QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
| IAN CAMERON & OTHERS
|- and -
|COMMISSIONERS FOR HM REVENUE & CUSTOMS
Daniel Margolin (instructed by The Solicitor's Office HM Revenue & Customs) for the Defendants
Hearing dates: 24, 25 & 26 January 2012
Crown Copyright ©
Mr Justice Wyn Williams:
The statutory context
"1 (1) Where in any year of assessment
a) the duties of an employment are performed wholly or partly outside the United Kingdom; and
b) any of those duties are performed in the course of a qualifying period which falls wholly or partly in that year and consists of at least 365 days,
then, in charging tax under Case 1 of Schedule E on the amount of the emoluments from that employment attributable to that period, or to so much of it as falls in that year of assessment, there shall be allowed a deduction equal to the whole of that amount.
(2) For the purposes of this paragraph a qualifying period is a period of consecutive days which either
(a) consists entirely of days of absence from the United Kingdom; or
(b) consists partly of such days and partly of days included by virtue of sub-paragraph (3) below."
Paragraph 6 provided:-
"For the purposes of this Schedule a person shall not be regarded as absent from the United Kingdom on any day unless he is so absent at the end of it."
"378(1) A deduction is allowed from earning from an employment as a seafarer if
a) the earnings are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK),
b) the duties of the employment are performed wholly or partly outside the United Kingdom, and
c) any of those duties are performed in the course of an eligible period.
(2) In this Chapter "eligible period" means a period consisting of at least 365 days which is either
a) a period of consecutive days of absence from the United Kingdom, or
b) a combined period.
(3) A combined period is a period
a) at least half of the days in which are days of absence from the United Kingdom, and
b) which consists of three consecutive periods, A, B, C where
A is a period of consecutive days of absence from the United Kingdom or a period which is itself a combined period,
B is a period of not more than 183 days, and
C is a period of consecutive days of absence from the United Kingdom.
(4) For this purpose a person is only regarded as being absent from the United Kingdom on any day if absent at the end of the day.
379(1) The deduction under section 378
a) is allowed from the amount of the earnings from the employment attributable to the eligible period, and
b) is equal to that amount.
382(1) Duties which a person performs on a ship engaged
a) on a voyage beginning or ending outside the United Kingdom (but excluding any part of it beginning and ending in the United Kingdom) or
b) on a part beginning or ending outside the United Kingdom of any other voyage,
are treated as performed outside the United Kingdom for the purposes of this Chapter.
(2) Duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom are treated for the purposes of this Chapter as performed in the United Kingdom.
(3) For the purposes of sub-section (1) the areas designated under section 1(7) of the Continental Shelf Act 1964 (c29) are treated as part of the United Kingdom.
Sections 378, 379 and 382 were derived from various provisions in earlier legislation. It is common ground that any linguistic differences between the provisions in earlier legislation and the provisions set out above are not material to the issues before me.
The Defendants' approach to determining whether or not a person was absent from the UK "at the end of the day" during the period 1977 to 2000.
"Finally, it should be remembered that while paragraph 7 specifies certain duties which are to be treated as performed outside the UK, where the number of qualifying days is relevant for the purposes of paragraph 2 or 4(3)(a), paragraph 6 provides that a person shall not be regarded as absent from the UK on any day unless he is so absent at the end of it, i.e. at midnight. For this purpose, the casting off from a UK berth (allied to passage for overseas port) would be taken as the time of departure from the UK, and equally a ship would be regarded as arriving in the UK at the time of berthing."
"A day of absence from the United Kingdom is any day when the seafarer is outside the United Kingdom at the end of the day, i.e. at midnight. The definition of United Kingdom is as explained previously, so that a voyage that does not extend to a foreign port may still count towards days of absence, depending on the vessel's position at midnight in relation to UK territorial waters. A ship would normally be deemed to have left the United Kingdom at the moment at which it leaves its berth or anchorage (whichever is the later) to proceed on its voyage. Arrival times will be similarly defined.
The days of absence from the United Kingdom do not need to be spent on duties of the employment (e.g. foreign holidays) but no deduction will be due for any part of a qualifying period falling in a year of assessment in which no duties of an employment are performed abroad, e.g. if in a qualifying period running from 1 March 1985 to 31 March 1986, the period 1 March 1985 to 10 April 1985 consists of a period of leave spent abroad, or of days of absence on voyages which do not extend to a foreign port, then, no deduction is due for the pay for this period in 1984/1985, as no duties were performed abroad in 1984/1985. For 1985/1986, all pay from 6 April 1985 to 31 March 1986 attracts relief as in that year there were duties performed abroad."
"Seafarers Claim to 100% tax relief on earnings or
Claim to be considered non-resident in the UK
- To claim the 100% tax relief on foreign earnings or non-resident status in the UK please complete columns 1 to 8 overleaf.
- In support of your claim you must provide a copy of your discharge book, or other documentation which confirms details of voyages undertaken. Flights/ferry tickets confirming the dates of leaving/arriving in the UK for foreign holidays taken within the period of the claim and hotel bills, credit cards/currency exchange receipts must also be provided.
- To help us give you the best possible service please ensure all the documentation requested above is provided as failure to do so may result in delay.
Further information about a claim to the 100% foreign earnings deduction is on page 4."
The next page contained a number of columns which were intended to be completed by the person claiming the allowance. Above the columns the following bullet points appeared:-
- "Please list below, in date order, all dates of departure from and arrivals in the United Kingdom including overseas holidays.
- Do not enter voyages between UK ports unless the vessel is outside the 12 mile UK territorial waters limit at midnight. Evidence of this may be required.
- Do not enter calls to the UK if you arrive and leave again before midnight on the same day."
The last page of the document began with the heading "Further Information". It continued:-
"You should remember the following points when considering making a claim to the 100% Foreign Earnings Deduction.
- To claim relief for any tax year a seafarer must have undertaken, during the tax year, at least one voyage which involves a call to a port outside the UK.
- A day of absence from the UK is any day when you are outside the UK at the end of that day (midnight). We normally treat a vessel as having left the UK at the moment it leaves berth or anchorage, on a voyage which will take it outside UK territorial waters 12 mile limit. Arrival times are treated in a similar way.
- Holidays overseas, or even periods of unemployment overseas, count towards a qualifying period.
- A claim must be of 365 days or more, and must always begin and end with a period spent abroad. You cannot, for instance, make a claim for a period of 365 days which consists of 183 days overseas followed by 182 days in the UK. You must spend a further period outside the UK. Note, however, once a successful claim of 365 days or more is made, you do not have to begin your next claim with a fresh period of 365 days. Your original claim can be extended by further periods abroad.
- If you require further information please ask for our booklet ('Seafarers Notes on Claims for 100% Foreign Earnings Deductions')".
"A day of absence from the UK is any day when you are outside the UK at the end of that day (midnight). We normally treat a vessel as having left the UK at the moment it leaves berth or anchorage, on a voyage which will take it outside UK territorial waters. Arrival times are treated in a similar way."
The parties agree that this was a publication of the "broad concession".
"The employment duties of a seafarer are regarded as being performed outside the United Kingdom if they are carried out on a vessel that is engaged on a voyage or part voyage which begins or ends outside the UK. For this purpose, the UK sector of the North Sea is treated as part of the UK. If you had more than one employment in the qualifying period, you may only claim Foreign Earnings Deduction for those in which you performed duties outside the UK.
A 'qualifying period' is made up mainly of days when you are absent from the UK. You are absent from the UK on a particular day if you are outside the UK at midnight at the end of that day .."
"What is a day of absence (Q day) from the UK?
This is a day at the end of which you are outside the UK at midnight. Location at midnight is simple and decisive. You are either in or out. If you are within the areas as defined above, at midnight, then you are in the UK on that particular day. That day is clearly not then a Q day."
The second version contained the paragraph quoted above but continued:-
"However, a concession exists, and has done so since 1980, when a letter was published identifying what the Inland Revenue regard as a day of absence from the United Kingdom for the purposes of calculating the qualifying period for FED purposes.
The concession referred to above is contained in a letter issued by the Inland Revenue on 22 July 1980 and is contained in Butterworth's Yellow Tax Handbook. In the letter there is reference to a Scheduled call to an overseas port The final paragraph of that letter ..states,
"For this purpose the casting off from a UK berth (allied to passage for an overseas port) would be taken as a time of departure from the UK, and equally a ship would be regarded as arriving in the UK at the time of berthing.""
Correspondence between April 2000 and 2004
"We normally treat a vessel as having left the UK at the moment it leaves berth for anchorage on a voyage, which will take it outside UK waters bound for an overseas port. The intention is that the vessel leaves berth and immediately sails for a foreign port. It cannot sail around thinking about so doing for a few days. Consequently the day of departure can be regarded as a day of absence provided that the vessel undertakes a voyage directly to a foreign port."
"A day of absence from the UK is any day when the claimant is outside the UK at the end of that day (midnight). A vessel is normally treated as having left the UK the moment it leaves berth or anchorage, on a voyage, which would take it outside UK territorial waters. Arrival times are treated in a similar way. Confusion appears to have arisen over this aspect. I hope S378 ITEPA 2003 will clarify the strict legal position. As a practical working arrangement, the Revenue will accept the date of leaving as the date of departure (rather than where the vessel was at midnight) where the voyage or part voyage, will take the vessel outside the UK territorial waters; S382 ITEPA 2003. This specifically excludes the coastal waters vessels and voyages, which you appear to be including; if I am mistaken, my apologies."
Contact between the First Claimant and the Defendants
"The sheet described a day of absence for SED purposes: when the individual is aboard a ship leaving before midnight on a voyage that would take him outside UK territorial waters he is treated as absent from the UK on the day of departure."
Contact between the Second Claimant and the Defendants
"In 2003, I completed my claim form for the period I had worked on the European Pioneer ending in April 2002 relying on the Blue Book and again I telephoned Cardiff marine to make doubly sure I was entitled to claim a day of absence so long as I left before midnight. I was advised as long as I followed the guidelines in the Blue Book, it would be "OK". I remember informing the person I spoke to that we sailed from a UK port to a UK port but passed through Manx waters. I was advised that this was passing through international waters and that I should apply the position as stated in the blue book: where the ship departed from a berth in the UK before midnight that day counted as a day of absence for FED."
"Working in conjunction with the voyage reports, and your calculation of your Qualifying Period, I note that voyages that left the United Kingdom before midnight have been counted as a day of absence. This is incorrect as the 'concession' only applies to voyages en route to a foreign port."
"With regards to the copy of 'further information' that you have taken from the old Seafarers Leaflet, this does confirm that a day of absence is when you are outside the 12 mile limit at midnight, and engaged on a voyage that will take it outside territorial waters (i.e. to a foreign port). These rules have not changed.
The Fleetwood/Larne run is not en route to a foreign port, and only goes temporarily outside the 12 mile limit. The voyage is therefore between UK ports.
The long-standing 'concession' here in Cardiff where a day is counted 'out' from the time it leaves berth is only when en route to a foreign port.
I also enclose an extract from 'Tolley's' that confirms this point. An article also appeared in Gunline in 2000 and that too confirms the point covered above."
"I do not think that we, sitting in this court, have any reason to dissent from this judgment. It follows that I do not think the assurances the Revenue are here said to have given are in themselves inconsistent with the Revenue's statutory duty.
I am, however, of opinion that in assessing the meaning, weight and effect reasonably to be given to statements of the Revenue the factual context, including the position of the Revenue itself, is all important. Every ordinarily sophisticated taxpayer knows that the Revenue is a tax-collecting agency, not a tax-imposing authority. The taxpayer's only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law (see R v A-G, ex p Imperial Chemical Industries plc (1986) 60 TC 1 at 64 per Lord Oliver). Such taxpayers would appreciate, if they could not so pithily express, the truth of Walton J's aphorism 'One should be taxed by law, and not be untaxed by concession' (see Vesey  STC 414 at 439  1 Ch 177 at 197). No doubt a statement formally published by the Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them. But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary. If it is to be successfully said that as a result of such an approach the Revenue has agreed to forego, or has represented that it will forego, tax which might arguably be payable on a proper construction of the relevant legislation it would, in my judgment, be ordinarily necessary for the taxpayer to show that certain conditions have been fulfilled. I say 'ordinarily' to allow for the exceptional case where different rules might be appropriate, but the necessity in my view exists here. First, it is necessary that the taxpayer should have put all his cards face upwards on the table. This means that he must give full details of the specific transaction on which he seeks the Revenue's ruling, unless it is the same as an earlier transaction on which a ruling has already been given. It means that he must indicate to the Revenue the ruling sought. It is one thing to ask an official of the Revenue whether he shares the taxpayer's view of a legislative provision, quite another to ask whether the Revenue will forego any claim to tax on any other basis. It means that the taxpayer must make plain that a fully considered ruling is sought. It means, I think, that the taxpayer should indicate the use he intends to make of any ruling given. This is not because the Revenue would wish to favour one class of taxpayers at the expense of another but because knowledge that a ruling is to be publicised in a large and important market could affect the person by whom and the level at which a problem is considered and, indeed, whether it is appropriate to give a ruling at all. Secondly, it is necessary that the ruling or statement relied on should be clear, unambiguous and devoid of relevant qualification.
In so stating these requirements I do not, I hope, diminish or emasculate the valuable developing doctrine of legitimate expectation. If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation, particularly if he acted on it. If in private law a body would be in breach of contract in so acting or estopped from so acting a public authority should generally be in no better position. The doctrine of legitimate expectation is rooted in fairness. But fairness is not a one-way street. It imports the notion of equitableness, of fair and open dealing, to which the authority is as much entitled as the citizen. The Revenue's discretion, while it exists, is limited. Fairness requires that its exercise should be on a basis of full disclosure. Counsel for the Applicants accepted that it would not be reasonable for a representee to rely on an unclear or equivocal representation. Nor, I think, on facts such as the present, would it be fair to hold the Revenue bound by anything less than a clear, unambiguous and unqualified representation."
Judge J agreed with Bingham LJ but contributed a judgment of his own. During the course of that judgment he said:-
"In the present case the Revenue promulgated a number of guidelines and answered questions by or on behalf of taxpayers about the likely approach to a number of given problems. The Revenue is not bound to give any guidance at all. If however the taxpayer approaches the Revenue with clear and precise proposals about the future conduct of his fiscal affairs and receives an unequivocal statement about how they will be treated for tax purposes if implemented, the Revenue should in my judgment be subject to judicial review on grounds of unfair abuse of power if it peremptorily decides that it will not be bound by such statements when the taxpayer has relied on them. The same principle should apply to Revenue statements of policy. In those cases where the taxpayer has approached the Revenue for guidance the court will be unlikely to grant judicial review unless it is satisfied that the taxpayer has treated the Revenue with complete frankness about his proposals. Applying private law tests the situation calls for utmost good faith on the part of the taxpayer. He should make full disclosure of all the material facts known to him."
"In that the representations in the booklet are formally published by the Revenue to the world rather than being its response to approaches of a less formal nature, a literal reading of Bingham LJ's judgment suggests that, although they are binding in relation only to cases falling clearly within them, the requirement that they should be "clear, unambiguous and devoid of relevant qualification" does not apply to them. But in my view a case will fall clearly within them only if they were clear, unambiguous etc; and in R (Bancoult v Secretary of State for Foreign & commonwealth Affairs (No 2)  UKHL 61,  1A.C. 453, Lord Hofmann, at para 60, applied the quoted words of Bingham LJ to a formal publication, namely a press announcement, on the part of the Foreign Secretary. It is better to forsake any arid analytical exercise and to proceed on the basis that the representations in the booklet for which the Appellants contend must have been clear; but the judgment about their clarity must be made in the light of an appraisal of all relevant statements in the booklet when they are read as a whole; and that, in that the clarity of a representation depends in part upon the identity of the person to whom it is made, the hypothetical representee is the "ordinarily sophisticated taxpayer" irrespective of whether he is in receipt of professional advice."
"In my view, this aspect of the test in ex p. MFK Underwriting Agencies Ltd will be especially difficult to satisfy where the taxpayer claims that an enforceable legitimate expectation has arisen on the basis of a purely oral exchange with a tax official. In particular, where there is no written request for a tax ruling, then in anything other than very exceptional circumstances a tax official will not have been on proper notice of the desire of the taxpayer to have a fully considered ruling on the point of issue and will not have been put on proper notice of the importance and significance of the ruling which he is being asked to provide."
Sales J also stressed the need to scrutinise whether the alleged reliance upon telephone or other oral discussions was reasonable.
"60. The relevant principles of administrative law were not in dispute between the parties and I do not think this is an occasion on which to re-examine the jurisprudence. It is clear that in a case such as the present, a claim to a legitimate expectation can be based only upon a promise which is "clear, unambiguous and devoid of relevant qualification": see Bingham LJ in R v Inland Revenue Comrs ex p MFK Underwriting Agents Ltd  1 WLR 1545, 1569. It is not essential that the Applicant should have relied upon the promise to his detriment, although this is a relevant consideration in deciding whether the adoption of a policy in conflict with the promise would be an abuse of power and such a change of policy may be justified in the public interest, particularly in the area of what Laws LJ called "the macro-political field": see R v Secretary of State for Education & Employment, ex p Begbie  1 WLR 1115, 1131."
Ultimately, I did not understand Mr Margolin to take issue with this statement of the law and as will become apparent from my conclusions later in this judgement it is unnecessary to set out passages from the decision in Begbie and other decisions which preceded Bancoult.
"If the taxpayer did acquire a legitimate expectation that he would be taxed in accordance with the broad concession, did there come a time when the legitimate expectation ceased? Viewed another way, did there come a time when the taxpayer's reliance on HMRC's representations ceased to be reasonable?"