, the focus of the application of the de minimis principle in the cases has been the use made of the hereditament rather than the determination of actual occupation…..

“43. The proper approach to be drawn from the authorities in my judgment is to consider both use and intention. If there is clear evidence or inference of an intention to occupy, such an intention, taken with the user, however slight, may be sufficient to amount to occupation…. Slight user without such evidence of intention may not be sufficient.”

I apologise for having had to refer to the Makro decision, yet again; but it is of considerable importance as a review of the law as it stands.

Having, I hope, dealt with these two important misconceptions (in the minds of some), I will seek to apply these principles, and others, to other areas of rate collection, as currently practised in some areas. Zeal has its virtues, but these are not applicable, right across the board. When I was in the Office of the Solicitor of Inland Revenue, in Somerset House (and, yes – we did have bodies buried in the basement) I recall the words of one Inspector of Taxes to a training course: “If you want to do anything, don’t go to the Solicitor – he will only try to stop you”. And so we did, if what the Inspectorate was trying to do was to extract more money than that which, lawfully, was due: but we also pursued the evaders and applied the anti-avoidance legislation, passed by Parliament.

Peter Scrafton

©J.P. Scrafton, 2012

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