Scott, R (On the Application Of) v Revenue & Customs

A legitimate expectation based on tax information requires a representation that is clear and certain. This requirement applies whether the information is communicated orally, in print or electronically through software. Computational information does not itself amount to a clear representation about how a taxpayer’s affairs will be treated where the result depends on data entered and on the taxpayer’s own view of the law. Reopening a tax calculation is not an abuse of power merely because HMRC did not reopen materially smaller cases where the cost of doing so might exceed the tax recovered. A claim based on an alleged legitimate expectation may also fail for want of reliance or detriment, although that issue need not be decided where no expectation arose.

The claimant sought permission to apply for judicial review of HMRC’s decision concerning the rate of capital gains tax applicable to chargeable gains in the tax years 2006–2007 and 2007–2008. He relied on commercially produced tax-calculation software based on computational information supplied by HMRC and contended that its output represented that his gains would be taxed at 20 per cent rather than 40 per cent.

The underlying dispute about corresponding deficiency relief was due to be considered by the First-tier Tribunal. The Administrative Court was concerned only with the public-law challenge: whether the software information created a legitimate expectation and whether HMRC acted unlawfully or abused its power by reopening the calculations.

1. Permission refused. The claimant could not identify a representation by HMRC that was sufficiently clear and certain to found a legitimate expectation.
2. The principle applies irrespective of the medium of communication. Information supplied electronically may, in principle, constitute a representation. The essential question is whether what was stated was clear and certain when understood in its proper context.
3. The software supplied computational information and algorithms. It did not state how corresponding deficiency relief was to be calculated or applied, nor how the claimant’s particular tax affairs would be treated. The output depended on information entered by the claimant or his advisers and on their view of the underlying law. It therefore lacked the necessary clarity.
4. There was no abuse of power in HMRC reopening a case involving approximately £4.4 million of disputed tax while leaving materially smaller cases undisturbed. The cases identified by the claimant involved deficiencies of £10,000 or less, and the cost of reopening many of them might have exceeded the tax recovered.
5. It was unnecessary to decide whether HMRC could properly frustrate a legitimate expectation if one had arisen. Nevertheless, the judge indicated that, given the size of the claimed windfall and the absence of evidence of reliance or detriment, frustration would probably have been proper if HMRC’s interpretation of the underlying law were correct.
6. The order refusing permission was upheld. The defendant’s costs order in the sum of £3,000 was sustained, and the time for appealing the costs order was extended to seven days after it was signed.

Mr Justice Blair had refused permission on the papers. Mr Justice Irwin agreed with his reasons and refused permission to apply for judicial review. The claimant’s prospective appeal to the First-tier Tribunal concerning the tax liability was unaffected.