![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
England and Wales Court of Appeal (Civil Division) Decisions |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Revenue And Customs v Hutchinson [2017] EWCA Civ 1075 (26 July 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/1075.html Cite as: [2018] WLR 1682, [2018] 1 WLR 1682, [2017] STC 2048, [2017] WLR(D) 517, [2017] EWCA Civ 1075, [2017] BTC 24 |
[New search]
[Context]
[View without highlighting]
[Printable RTF version]
[View ICLR summary: [2017] WLR(D) 517]
[Buy ICLR report: [2018] 1 WLR 1682]
[Help]
![]() |
||
ON APPEAL FROM
QUEEN'S BENCH DIVISION ADMINISTRATIVE COURT
Mrs Justice Whipple
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE McCOMBE
and
LORD JUSTICE SALES
____________________
The Commissioners for Her Majesty's Revenue and Customs |
Appellants |
|
- and - |
||
Ralph Hely Hutchinson |
Respondent |
____________________
Rory Mullan and Harriet Brown (instructed by Direct Access Scheme) for the Respondent pro bono
Hearing dates : 29-30 March 2017
____________________
Crown Copyright ©
LADY JUSTICE ARDEN :
Issue for decision
Taxpayer's capital losses and HMRC's published guidance
The Revenue does not accept, for this scheme, the additional losses claimed under [Mansworth v Jelley] are due. One consequence is that no repayments will be made.
HMRC does not accept that its published guidance alone can necessarily create a 'legitimate expectation' for a taxpayer. Whether a taxpayer has a legitimate expectation will depend upon the specific factors and circumstances of the case. Chargeable gains and allowable losses included in returns or claims should be calculated on the correct statutory basis, which HMRC now understand to be as described in Revenue & Customs Brief 30/09. HMRC's primary responsibility is to apply the law correctly and collect underpaid or under-declared tax. However, in some limited circumstances, to apply the statute may be so unfair as to amount to an abuse of power by HMRC and in these circumstances HMRC may be bound by its previous guidance. We will normally be bound by our previous guidance where the taxpayer can demonstrate that he or she:
- reasonably acted in reliance on the previous guidance and would suffer detriment from the correct application of the statute.
- to have acted in reliance on the advice the taxpayer must have done or refrained from doing something as a direct consequence of the advice. HMRC understand that in this context 'detriment' means real loss, it is not sufficient to have merely suffered disappointment or upset.
You have not provided any contemporaneous evidence to show what actions you took or did not take as a direct result of the guidance, apart from claiming the capital losses. Your participation in the ABM Ambro Armadale share option scheme and the exercising of the options had taken place before the guidance was issued and was not affected by it.
The letter of 2 June 2003 was a written notice as required by the legislation at Schedule 1A and section 9A TMA 1970, notifying you of our intentions to enquire into the claims to capital losses for the years ended 1998/99, 1999/2000 and the returns of 2000/2001 and 2001/2002.
The notices issued by HMRC made it clear that the losses were subject to enquiry and were not agreed. The notices also mentioned that there may be capital gains tax consequences if the claims failed. You were therefore aware from 2 June 2003 that we did not accept that the additional capital losses claimed were due. The letters were specific to your circumstances and having received the letters you could not expect that the generic guidance would be applied instead of the specific circumstances of your claim.
You sold assets which realised gains in two later years 2005/2006 and 2006/2007 for which closure notices have been issued, appeals received and are awaiting a decision letter to be issued.
In the summer of 2005 when you and your wife discussed the potential purchase of a property in the South of France and in the summer of 2008 when you were considering the purchase of your private residence and EIS investments, any consideration of the tax implications should have been taken into account that the enquiry remained open and in the view of HMRC the capital losses were not due. You could not have been relying on the guidance issued on 8 January 2003 at that time and any planning should have taken this into account.
As the transactions which underline the losses had already taken place before the guidance was issued, and later transactions were made in the knowledge that the losses were not agreed, I do not agree that you have a legitimate expectation that the capital losses should be due.
These proceedings for judicial review
a) the taxpayer could make a realistic case that on the balance of probabilities they had relied on the incorrect guidance;
b) the taxpayer would suffer detriment if he could not use the loss; and
c) the taxpayer could on a balance of probabilities have shown a legitimate expectation that they could rely on the guidance if HMRC had not delayed in dealing with their case so that he could provide only limited evidence.
Judgment of Whipple J
had a legitimate expectation arising out of the 2003 Guidance that his claim for capital losses on the disposal of his shares would be taxed in accordance with that Guidance.
the Commissioners were required to consider whether it was fair to taxpayers to withdraw the 2003 Guidance. What was fair depended on the circumstances surrounding the original Guidance and its proposed withdrawal. The obligation to act fairly brought with it the obligation to perform a balancing exercise, to weigh the taxpayers' legitimate expectations generated by the 2003 Guidance, and the consequent unfairness of withdrawing it in 2009, against the public interest in collecting the tax due under the statute, as the Commissioners now interpreted it. The important point is that all aspects of unfairness needed to be taken into account at this stage. ([61])
RCB 30/09 and the Closure Notices based on it were very unfair. By RCB 30/09, the Commissioners deliberately took away from the subset (i.e., those whose enquiries were open) an advantage which they had many years previously, by mistake, conferred on the whole of the 2003 cohort. The members of the cohort who were not affected by RCB 30/09 retained their advantage, permanently; the subset lost out, and were comparatively worse off as a result. That was discriminatory. ([75])
[76] I do not criticise Mrs Sanderson for approaching this case in the narrow way that she did. The steps she took were in line with the Commissioners' own guidance. That guidance focussed on detrimental reliance, and indicated that in the absence of detrimental reliance, the tax due under the statute should be collected.
[77] In this case, there were wider issues to take into account. Once a legitimate expectation on the part of the taxpayer had been established, the Commissioners were obliged to balance all aspects of unfairness to determine whether, overall, there would be conspicuous unfairness in collecting the tax due. In this case, the Claimant was complaining of unfairness which went far beyond detrimental reliance (although his complaint included that feature). The Commissioners did not consider those other aspects of unfairness. The Closure Notices which were the product of the balancing exercise must for that reason be quashed.
[78] The matter must be remitted to the Commissioners to take a fresh decision, taking into account all aspects of unfairness.
70 Finally, on the day before I heard this case, I handed down judgment in R (Hely-Hutchinson) v Commissioners for HM Revenue and Customs [2015] EWHC 3261 (Admin). That case involved a challenge by a taxpayer based on comparative unfairness. I granted the taxpayer's application for judicial review and quashed the Commissioners' decision. Both parties addressed me briefly on Hely-Hutchinson, but neither sought to place particular weight on that case, not least given the possibility of an appeal. I wish to record one observation about Hely-Hutchinson, which became clear (at least to me) in the course of hearing this case. One of the problems in Hely-Hutchinson was the lack of evidence filed by the Commissioners to demonstrate their reasons for a change of policy in 2009, on which revised policy they relied in making the decision under challenge in 2014. In this case, by contrast, the Commissioners provided a full and frank account of their internal discussions leading up to the change of policy in 2014, on which revised policy they relied in making the Decisions under challenge, and so I had a clear view of the underlying policy and the reasons for changing it. This evidence was important to both parties' arguments, and to my overall evaluation of the merits of the case. Where comparative unfairness is alleged, the Court is likely to be heavily dependent on the evidence provided by the Commissioners. The evidence provided in this case provides the better working model.
General principles relating to legitimate expectation and their application to HMRC
The law on legitimate expectation
36 Before addressing the two questions identified in para 33 above, it is appropriate to summarise briefly the Board's understanding of the law relating to legitimate expectation.
37 In the broadest of terms, the principle of legitimate expectation is based on the proposition that, where a public body states that it will do (or not do) something, a person who has reasonably relied on the statement should, in the absence of good reasons, be entitled to rely on the statement and enforce it through the courts. Some points are plain. First, in order to found a claim based on the principle, it is clear that the statement in question must be "clear, unambiguous and devoid of relevant qualification", according to Bingham LJ in R v Inland Revenue Comrs, Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545 , 1569, cited with approval by Lord Hoffmann in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 2) [2009] AC 453 , para 60.
38 Secondly, the principle cannot be invoked if, or to the extent that, it would interfere with the public body's statutory duty: see eg Attorney General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629 , 636, per Lord Fraser of Tullybelton. Thirdly, however much a person is entitled to say that a statement by a public body gave rise to a legitimate expectation on his part, circumstances may arise where it becomes inappropriate to permit that person to invoke the principle to enforce the public body to comply with the statement. This third point can often be elided with the second point, but it can go wider: for instance, if, taking into account the fact that the principle applies and all other relevant circumstances, a public body could, or a fortiori should, reasonably decide not to comply with the statement.
39 Quite apart from these points, like most widely expressed propositions, the broad statement set out at the beginning of para 37 above is subject to exceptions and qualifications. It is, for instance, clear that legitimate expectation can be invoked in relation to most, if not all, statements as to the procedure to be adopted in a particular context: see again Ng Yuen Shiu [1983] 2 AC 629 , 636. However, it is unclear quite how far it can be applied in relation to statements as to substantive matters, for instance statements in relation to what Laws LJ called "the macro-political field" (in R v Secretary of State for Education and Employment, Ex p Begbie [2000] 1 WLR 1115 , 1131), or indeed the macro-economic field. As the cases discussed by Lord Carnwath JSC show, such issues have been considered by the Court of Appeal of England and Wales, perhaps most notably, in addition to Begbie, in R v North and East Devon Health Authority, Ex p Coughlan [2001] QB 213 , R (Nadarajah) v Secretary of State for the Home Department [2005] EWCA Civ 1363 and R (Bhatt Murphy) v Independent Assessor [2008] EWCA Civ 755; The Times, 21 July 2008 , and also by the Board in Paponette v Attorney General of Trinidad and Tobago [2012] 1 AC 1 .
40 For present purposes, for reasons which should become clear from the ensuing part of this judgment, it is unnecessary for the Board to consider the law on this difficult and important topic more fully.
Every ordinarily sophisticated taxpayer knows that the revenue is a tax-collecting agency, not a tax-imposing authority. The taxpayers' only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law: Reg. v. Attorney-General, Ex parte Imperial Chemical Industries Pic. (1986) 60 T.C.I, 64G, per Lord Oliver of Aylmerton. Such taxpayers would appreciate, if they could not so pithily express, the truth of the aphorism of "One should be taxed by law, and not be untaxed by concession:" Vestey v. Inland Revenue Commissioners [1979] Ch. 177, 197 per Walton J. No doubt a statement formally published by the Inland Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them.
Abuse of power may take the form of unfairness. This is not mere "unfairness" in the general sense. Even if "unfair," efficient performance of the statutory obligations imposed on the revenue will not, of itself, amount to an abuse of power.
And in all save exceptional circumstances the Revenue are the best judge of what is fair.
[115] I would add this general observation. Although it is now well established that the doctrine of legitimate expectation in public law can extend to substantive as well as procedural expectations, and can in an appropriate case prevent a public body, including HMRC, from applying the law correctly where to do so would frustrate the claimant's expectation, experience shows that the cases where such a claim has succeeded, at any rate in the field of taxation, are relatively few and far between. This is in my view hardly surprising. There is a strong public interest in the imposition of taxation in accordance with the law, and so that no individual taxpayer, or group of taxpayers, is unfairly advantaged at the expense of other taxpayers. There is also a real public interest in the Revenue making known the general approach which it will adopt, and the practice which it will normally follow, in specific areas. The publication of the BIM is a good example of this principle in operation. But there are likely to be few cases where a taxpayer can plausibly claim that a representation made in general material of this nature is so clear and unqualified that the taxpayer is entitled to rely on it and to be taxed otherwise than in accordance with the law.
PARTIES' SUBMISSIONS AND MY ANALYSIS OF THEM
(1) was there comparative unfairness by reason of the withdrawal of the beneficial tax treatment of Mansworth v Jelley losses by the issue of the RCBs for taxpayers with open claims only?
(2) if the answer to (1) is no, was the withdrawal of the 2003 guidance otherwise unfair under the law about legitimate expectations, or alternatively was it incompatible with Article 14 of the European Convention on Human Rights ("the Convention"), taken with Article 1 of the First Protocol ("A1P1")? And
(3) if the withdrawal was not unfair and was Convention compliant, was the decision in any event lawfully taken by Mrs Sanderson on the basis of the RCBs and the information before her.
Issue (1): was there comparative unfairness by reason of the withdrawal of the beneficial tax treatment of Mansworth v Jelley losses by the issue of the RCBs for taxpayers with open claims only?
there is nothing inherently unfair in putting right earlier errors rather than compounding them, even if this involves a disparity between similarly placed individuals.
116 Outside the tax field, of course, published policy or guidance may have an equally important role, for example in relation to immigration. But there again the law has moved on since Coughlan. It is no longer necessary to find all the answers in the law of legitimate expectation. This accords with the view of Wade & Forsyth (op cit, p 456) that "where there is no knowledge of the policy allegedly disregarded, inconsistency in the application of policy rather than frustration of a legitimate expectation is the appropriate ground of review." In support of their assertion that this view has been "gathering strength", they are able to point to Lord Hope of Craighead DPSC's reference to their previous edition in R (SK (Zimbabwe)) v Secretary of State for the Home Department [2011] 1 WLR 1299 , para 36, where he said:
" Wade & Forsyth, Administrative Law , 10th ed (2009), pp 315–316 states that the principle that policy must be consistently applied is not in doubt and that the courts now expect government departments to honour their statements of policy. Policy is not law, so it may be departed from if a good reason can be shown."
To similar effect, De Smith, 7th ed, para 12–040 suggests that in the context of policy statements, use of the term "expectation" may not add anything to general public law duties, and "may indeed dilute them". In retrospect it seems that the court's understandable concern in Coughlan to find a rational basis for the early substantive expectation cases, such as Khan [1984] 1 WLR 1337 and Ruddock [1987] 1 WLR 1482, both of which turned on departure from adopted policy or practice (para 83).
The legal effect of policy
29 In 2001, in R (Saadi) v Secretary of State for the Home Department [2002] 1 WLR 356, para 7 Lord Phillips of Worth Matravers MR, giving the judgment of the Court of Appeal, said: "The lawful exercise of [statutory] powers can also be restricted, according to established principles of public law, by government policy and the legitimate expectation to which such a policy gives rise." Since 2001, however, there has been some departure from the ascription of the legal effect of policy to the doctrine of legitimate expectation. Invocation of the doctrine is strained in circumstances in which those who invoke it were, like Mr Mandalia, unaware of the policy until after the determination adverse to them was made; and also strained in circumstances in which reliance is placed on guidance issued by one public body to another, for example by the Department of the Environment to local planning authorities: see R (WL (Congo)) v Secretary of State for the Home Department [2010] 1 WLR 2168, para 58. So the applicant's right to the determination of his application in accordance with policy is now generally taken to flow from a principle, no doubt related to the doctrine of legitimate expectation but free-standing, which was best articulated by Laws LJ in R (Nadarajah) v Secretary of State for the Home Department [2005] EWCA Civ 1363 at [68]:
"Where a public authority has issued a promise or adopted a practice which represents how it proposes to act in a given area, the law will require the promise or practice to be honoured unless there is good reason not to do so. What is the principle behind this proposition? It is not far to seek. It is said to be grounded in fairness, and no doubt in general terms that is so. I would prefer to express it rather more broadly as a requirement of good administration, by which public bodies ought to deal straightforwardly and consistently with the public."
30 Thus, in R (WL (Congo)) v Secretary of State for the Home Department [2012] 1 AC 245 (in which this court reversed the decision of the Court of Appeal but without doubting the observation in para 58 for which I have cited the decision in para 29 above), Lord Dyson JSC said simply, at para 35: "The individual has a basic public law right to have his or her case considered under whatever policy the executive sees fit to adopt provided that the adopted policy is a lawful exercise of the discretion conferred by the statute." There is no doubt that the implementation of the process instruction would have been a lawful exercise of the power conferred on the Secretary of State by section 4(1) of the Immigration Act 1971 to give or vary leave to remain in the UK.
31 But, in his judgment in the WL (Congo) case, Lord Dyson JSC had articulated two qualifications. He had said, at para 21: "it is a well established principle of public law that a policy should not be so rigid as to amount to a fetter on the discretion of decision-makers." But there was ample flexibility in the process instruction to save it from amounting to a fetter on the discretion of the caseworkers. Lord Dyson JSC had also said, at para 26, "a decision-maker must follow his published policy … unless there are good reasons for not doing so."
[12] The importance of the extent to which thousands of taxpayers may rely upon guidance, of great significance as to how they will manage their lives, cannot be doubted. It goes to the heart of the relationship between the Revenue and taxpayer. It is trite to recall that it is for the Revenue to determine the best way of facilitating collection of the tax it is under a statutory obligation to collect. But it should not be forgotten that the Revenue itself has long acknowledged that the best way is by encouraging co-operation between the Revenue and the public. Mr Beighton, a member of the Board of Inland Revenue, said as much twenty years ago (cited by Bingham LJ in R v IRC ex parte MFK Underwriting Agents Ltd [1990] 1 All ER 91, [1989] STC 873, [1990] 1 WLR 1545 at 1568H). Co-operation requires fair dealing by the Revenue, and frank and open dealing by the public…
[59] For the reasons I have given earlier, I accept that the specific assurances that taxpayers will be treated as non-resident in the circumstances identified in IR20 amount to statements of practice, or policy, which the Revenue was obliged as a public law duty to consider and apply, until they promulgated a change of practice for the future….
Conclusions on Issue (1)
Issue (2): if the answer to (1) is no, was the withdrawal of the 2003 guidance otherwise unfair under the law about legitimate expectations, or alternatively was it incompatible with the Convention, taken with A1P1?
Conclusions on Issue (2)
Issue (3): if the withdrawal was not unfair and was Convention compliant, was the decision in any event lawfully taken by Mrs Sanderson on the basis of the RCBs and the information before her
The fatal flaw in the C's claim lies in the fact that the 2003 guidance issued by HMRC on which he seeks to rely, and which HMRC later withdrew on the basis of legal advice, post-dates the relevant transactions and the submission of the relevant tax returns, in which no relief in respect of the alleged losses was initially claimed. Although he did amend his self-assessment returns seeking to off-set the alleged losses against capital gains after the guidance was published, HMRC never agreed the losses. On 2 June 2003 the statutory notices issued by HMRC informing C that it intended to enquire into the claims made it clear that the losses were not agreed. Any arrangements C made thereafter were made in that knowledge.
It is very much the exception, rather than the rule, that detrimental reliance will not be present when the court finds unfairness in the defeating of a legitimate expectation.
[56] I reject the Claimant's submission that the Commissioners deliberately delayed the conclusion of the enquiries in his case because they wished to await the revocation of the 2003 Guidance and disallow his claimed losses. Mrs Sanderson's evidence is to contrary effect: she says there was no deliberate delay, rather the investigations were complex and took a long time. I accept that.
Conclusions on Issue (3)
Final issue (4): The judge erred in remitting the matter to HMRC
Conclusions on Issue (4)
Disposal of this appeal
Postscript
LORD JUSTICE McCOMBE
LORD JUSTICE SALES
Pre 2003 Guidance
2003 Guidance
2009 Guidance
Date | Event |
1998 | Exercise of share option |
1999 | Exercise of share option |
19/1/00 | RHH submitted 1998/1999 tax return |
25/1/01 | RHH submitted 1999/2000 tax return |
16/10/02 | RHH's employer informs him of an enquiry relating to NICs |
12/12/02 | Court of Appeal judgment in Mansworth v Jelley |
8/1/03 | HMRC issue "Tax treatment of options following Mansworth v Jelley" |
29/1/03 | RHH claims capital losses for 98/99 and 99/00 and amends returns for 01/02 |
3/03 | HMRC issue "Further details on tax treatment of options following decision in Mansworth v Jelley" |
10/4/03 | Amendments made by section 158 FA 2003 come into force |
2/6/03 | HMRC open enquiry |
20/3/09 | HMRC published Revenue and Customs Brief 30/09 |
11/9/09 | HMRC publish Revenue and Customs Brief 60/09 |
12/11/10 | RHH informed M v J losses not allowable, enclosed 30/09 and 60/09 |
12/11/10 | HMRC close enquiries in 05/06 and 06/07 and amend SAs |
7/12/10 | RHH appeals amendments |
30/4/14 | Closure notices |
22/5/14 | RHH submits appeal against closure notices |
8/7/14 | Pre-Action Protocol Letter |
22/7/14 | Pre-Action Protocol Response |
24/07/14 | Claim for judicial review |