Freeserve.Com Plc, R (on the application of) v Customs & Excise & Anor

When exercising a broad statutory discretion concerning tax administration and enforcement, a public authority may consider the imminent effect of legislative change, including its likely impact on litigation, resource use and consistent treatment. That consideration is not irrelevant merely because the existing law remains applicable.

The weight given to a relevant consideration is ordinarily for the decision-maker. Judicial review intervenes only where the decision is irrational in the Wednesbury sense. A phrase suggesting that enforcement requires an unambiguous or clearly predominant case will not establish an unlawful threshold if, read in context and against the evidence, no such policy was actually adopted.

Freeserve sought judicial review of the Commissioners of Customs & Excise’s decision not to assess America Online, Inc. for VAT on telecoms services supplied to United Kingdom consumers before the implementation of new European VAT rules.

Freeserve alleged that the Commissioners had relied on an irrelevant forthcoming change in law and had imposed too high a threshold before using their assessment power. The Commissioners disputed both allegations and raised standing. The central issues were whether the decision was unlawful on either ground and, if so, whether Freeserve had sufficient interest to challenge it.

1. Claim dismissed. The Commissioners had not committed either of the alleged errors in deciding not to proceed against AOL.
2. Under Value Added Taxes Act 1994, sections 58 and 73 and Schedule 11, the Commissioners’ responsibilities extended beyond the merits of a single assessment. They were entitled to consider VAT administration more broadly, including the prospect of achieving consistent treatment through imminent European legislation.
3. The forthcoming legislative change was a substantial consideration in the decision, but it was not irrelevant. The Commissioners had also assessed the strength of the case under the existing law and considered the likely prospects and costs of litigation. It was not irrational in the Wednesbury sense to give significant weight to the impending change. The approach was consistent with Queen v Somerset County Council, ex parte Fewings [1995] 1 WLR 1050.
4. Regina v Broadcasting Complaints Commission, ex parte Granada Television Ltd [1985] 1 QB 1153 supported the proposition that an irrelevant consideration need not be the sole or predominant reason; it is sufficient if it played a substantial part in the decision.
5. The expressions describing packages as not being unambiguously or clearly predominated by telecommunications services would have set too high a threshold if they represented the Commissioners’ actual enforcement policy. However, the evidence showed that no such policy had been adopted. The passages were contextual descriptions of the evidential position, not a rule governing use of section 73.
6. Ex parte Ermakov [1996] 2 All ER 316 did not require the court to disregard evidence explaining how this decision was reached. That case concerned a statutory duty to give reasons and did not govern a letter which was evidence of a decision rather than a formal decision letter.
7. The standing issue therefore did not arise. Had the challenge succeeded, the claim would nevertheless have been refused for want of sufficient interest. The exception recognised in ex parte ICI 60 Tax Cases 1 depended on a peculiar and direct interest, which Freeserve did not establish.