Revenue And Customs v Hutchinson

HMRC may withdraw published tax guidance which rests on a mistaken view of the law. A taxpayer may enforce a legitimate expectation created by clear guidance only where withdrawal would be conspicuously unfair and amount to an abuse of power.

Comparative unfairness requires comparison between taxpayers in materially identical positions when the challenged decision is made. Taxpayers whose assessments remain open differ materially from those whose affairs HMRC has no power to reopen. The inability to correct closed cases does not require HMRC to perpetuate its mistake in open cases.

Detrimental reliance is not essential, but its absence is a powerful factor against finding conspicuous unfairness.

HMRC issued guidance in 2003 concerning losses arising from employment-related share options. It was common ground that the guidance created a legitimate expectation that HMRC would apply the stated beneficial treatment. HMRC later concluded that the guidance was wrong in law and withdrew it for claims which remained under enquiry.

The respondent's claims remained open. HMRC had warned him shortly after the claims were made that it did not accept the additional losses. It eventually issued closure notices rejecting them.

Whipple J allowed the respondent's judicial review claim in [2015] EWHC 3261 (Admin). She held that HMRC had failed to consider wider unfairness, particularly the different treatment of taxpayers whose affairs had already been closed, and remitted the decisions to HMRC.

The central issues were whether withdrawal involved comparative or other conspicuous unfairness, whether it infringed the Convention, and whether HMRC had lawfully decided the respondent's individual case.

1. Appeal allowed and respondent's notice dismissed. HMRC's withdrawal of its mistaken guidance did not involve comparative unfairness, conspicuous unfairness or an abuse of power. Its closure-notice decisions were lawful: paras 62–65, 72–93, 98.

2. A public body may change a policy for good reason, including its conclusion that the policy rests on a mistake of law. A taxpayer's prima facie expectation is to be taxed according to statute rather than concession or an erroneous view of the law. A legitimate expectation does not prevent correction unless withdrawal would be outrageously or conspicuously unfair: paras 62–63, 66, 72.

3. Comparative unfairness requires taxpayers to be materially identically placed when the challenged decision is made. Taxpayers with open claims differed materially from taxpayers whose years were closed, because HMRC had no power to reopen the latter's affairs. HMRC was not obliged to perpetuate its mistake in open cases merely because closed cases could not be corrected: paras 64–65.

4. The general withdrawal of the guidance was not conspicuously unfair. Parliament's prospective amendment of the law provided no valid analogy: Parliament had altered a right then believed legally sound, whereas HMRC withdrew guidance based on a right which it had concluded did not exist. HMRC was also entitled to claim privilege over the legal advice prompting correction: paras 72–74.

5. On the respondent's individual facts, HMRC had returned him to the tax position existing when he entered the relevant transactions. It had promptly warned him that it did not accept the additional losses. Although detrimental reliance was not indispensable, its absence was a powerful consideration. His later financial difficulties were not caused by reliance on the guidance: paras 90–93.

6. The respondent's employment in financial services did not constitute a relevant status for Article 14 purposes. Even assuming a property right under Article 1 of the First Protocol, the interference was justified by correction of the mistaken guidance: para 75.

7. Whipple J had correctly remitted rather than remade the administrative decision. Under section 31(5A) of the Senior Courts Act 1981, substitution was unavailable because the statutory conditions for remaking a quashed decision were not met: paras 94–97.

McCombe and Sales LJJ agreed with Arden LJ.

• Court of Appeal (Civil Division): In [2017] EWCA Civ 1075, allowed HMRC's appeal and dismissed the respondent's notice.
• Administrative Court: In [2015] EWHC 3261 (Admin), Whipple J quashed HMRC's closure-notice decisions and remitted the matter for reconsideration taking account of all aspects of unfairness.