Hely -Hutchinson, R (On the Application Of) v Revenue And Customs

HMRC may depart from published tax guidance, but must first consider the taxpayer’s legitimate expectation and all relevant aspects of unfairness. The primary duty to collect tax is exercised through a broad managerial discretion and is not an automatic requirement to enforce the statute regardless of consequences. Where published guidance was clear, unambiguous and unqualified, a taxpayer within its terms may have a substantive legitimate expectation of the stated treatment. Departure is lawful only where the public interest justifies it and the resulting unfairness does not become so conspicuous as to amount to an abuse of power. Comparative unfairness, including selective correction of an HMRC mistake affecting only taxpayers whose claims remain open, is a material factor and cannot be reduced to detrimental reliance alone.

The claimant sought judicial review of four closure notices disallowing capital-loss claims for the tax years 1999 to 2002. His claims relied on HMRC’s 2003 guidance issued after Mansworth v Jelley, which stated that certain employee share-option disposals could generate losses by including an income-tax amount in the acquisition cost.

HMRC later concluded that the guidance was legally wrong and issued Revenue and Customs Brief 30/09. It applied the revised understanding to cases with open enquiries or appeals. The claimant alleged breach of legitimate expectation, conspicuous unfairness, discriminatory treatment and unlawful maintenance of the enquiries. The central issue was whether HMRC had lawfully assessed and balanced the public interest in collecting tax against the unfairness of withdrawing the promised treatment selectively.

1. Application allowed. The four closure notices were quashed and the matter was remitted to HMRC for a fresh decision.
2. Under section 1 of the Taxes Management Act 1970, HMRC has a broad collection and management discretion. Its primary duty to collect tax is not a command to enforce the statute regardless of circumstances. The discretion includes an obligation to treat taxpayers fairly and may require HMRC to forgo tax where collection would be so conspicuously unfair as to constitute an abuse of power.
3. Published statements of HMRC’s interpretation of tax law form part of its guidance to the public. The 2003 Guidance was formally published, clear, unambiguous and unqualified, and applied to the claimant. It therefore generated a legitimate expectation that his claims would be taxed in accordance with it.
4. HMRC could withdraw or revise the guidance, but was required to consider whether withdrawal was fair. The balancing exercise had to include all relevant aspects of unfairness, not merely whether the claimant had relied on the guidance to his detriment. The public interest in collecting tax had to be weighed against the legitimate expectation and the consequences of withdrawal.
5. The closure-notice decision-maker focused narrowly on detrimental reliance. She failed to consider comparative unfairness: other members of the same 2003 cohort had obtained the benefit of the guidance, whereas the claimant and approximately 600 others lost it because their claims remained open. Sections 9A and 29(2) of the Taxes Management Act 1970 explained why HMRC could still act against that subset, but did not make the selective result fair.
6. The length of time before correction, the fact that HMRC’s mistake created the expectation, and the retrospective effect of applying the revised understanding to past disposals were further relevant matters. Since those matters had not been considered, the closure notices were unlawful. The court did not determine the claimant’s European Convention arguments.

First-instance judicial review. The court allowed the application, quashed the closure notices and remitted the matter to HMRC for reconsideration.