QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
London WC2A 2LL
B e f o r e :
|THE QUEEN ON THE APPLICATION OF SCOTT||Claimant|
|HM REVENUE & CUSTOMS||Defendant|
WordWave International Limited
A Merrill Communications Company
165 Fleet Street London EC4A 2DY
Tel No: 020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
Mr Simon Pritchard (instructed by HM Revenue & Customs) appeared on behalf of the Defendant
Crown Copyright ©
"We accept that tax benefits arose from the sale or redemption of ..... policies and this was the motivating factor in [the claimant's] acquisition of the policy."
"26 The primary duty of the Revenue is to collect taxes which are properly payable in accordance with current legislation but it is also responsible for managing the tax system: section 1 of the Taxes Management Act 1970. Inherent in the duty of management is a wide discretion. Although the discretion is bounded by the primary duty (R(Wilkinson) v Inland Revenue Comrs  1 WLR 1718 para 21 per Lord Hoffmann), it is lawful for the Revenue to make concessions in relation to individual cases or types of case which will, or may, result in the non-collection of tax lawfully due provided that they are made with a view to obtaining overall for the national exchequer the highest net practicable return: Inland Revenue Comrs v National Federation of Self-employed and Small Businesses Ltd  AC 617, 636 per Lord Diplock. In particular the Revenue is entitled to apply a cost-benefit analysis to its duty of management and in particular, against the return thereby likely to be foregone, to weigh the costs which it would be likely to save as result of a concession which cuts away an area of complexity or likely dispute.
27 The Revenue accepts first that, were it in the booklet to have made the representations about the circumstances necessary for the achievement of non-residence for which either the first appellants or the second appellant contend, such would have been within its powers; and second that, for so long as the representations remained operative, an individual would have had, and therefore have been able to enforce, a legitimate expectation that it would appraise his case by reference to them notwithstanding that they failed to reflect the ordinary law.
28 In this connection, however, the Revenue refers to the decision of the Divisional Court of the Queen's Bench Division in R v Inland Revenue Comrs Ex p MFK Underwriting Agents Ltd  1 WLR 1545. It was advantageous to members of syndicates at Lloyd's that funds required to be held for them by their underwriters should be so invested as to yield what the Revenue would accept to be capital gain rather than as income. Prior to their investment in American and Canadian index-linked bonds underwriters had, by their agents, inquired of the Revenue whether the uplift for indexation to be achieved on sale or redemption of the bonds would be treated as capital gain rather than as income. They unsuccessfully contended that the Revenue's responses constituted an affirmative to which it should be held irrespective of whether such treatment of the uplift was correct as a matter of law. Having rejected the Revenue's argument that any such affirmative response would have been outside its powers, Bingham LJ proceeded at p 1569, as follows:
'I am, however, of the 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 taxpayers' only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law .... 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 Comrs  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. But where the approach to the revenue is of a less formal nature a more detailed inquiry is in my view necessary ..... First, it is necessary that the taxpayer should have put all his cards face upwards on the table ..... Secondly, it is necessary that the ruling or statement relied upon should be clear, unambiguous and devoid of relevant qualification.'.
The court held that the Revenue's statements about the treatment of the uplift had not been clear enough to give rise to any legitimate expectation.
29 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 would fall clearly within them only if they were clear, unambiguous etc; and in R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 2)  UKHL 61,  1 AC 453, Lord Hoffmann, 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; that the judgement 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."
"As regards the three grounds: (1) there has been no clear representation that the claimant can point to and software cannot make good that gap in the legal analysis; (2) nothing is added by the abuse of power argument; (3) as was accepted in correspondence dated 26 November 2013, the claimant's position is unique but there is no arguable basis for the suggestion that a decision was taken to target him. This decision does not of course affect the claimant's appeal to the First Tier Tribunal and only deals with the public law complaint."