Airline Placement Limited, R (on the application of) v The Commissioners for HMRC

A taxpayer seeking a non-statutory tax clearance must provide full and frank disclosure of the specific transaction. A request is materially misleading where it gives HMRC a clear but inaccurate picture of the economic arrangements, even if other material might enable HMRC to infer the true position. Materiality is assessed on the balance of probabilities: whether, had the information been accurately stated, there was a real possibility that it would have made a difference to the decision. A materially inaccurate request prevents a legitimate expectation arising. Long-standing reliance on the resulting clearance does not make retrospective withdrawal abusive where the clearance was obtained without complete frankness.

Airline Placement Ltd sought judicial review of HMRC’s decision to withdraw a 2009 non-statutory clearance concerning the VAT treatment of security bonds paid by cadet pilots, and of consequential VAT assessments for periods 03/17–12/20 totalling £10,717,426.

APL argued that it had a legitimate expectation that the clearance would govern the VAT treatment and would not be withdrawn retrospectively without fair notice. Alternatively, it argued that HMRC’s conduct was unreasonable or an abuse of power because the treatment had continued for many years. HMRC contended that the clearance request inaccurately described the repayment arrangements and omitted salary-sacrifice arrangements under which cadets effectively paid for their training.

1. The claim was dismissed. The court declined to quash HMRC’s decision and the consequential assessments.
2. A legitimate expectation based on a non-statutory clearance requires a clear and unambiguous communication, full disclosure of the specific transaction, and complete frankness. A taxpayer cannot ordinarily rely on material outside the four corners of a materially inaccurate request and its attachments to establish frankness.
3. The request and supporting documents represented that cadets’ bonds would be repaid by sponsor airlines and that the cadets did not pay for their training. In the easyJet arrangement, salary was reduced by an amount corresponding to the bond repayment, so the bond was not meaningfully returned and the cadet effectively paid for the training. The positive description was therefore materially inaccurate and misleading.
4. Materiality was assessed on the ordinary balance of probabilities. The question was whether, had the request been corrected, there was a real possibility that consideration of the omitted information would have made a difference to HMRC’s decision. That threshold was satisfied because economic realities were relevant to the VAT analysis, HMRC had in fact relied on the supposed repayment of the bond as a major factor, and the clearance decision was finely balanced.
5. The 2002 ruling request and an audit note did not cure the failure. APL had been asked to provide the earlier documentation but supplied only the ruling itself. HMRC were not required to piece together the correct picture from information supplied at different times and in different contexts.
6. Because the request was materially inaccurate and there had been no full and frank disclosure, no legitimate expectation arose. The alternative abuse-of-power argument also failed. The long-standing treatment was predicated on the defective clearance, and the circumstances were materially different from the exceptional situation in Unilever.
7. The court did not determine the true VAT treatment of the arrangement, which was before the First-tier Tribunal (Tax Chamber).

First-instance judicial review proceedings. No earlier decision is stated in the judgment.