Ahluwalia, R (on the application of) v The Commissioners of HMRC

On a renewed application for judicial review, permission should be granted where the claimant has an arguable case that a public authority’s decision was based on an unlawful unpublished policy or an irrational decision-making process. The court should distinguish the rationality of the outcome from the adequacy and legality of the process by which it was reached. A decision-maker must take relevant considerations into account, including materially different consequences, costs and potential wasted work arising from alternative procedures. A statutory mechanism requiring the parties’ consensus does not itself frustrate the statutory purpose merely because one party declines to agree. Where the statutory scheme permits refusal in principle, a challenge based solely on frustration of purpose adds nothing to distinct public-law challenges.

The claimant sought permission to challenge HMRC’s refusal to agree to a joint referral of his domicile question to the First-tier Tribunal under section 28 ZA of the Taxes Management Act 1970. HMRC had previously considered such a referral, but later declined it and gave reasons in a letter dated 16 February 2024.

The claimant alleged that HMRC had adopted an unpublished policy fettering its discretion, acted irrationally, failed to consider relevant costs and consequences, and frustrated the purpose of the statutory referral mechanism. Permission had previously been refused on the papers by Lavender J. The issue was whether the renewed application disclosed arguable public-law grounds.

1. Ground 1. Permission was granted. The claimant had an arguable case that HMRC’s decision was taken pursuant to an unpublished policy or criteria which meant that domicile cases would generally not be referred, or would not be referred once HMRC had formed its own view. The contemporaneous evidence appeared inconsistent with HMRC’s later explanations. The court was not prepared at the permission stage to accept that HMRC’s factual case was bound to succeed, particularly when relevant decision-making records and evidence had not been disclosed (paras 18–22).
2. Grounds 2 and 3. Permission was also granted. The challenge concerned the rationality and adequacy of the decision-making process, rather than whether the outcome was one which HMRC could rationally reach. HMRC was entitled in principle to refuse consent to a referral, provided its process was lawful and rational. However, its reasoning appeared arguably to contain a clear error: the assertion that the costs of a referral hearing would be the same as those of an appeal against a final closure notice. The decision also arguably failed properly to consider the substantial work and costs which might be wasted if the domicile issue were resolved in the claimant’s favour (paras 23–27).
3. Ground 4. Permission was refused. The referral mechanism under section 28 ZA operated by consensus between HMRC and the taxpayer. Since either party could decline a proposed referral, and the claimant accepted that refusal would be permissible absent other public-law flaws, the alleged frustration of statutory purpose added nothing to Grounds 1–3 (paras 28–29).

High Court (Administrative Court): Lavender J refused permission on the papers on 29 May 2024. On renewal, Linden J granted permission on Grounds 1–3 and refused permission on Ground 4.