Medical Protection Society Ltd, R (on the application of) v HM Revenue & Customs

A clear tax ruling may bind the revenue under legitimate-expectation principles or an applicable extra-statutory concession, even if it does not reflect the underlying law. The taxpayer must, however, provide full and accurate disclosure of the material facts before the ruling is given. A taxpayer cannot rely on an alleged misdirection by omission merely because an inspecting officer failed to identify an error. Such a case requires exceptional circumstances, a clear and reasonable expectation that the officer would act, and an implicit ruling of equivalent clarity to a positive assurance.

The claimant sought judicial review of HMRC’s decision to require it to account for VAT under the reverse-charge provisions in Value Added Tax Act 1994, section 8, on legal services supplied by lawyers outside the United Kingdom. HMRC had previously ruled in writing that the claimant was not required to account for the VAT, but later withdrew that ruling retrospectively, contending that the claimant had not disclosed the full practical extent of its control over claims handled for members.

The claimant relied alternatively on an alleged misdirection by omission arising from an HMRC inspection in 2001. The issues were whether the original disclosure was sufficient to bind HMRC and whether the inspection created an implicit assurance preventing recovery of the VAT.

1. Claim dismissed. The ruling of 3 March 1998 did not bind HMRC because the claimant had not provided full and proper disclosure of the material facts concerning its handling of members’ claims.

2. Under the doctrine of legitimate expectation, and under HMRC’s extra-statutory policy concerning clear written rulings, a clear assurance may bind HMRC even if it is not strictly consistent with the general law. That protection depends on the taxpayer having put all material facts before HMRC. The requirement is the same under both routes, consistently with R v Inland Revenue Commissioners, ex p. MFK Underwriting Agencies Ltd [1990] 1 WLR 1545.

3. The disclosure letter presented the members as primarily controlling the instruction and conduct of proceedings, subject to MPS’s power of review or veto. The later Guidelines showed instead that MPS proactively investigated claims, instructed lawyers, controlled important decisions, selected experts, received confidential advice and managed the claims-handling service. Those differences were material. The analogy with insurance arrangements did not cure the incomplete disclosure.

4. A misdirection by omission is exceptional. It requires circumstances giving rise to a clear and reasonable expectation that an HMRC officer would act, or a public law duty to speak, such that silence conveys an implicit ruling of the same clarity required for a positive assurance. In a self-assessment tax system, an officer’s failure merely to notice an error will ordinarily be insufficient.

5. The 2001 inspection did not engage with the legal-services ruling. The officer examined reverse-charge VAT relating to corporate advice, not the legal services, and was under no duty to revisit the earlier ruling. The inspection therefore created no misdirection by omission. In any event, the claimant had not made the necessary full disclosure.

6. The claim for judicial review of HMRC’s letter of 24 September 2008 was dismissed.

First-instance judicial review proceeding. The judgment itself records HMRC’s earlier ruling, its subsequent withdrawal, and the claimant’s challenge to the decision in the letter dated 24 September 2008.