Thomas Holdings Limited & Ors, R (on the application of) v The Commissioners for HMRC

Extra-statutory concessions derogate from the statutory basis of taxation and must be construed narrowly. A taxpayer relying on a misdirection concession must show a clear and unequivocal ruling, given by an officer with the full facts, which caused relevant detriment. An ambiguous general statement does not suffice.

A misunderstanding concession requires the taxpayer to satisfy each stated condition, including absence of negligence and absence of clear contrary guidance. Where HMRC’s guidance is ambiguous, the taxpayer should seek clarification. The assessment of eligibility is generally an evaluative judgment for HMRC, reviewable on rationality grounds.

The claimants operated amusement and gaming businesses using machines whose random number generators were separate from the player terminals. HMRC initially stated that such machines would generally attract category A amusement machine licence duty, but later treated them as gaming machines and imposed retrospective category E liabilities.

The claimants sought judicial review of HMRC decisions refusing to apply two extra-statutory concessions: a misdirection concession and a misunderstanding concession. They relied principally on HMRC letters issued in 2004 and 2005, BACTA guidance, and HMRC’s contemporaneous understanding of the machines.

The central issues were whether HMRC had given a clear and unequivocal ruling, whether the claimants had been misled or had a bona fide misunderstanding, and whether HMRC’s decisions were irrational.

1. The claims were dismissed. HMRC’s decisions refusing the concessions were lawful and rational.
2. The court adopted the framework summarised in Murphy. HMRC’s primary role is to collect tax due under statute, although it may lawfully operate concessions. A concession must be construed narrowly and according to how its language would be understood by the ordinarily sophisticated taxpayer. Doubt is resolved in favour of the statutory liability.
3. The misdirection concession required a clear and unequivocal ruling by an HMRC officer who possessed the full facts, together with misleading conduct and detriment. The 2004 communications to BACTA conveyed only that a machine using a random number generator “remote from the terminals” would be treated as category A. That phrase was ambiguous and did not amount to a clear ruling about the particular machines operated by the claimants.
4. The Thomas claimants’ letter of 13 May 2005 did not validate their machines. HMRC had assumed that the machines satisfied the “remote” condition and had not been given information about their actual configuration. The Noble claimants’ letter of 26 October 2004 likewise did not constitute a clear ruling because the machines were not yet in operation and HMRC had not seen them.
5. The alleged omission by HMRC could not establish misdirection. The claimants had not sought a specific ruling on whether their particular configurations satisfied the remoteness condition.
6. The misunderstanding concession required consideration of its four conditions. The court accepted that the decision-makers could rationally find no evidence of knowing evasion, but could also find negligence where sophisticated taxpayers failed to obtain clarification of ambiguous guidance. A difference of legal opinion was not necessarily a bona fide misunderstanding.
7. The court’s task was to review the challenged decisions. Although it made factual findings relevant to rationality, evaluative judgments concerning the concession remained for HMRC.

The claims were dismissed. The parties were directed to agree a draft minute of order.