David Paul Esterson, R (on the application of) v The Commissioners for HMRC

A taxpayer cannot establish a legitimate expectation that tax will be forgone merely from an unclear discussion, informal assurance or mistaken administrative practice. A representation relied upon against a revenue authority ordinarily must be clear, unambiguous and unqualified, made on the basis of full disclosure. Public law fairness is assessed objectively and according to principle. An unpublished practice which results from a branch’s misunderstanding of primary legislation does not ordinarily create a policy which the authority must continue. Pensions paid from an approved United Kingdom scheme remain taxable under the applicable legislation even where the recipient is non-resident.

The claimant, resident in Jersey, was a former British Airways pilot whose pension was paid from an approved United Kingdom retirement benefit scheme. HMRC required United Kingdom income tax to be deducted from the whole pension at the full rate.

He sought judicial review, alleging that HMRC had represented that the pension would be free of United Kingdom tax, had departed from published practice EP8281, and had acted inconsistently with the treatment of other Jersey-resident British Airways pilots. He also raised human-rights arguments. The central issues were whether any legitimate expectation or public law requirement of fairness prevented HMRC from applying the statutory tax regime.

1. The claim was dismissed. Under the Income and Corporation Taxes Act 1988, pensions paid under an approved United Kingdom retirement benefit scheme were chargeable to United Kingdom tax and deductible through PAYE, notwithstanding the recipient’s residence in Jersey. The double-tax arrangement did not prevent the United Kingdom charge.
2. The alleged representation was not proved. The claimant could not identify a document, speaker or precise words, and HMRC’s surviving files contained no such assurance. Applying the observations in R v Inland Revenue Commissioners ex-parte MFK Underwriting Agents Limited [1990] 1 W.L.R. 1545, a taxpayer seeking to rely on an informal revenue statement ordinarily must show full disclosure and a clear, unambiguous and unqualified representation. No legitimate expectation arose.
3. EP8281 did not contain an implied qualification that the employment need only have been mainly abroad. Its revised wording was consistent with regulation 57 of the Income Tax (Pay As You Earn) Regulations 2003 and with the primary legislation. The Revenue was therefore entitled to apply the rule stated in the revised practice.
4. An alleged unpublished practice of HMRC’s LP21 branch could not bind the Revenue where it involved a misunderstanding of the legislation. The court was slow to elevate such a mistaken practice into a policy available to all taxpayers. In any event, the evidence did not establish a consistent policy or uniform treatment of comparable pilots, applying the reasoning in ex-parte Weston [2004] 76 Tax Cases 207.
5. Fairness and legitimate expectation are not subjective doctrines. They must be applied to the facts on a principled basis, consistently with Nadaraja [2005] EWCA Civ 1363. The Convention and Protocol arguments had no bearing on the result.