Ian Clamp & Anor, R (on the application of) v The Commissioners for HMRC

HMRC’s collection and management discretion is wide, but it remains bounded by the duty to collect tax imposed by Parliament. HMRC may make concessions, enter appropriate arrangements, and give advance assurances where those powers facilitate the effective collection and management of revenue. They may not, however, “untax” a transaction which they have formed a rational and proper settled view is taxable merely because another construction is arguable or because non-collection appears equitable. A taxpayer disputing HMRC’s construction should ordinarily make the transaction and challenge any assessment through the statutory tax appeal process. The court must also refuse judicial review relief where it is highly likely that the outcome would not have been substantially different, as required by section 31(2A) of the Senior Courts Act 1981.

Mr Iain Clamp had repaid loans made through an employee benefit trust before the proposed Loan Charge took effect. Following the Loan Charge Review and amendments made by the Finance Act 2020, loans made before 9 December 2010 fell outside the Loan Charge. Mr Clamp sought HMRC’s agreement that, if the repayments were reversed and the loans reinstated, they would be taxed as if they had never been repaid.

HMRC declined to give that agreement, stating that there was no statutory route for it and that reinstated loans would be subject to Part 7A of the Income Tax (Earnings and Pensions) Act 2003. The judicial review challenged that decision, principally on the basis that HMRC had power to agree the proposed treatment and had failed to consider relevant fairness and policy considerations.

1. The claim was dismissed. HMRC’s decision was properly characterised as a refusal to agree that reinstated loans would be taxed as if they had never been repaid.
2. Under section 5 of the Commissioners for Revenue and Customs Act 2005, HMRC possess wide collection and management powers containing a discretion. That discretion may permit concessions or arrangements resulting in tax lawfully due not being collected, where they further the effective management and collection of revenue. HMRC may also give advance assurances concerning contemplated transactions in appropriate circumstances.
3. The proposed arrangement was not necessarily an impermissible forward tax agreement. The decision in Al Fayed v Advocate General for Scotland [2004] STC 1703 concerned materially different circumstances, involving an agreement fixing tax for a period in which the transactions and resulting liability were unknown. The proposed arrangement here concerned defined circumstances and did not prevent HMRC from investigating later liabilities.
4. That conclusion did not determine the claim. Under the principle in R (Wilkinson) v Inland Revenue Commissioners [2005] 1 WLR 1718, affirming the Court of Appeal decision at [2003] 1 WLR 2683, HMRC cannot use collection and management powers to decline to collect tax which Parliament has clearly imposed merely because another statutory construction is arguable or because non-collection would be more equitable or consistent with policy.
5. HMRC had formed a rational and proper settled view that reinstatement of the loans would give rise to a charge under Part 7A. It therefore had no discretion to agree that there would be no charge merely because the legislation might be construed differently, or because the repayments might later be set aside for mistake. Any error in HMRC’s broader view that it had no power to enter arrangements of the proposed type was immaterial.
6. The statutory tax appeal process ordinarily provided the appropriate forum for challenging HMRC’s construction of the legislation. In any event, under section 31(2A) of the Senior Courts Act 1981, it was highly likely that HMRC would have refused the request even if it had directed itself as possessing a relevant discretion. Relief was therefore refused and the application dismissed.