Veolia ES Landfill Ltd & Anor v HM Revenue and Customs

HMRC guidance or correspondence may create a legitimate expectation concerning repayment of tax where it gives a clear, unambiguous and unqualified representation, and the taxpayer has put all relevant facts before HMRC. The court must then decide whether departure from that expectation is so unfair as to amount to an abuse of power. The burden of justification lies on HMRC. The court reviews the decision actually taken and the reasons relied on by the decision-maker, rather than later-discovered reasons. The amount of tax at stake may support a legitimate public aim but cannot, by itself, defeat the expectation. Comparative unfairness is relevant, but inconsistent treatment does not necessarily make departure unlawful. On the facts, HMRC’s individual correspondence created expectations that base and side landfill “fluff” claims were sound, but refusing further repayments was not conspicuously unfair.

Two groups of landfill operators, Veolia and Viridor, challenged HMRC’s decisions refusing outstanding repayments of landfill tax on base and side “fluff” used in landfill cells. HMRC had initially accepted the claims in principle following Waste Recycling Group Ltd v HMRC [2008] EWCA Civ 849, and had made substantial repayments. It later changed policy after reviewing the wider challenges to landfill tax and issued Revenue & Customs Brief 02/14.

The underlying tax issue—whether fluff was disposed of as waste—was reserved for appeals to the First-tier Tribunal. The judicial review concerned legitimate expectation, candour, abuse of power and conspicuous unfairness. The court also considered whether a stay was required pending the tribunal proceedings.

1. Legitimate expectation. HMRC’s Brief 58/08 did not clearly and unambiguously represent that fluff was non-taxable. Its general language and illustrative examples left real doubt whether carefully sorted household waste formed part of “cell engineering”. However, HMRC’s later conduct did create such an expectation. Veolia received clear statements that base and side fluff was not taxable and that the quantum of its claim was agreed subject to capping and unjust enrichment. Viridor received repayments and correspondence confirming the same position.
2. The taxpayers had put their cards face up on the table. Their descriptions of fluff as engineering material were matters of characterisation, not misrepresentations of the physical facts. The relevant policy decision had already been made before the claims were submitted, and the officers’ role was to verify quantum and evidence of use.
3. Standard of review. The court had to decide whether departing from the expectation was a proportionate response to a legitimate public aim and whether the decision was so unfair as to amount to an abuse of power. The assessment had to focus on the Commissioners’ actual decision and reasons. HMRC could not rely on ex post facto reasons or later expert evidence to justify the decision.
4. HMRC pursued a legitimate aim in resisting what it regarded as increasingly extensive challenges to the landfill tax regime and in seeking to protect the tax’s policy and revenue base. The amount of tax at stake could not alone justify departure, but formed part of the wider context.
5. For Viridor, the outstanding repayment would principally have been passed to customers, and Viridor had already received substantial sums. Its reliance expenditure was limited. Refusal was therefore not conspicuously unfair. Veolia’s position was more difficult because it alone had received no repayment among the principal operators, but its claim was for external transactions and it had not made a separate claim for internals. The comparative difference was insufficient to make HMRC’s decision conspicuously or substantially unfair.
6. The applications were dismissed. No stay was necessary because the court had not decided whether fluff was disposed of with an intention to discard it. The judgment was later reconsidered on Veolia’s draft-judgment objection, but the factual and dispositive conclusions were maintained.

The judgment records that permission to bring the judicial review claims had been granted by Thirlwall J. The underlying tax appeals remained pending before the First-tier Tribunal. This court dismissed both judicial review applications.