R v Inland Revenue Comrs, Ex parte Preston

The Inland Revenue Commissioners are amenable to judicial review, but statutory tax appeals should ordinarily remain the taxpayer’s remedy. Judicial review may restrain the initiation of tax proceedings where unfairness makes the exercise of statutory power an abuse, including conduct equivalent to breach of contract or an enforceable representation.

A representation that enquiries are closed must be construed in its informational context. It does not ordinarily prevent the Revenue from acting on significant facts later discovered, particularly where the taxpayer’s disclosure was incomplete. Mere delay is insufficient. Delay may become an abuse where the Revenue deliberately waits for an improper purpose, such as allowing the taxpayer’s related claims to become time-barred.

The Inland Revenue Commissioners invoked Part XVII of the Income and Corporation Taxes Act 1970 to counteract a tax advantage allegedly obtained through the sale of shares. The taxpayer sought judicial review, contending that correspondence in 1978 represented or agreed that the Revenue would make no further enquiries if he withdrew claims for interest relief and a capital loss. He also relied on the Revenue’s subsequent delay.

Woolf J granted declaratory relief, holding that the commissioners could not exercise their Part XVII powers: [1983] 2 All E.R. 300. The Court of Appeal allowed the commissioners’ appeal and discharged that order: [1984] 3 W.L.R. 945.

The central issue before the House was whether commencing the statutory anti-avoidance procedure, notwithstanding the correspondence and delay, was unfair in a manner amounting to an abuse of power.

1. Appeal dismissed unanimously. Lord Templeman delivered the leading speech. Lord Scarman, Lord Edmund-Davies, Lord Keith of Kinkel and Lord Brightman agreed that the Court of Appeal’s order should be affirmed.

2. Per Lord Templeman, the commissioners could not contractually bind themselves to neglect a later statutory duty to counteract a tax advantage. Any available remedy therefore lay in judicial review. Following Reg v Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617, the commissioners were amenable to review where they exceeded their powers, failed in a statutory duty, committed an error of law or breach of natural justice, acted irrationally, or abused their powers.

3. Per Lord Templeman, judicial review should not supplant the specialist appeal procedures provided by the tax legislation. Those procedures ordinarily supplied the appropriate remedy for errors made by the commissioners. The present challenge was exceptional because the statutory appeal could not determine whether initiation of the section 460 process was itself unlawful.

4. Per Lord Templeman, unfairness justified intervention only where it rendered the commissioners’ insistence on exercising their statutory powers an abuse of power. Conduct equivalent to breach of contract or breach of a representation capable of founding an estoppel could satisfy that standard. The court nevertheless retained its discretion, and the commissioners’ primary statutory duty was to collect tax rather than forgive it. Lord Scarman agreed that unfairness could make an exercise of power unlawful and that judicial review would have been available had the alleged representation been established.

5. Per Lord Templeman, the correspondence did not promise that the Revenue would refrain from acting on significant information later obtained. The inspector closed his enquiries on the basis of the information supplied, but the taxpayer had not provided the requested full details of the share disposal. It was therefore not unfair or abusive to invoke section 460 after further facts emerged. The reviewing judge could determine whether the power had been abused, but could not usurp the commissioners’ functions by examining the substantive tax merits or requiring further explanation of their reasoning.

6. Per Lord Templeman, deliberate delay intended to allow the taxpayer’s claims to become time-barred would have involved an improper motive and could have constituted an abuse. No deliberate waiting was alleged or proved. The elapsed time therefore did not convert otherwise lawful action into an abuse. The outstanding merits and assessment questions remained for determination through the statutory appeal process.

1. House of Lords: The taxpayer’s appeal was dismissed unanimously, the Court of Appeal’s order was affirmed, and the taxpayer was ordered to pay the commissioners’ appeal costs: [1985] AC 835.
2. Court of Appeal: The commissioners’ appeal was allowed and Woolf J’s order was discharged: [1984] 3 W.L.R. 945.
3. High Court: Woolf J declared that the commissioners were not entitled to exercise their Part XVII powers concerning the share transactions and that their purported exercise was unlawful: [1983] 2 All E.R. 300.