I don't get this. Surely a disputed tax liability can be a contingent liability and is not always an actual liability (i.e. before taxpayer has lost and their appeal rights are exhausted)? According to this judge it's an actual liability in the meantime regardless (the analogy with a disputed debt looks spurious).
Hunt v Singh [2023] EWHC 1784 (Ch) (17 July 2023) (bailii.org)
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"Surely a disputed tax liability can be a contingent liability and is not always an actual liability"
Presumably yes - but i would also presume at some stage the reality is that the tax is deemed to be real whatever the disputing party thinks. The fact they disagree it exists doesnt mean it doesnt exist.
It is, however, not very prudent, when preparing the accounts, not to make a provision where there is such doubt.
I appreciate I no longer audit, I appreciate I am now very rusty re accounts disclosure, but certainly back in SSAP2 days prudence would likely have trumped all else.
Thanks, but that's basically beside the point (as it's only the audit/accounting standard that says if & whether an actual number needs to be provided and the question is merely about the nature of the liability (actual or contingent) from a legal point of view i.e. if audit/accounting standards required contingent liabilities to be provided in full it would make no difference to the answer here).
Well, FRS102 has this-
Prudence
2.9 The uncertainties that inevitably surround many events and circumstances are acknowledged by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.
However, the exercise of prudence does not allow the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses. In short, prudence does not permit bias.
I think the year 2023 so far has seen quite a few unusual judgments. This one is quite interesting. What the director in due performance of all his fiduciary duties could have done this case at all? Create a provision even when there was no present obligation, and make the company technically insolvent?
That said, it could only add to the pressure of acting a director of a company .
I'm glad you agree that it looks a pretty odd judgment and I also agree that 2023 seems to be having more than its fair share of them.
Para 72 et seq here shows another High Court judge messed up badly (nothing to do with tax, but it shows the 2023 high trend of very bad judgments and supports my well-known views about judges generally not being too great these days): https://www.bailii.org/ew/cases/EWCA/Civ/2023/901.html
Para 77 has the classic killer line "With all due respect to the judge..."
Para 79 is pretty strong stuff:
"I would add that the judge's comments in the decision under appeal at [50] and in his judgment dated 16 December 2022 at [16] quoted in paragraphs 47 and 56 above came perilously close to an imputation of bad faith on the part of the Trustees when bad faith was not even alleged."
Yes; when that kind of bad judicial conduct goes too far it's known in the trade as "DESCENDING INTO THE ARENA"
https://www.2tg.co.uk/wp-content/uploads/2020/06/Case-Note-Supreme-Court...
Another recent bad (unfair) judge example here, namely "excessive interference in evidence by the trial judge", as borne out by the retrial that decided things the other way.
https://www.bailii.org/ew/cases/EWHC/Ch/2023/1901.html