© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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H2: Non-statutory clearances and other rulings
Existence of a legitimate expectation
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Corporate attribution of views expressed to HMRC as a whole
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“It is of course entirely conceivable that in an organisation such as HMRC different individuals or even different departments within it may hold different views on a particular question of tax liability at any given time. But, for the purposes of legal attribution, it seems to me that the view which is to be treated as that of HMRC as a corporate body must be the view which is communicated on its behalf either to the public at large or to the particular taxpayer in relation to whom the question arises by a responsible officer acting within his or her authority. If two or more views are certainly indicated, there might be ambiguity about what HMRC's view should be taken to be. But that did not happen in this case.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §93).
Opinions of advisers of little, if any, significance
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“[HMRC] submitted that in order to assess fully the reasonableness of the reliance placed by the claimants on the ruling, it is relevant to know what independent professional advice they received about whether or not the services to be supplied by GSTS would be exempt from VAT and that the failure to disclose such advice is a significant gap in the claimants' evidence. Although I do not suggest that they are entirely irrelevant, I cannot see that any view that might have been expressed by the claimants' professional advisers as to what they believed the appropriate interpretations of the legislation to be are likely to be of much significance. Whatever the advisers themselves thought, it was the ruling of HMRC on how HMRC interpreted the law - and therefore intended to apply it - which was critical.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §88).
Duration of legitimate expectation
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HMRC entitled to give reasonable notice of changing their view prospectively
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“In his skeleton argument Mr. Margolin acknowledges that if a taxpayer has acquired a legitimate expectation that he is entitled to the benefit of a particular concession he also has a legitimate expectation that such concession will not be withdrawn retrospectively and that any withdrawal will be managed fairly. He accepts, in effect, that the Defendants should give reasonable notice of any withdrawal or alteration of a concession so as to allow the taxpayers time to make any necessary adjustments to their affairs. I agree with that approach.” (R (oao Cameron) v. HMRC [2012] EWHC 1174 (Admin), §71).
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Query whether there must be a change in the law a relevant case law decision
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“Although not expressly stated, it was clearly implicit that the rulings were based on the law as it stood at the time when they were given. If therefore the relevant legislation changed or if a subsequent court or tribunal decision changed the interpretation of the law on which the rulings were based, the claimants could not legitimately expect that HMRC would remain bound by the rulings. A reasonable person in their position would anticipate that in such circumstances HMRC would be obliged to reconsider the tax position and to enforce, at least prospectively, the new law or the court's interpretation of the existing law. All that the claimants could legitimately expect in such circumstances it seems to me is that the change in tax treatment would be managed fair and sufficient notice of its implementation given to allow the claimants a reasonable time in which to re-organise their affairs.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §89).
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“Where the balance is struck between these competing arguments may depend on the particular facts of the case. A number of features in the present case - in combination - have led me to conclude that HMRC cannot, without unfairness to the claimants, impose a different tax treatment from that stated in the rulings without any objective change in circumstances…These features are: (1) the extent of the reliance which the claimants have placed on the rulings in setting up and investing in their business and the very serious and damaging consequences the proposed change in tax treatment will have if implemented; (2) the fact that the extent of the reliance which would be placed on the rulings was made clear to HMRC when the rulings were sought; (3) the fact that the rulings were and remain consistent with the general published guidance issued by HMRC in VAT Notice 701/31; (4) the fact that the point on which the rulings were given was and remains, in my view, an arguably correct interpretation of the law; (5) the fact that it is very unlikely on the current state of the law that the claimants will be entitled to recover compensation for losses suffered as a result of their reliance on the rulings if they are now subjected to a different tax treatment; (6) the fact that if the claimants are required to adopt the new tax treatment before the issue on which the rulings were given has been authoritatively determined by the tribunal they may feel compelled to restructure their affairs in a way which would be costly and detrimental and, in practice, irreversible and yet to turn out to have been unnecessary if the tribunal finds that the rulings were legally correct.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §§98…99).
Justice overriding a legitimate expectation
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Overriding public interest requiring frustration of legitimate expectation
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“This conclusion is not decisive of the case however because even where a claimant has a legitimate expectation, which it would be unfair to the claimant for the public authority which produces that expectation to frustrate, it is nevertheless permissible for the authority to do so if there is an overriding public interest that requires it.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §103).
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Collecting right amount of tax not sufficient
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“In this case HMRC has argued that the claimants' expectation to be treated in accordance with the rulings given in 2008 and 2010 is overridden by the public interests in collecting the correct amount of tax and in treating taxpayers fairly by not favouring one taxpayer over another. Once it is accepted that the claimants have a legitimate expectation to be taxed in accordance with the rulings issued to them by HMRC however, I do not consider that either of the competing public interests relied on by HMRC can properly justify the unfairness involved in frustrating that expectation.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §106).
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Interim injunction where HMRC seek to renege on a clearance or ruling
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Based on merits where interim relief is equivalent to final relief
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“That means that even if the hearing were then expedited, by the time any hearing of the claim for judicial review takes place, if it ever does, most of the period for which the claimants are seeking the injunction will have elapsed. If the injunction is granted and the claimants lose the tax appeal, they will therefore obtain most, if not all, of the substantial benefit which is the subject of their claim for judicial review. Nor do they propose that the benefit should be relinquished if the claim for judicial review proceeds to a hearing and is dismissed. The claimants do not offer any cross-undertaking in damages in this case. The explanation given is that to do so would be to expose them to the same financial risk which it is the object of their application to the court to avoid. Granting the injunction sought by the claimants would amount go giving judgment against HMRC on the claim for judicial review. I do not think it would be just to follow that course unless I can be satisfied at this stage that the claim for judicial review has not just a real prospect of success but is likely to succeed.” (R (oao GSTS Pathology LLP) v. HMRC [2013] EWHC Admin 1801, §66).
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