Phoenix Life Holdings Ltd & Ors, R (On the Application Of) v Revenue & Customs

HMRC may not reverse a fully informed internal determination after a statutory limitation period has expired, where the reversal deprives the claimant of a readily available opportunity to cure the defect and no change of circumstances or other good reason is shown. Such conduct may be irrational and may breach a legitimate expectation that an identified technical objection will be raised in time. The fairness jurisdiction remains part of ordinary judicial review principles, principally irrationality and legitimate expectation; “substantive unfairness” and “conspicuous unfairness” are not freestanding grounds of review.

The claimants sought judicial review of HMRC’s decision rejecting a claim for repayment of historically under-recovered input VAT. The claim had been submitted before the statutory deadline, but HMRC later contended that it should have been made by the representative member of an earlier VAT group and that any corrected claim was out of time.

The claimants accepted for the judicial review that the technical entitlement issue should otherwise be determined in statutory appeals. They argued that HMRC had considered and accepted their standing before the deadline, then unlawfully reversed that position years later without explanation. The central issues were whether HMRC had determined the entitlement issue before the deadline and whether its subsequent reversal was unlawful.

1. Entitlement had been considered and accepted. On the evidence, HMRC had considered entitlement to claim in or about 2008 on a fully informed basis. Its responsible officer had confirmed internally that the claimants had standing, and HMRC failed to establish that this determination resulted from mistake.
2. The later reversal was unlawful. HMRC reversed its settled position after expiry of the limitation period, when the claimants could no longer readily reformulate the claim with the authority of the representative member. HMRC provided no proper explanation for the reversal and identified no change of circumstances or other good reason. The decision was irrational and, if treated as a separate concept, conspicuously unfair.
3. Legitimate expectation. The claimants had a legitimate expectation that, if HMRC identified a curable technical defect before expiry of the limitation period, it would notify them in reasonable time or would not later rely on that defect. That expectation was breached.
4. Applicable fairness principles. R v IRC, ex parte Preston [1985] 1 AC 835, R v Inland Revenue Commissioners, ex parte Unilever plc [1996] STC 681 and R v Competition and Markets Authority, on the application of Gallaher Group Ltd [2018] UKSC 25 established the relevant approach. “Conspicuous unfairness” did not constitute a free-standing legal test; the decision was to be assessed by ordinary judicial review principles, particularly irrationality and legitimate expectation.
5. Relief. The decision was quashed and the Commissioners were ordered to pay the claim to the extent its quantum had been accepted. The matter was not remitted for further consideration, although the precise mechanism for payment remained to be determined.