City Shoes Wholesale Ltd, R (on the application of) v HM Revenue and Customs

A taxpayer who has applied to enter a published disclosure facility has no substantive legitimate expectation unless the authority accepts the application and issues the required registration. The authority may therefore change the facility’s terms prospectively without advance warning, subject to the ordinary limits of public law.

Conspicuous unfairness is an exceptional form of irrationality amounting to abuse of power. Encouragement, administrative delay, or a change of policy will not suffice without a promise or other circumstances making the decision outrageously unfair. Comparative unfairness requires proof that the authority knew, or should have known, of disparate treatment, identified no material distinction, or relied on a distinction that was not rational and defensible.

Nine companies operating employee benefit trust schemes sought judicial review of HMRC decisions dated 14 August 2014 limiting the favourable terms available under the Liechtenstein Disclosure Facility. Their applications had been placed on hold and they had not received registration certificates.

The claim initially relied on legitimate expectation. Permission was refused on the papers by Rose J but granted by Collins J on the renewed application on the basis that the effective withdrawal of the facility without notice was arguable. The grounds were amended to rely solely on conspicuous unfairness amounting to abuse of power, drawing on R v IRC ex p Unilever plc [1996] STC 681.

The central issues were whether HMRC had acted conspicuously unfairly by changing the facility’s terms, applying them retrospectively, treating registered taxpayers differently, or failing to consider relevant matters.

The application for judicial review was dismissed. The decisions were not an abuse of power, conspicuously unfair, or affected by an error of law.

1. The LDF was an invitation to apply for registration, not a promise that an application would be accepted. A taxpayer without a registration certificate had no substantive legitimate expectation of any LDF benefit. Registration created a materially different position because an accepted taxpayer could at least arguably expect the stated benefits to be honoured.

2. The court accepted that HMRC had encouraged BDO to believe that the LDF could be used for the claimants’ EBT liabilities. However, no guarantee had been given that the claimants would be accepted, that the terms would remain unchanged, or that warning would be given before a change. The circumstances were no more than conduct which might be regarded as rich; they did not reach the high threshold of conspicuous unfairness identified in R v IRC ex p Unilever plc [1996] STC 681. A warning requirement protects an existing legitimate expectation and did not arise here.

3. The restriction was not contrary to HMRC’s published policy and was not retrospective. The LDF terms were conditional on registration, and the claimants remained unregistered when the terms changed. HMRC’s failure to meet the stated 60-day administrative response period did not confer a substantive entitlement.

4. Applying the approach in R (on the application of British Sky Broadcasting Group plc) v Customs and Excise Commissioners [2001] STC 437, the court found that HMRC knew of the alleged disparity, identified registration as the relevant distinction, and had a rational and defensible basis for treating registered and unregistered taxpayers differently. Registered taxpayers were not true comparators.

5. HMRC had considered the tax yield, the purpose of the LDF, the interests of taxpayers generally, its litigation and settlement strategy, the alternative settlement opportunity, the treatment of taxpayers without offshore assets, and the change in policy. No material consideration had been omitted or given inappropriate weight. The court’s role remained supervisory and it could not substitute its own view for HMRC’s evaluation.

The judgment is a first-instance decision. The judgment records that permission was initially refused by Rose J and was later granted by Collins J on renewal, but no appeal decision is stated.