This blogpost is one of a three part series of ‘case notes’ on recent HMRC cases concerning matters of administrative law. The first, Biffa Waste  EWHC 1444, is a fairly straightforward case from an administrative law perspective. The relevant company had obtained a ruling in 2009 from HMRC in respect of the application of the relevant law to a particular set of circumstances. In this case it was the provisions in respect of landfill tax and whether the “regulating layer” [the layer above the final layer of soft waste placed below the “cap” used to seal the containment system] in a landfill site was subject to this tax. The 2009 ruling provided that this regulating layer was not subject to landfill tax. Three years later, in 2012, HMRC issued a second ruling which purported to override the initial ruling, and applied the new 2012 ruling retrospectively. The new 2012 ruling provided that the regulating layer was to be subject to landfill tax.
The issue for the court was effectively: was this kosher?
The law on when taxpayers can rely upon rulings issued by HMRC is relatively set. Following the foundational judgments of MFK Underwriting  1 WLR 1545 and Matrix Securities  STC 272, there are two initial questions which must be asked:
- First, was the ruling clear, unambiguous and devoid of relevant qualification?
- Second, did the taxpayer disclose all material facts to the Revenue when requesting the ruling?
If both are answered in the affirmative, then a ‘legitimate expectation’ is said to arise in the taxpayer’s favour to be treated in accordance with the ruling. HMRC then cannot frustrate this legitimate expectation if to do so would be ‘so unfair as to amount to an abuse of power’.
HMRC conceded that if the two above questions were answered in the affirmative, then there was no answer to the claim. Accordingly, the battle in the court revolved around whether the 2009 ruling provided what the taxpayer contended that it provided [which the court found it did] and whether the taxpayer failed to disclose any material facts [which the court found it did not]. As such, the taxpayer won the case.
What is particularly interesting about this case is that HMRC did not challenge the ‘abuse of power’ point. [Although the law on this particular matter is in a bit of a state of flux] HMRC was not actually bound to its ruling because both the previous two questions had been answered in the affirmative.
As a matter of law, yes, a legitimate expectation arises. But HMRC is not bound to give effect to every legitimate expectation come what may. It may argue still that resiling from the legitimate expectation would not be an abuse of power, for instance, because the ruling was manifestly wrong in law, or would result in discriminatory treatment between similarly placed taxpayers. For instance, if HMRC agreed that a taxpayer could pay a set amount of tax every year regardless of how much money was actually earned, it would be entitled to resile from that commitment [see: Al-Fayed  STC 1703]. Indeed, HMRC has elsewhere argued that it is not bound by guidance which is incorrect in law [see for instance Hely-Hutchinson  EWHC 3261 where HMRC argued that it should not be bound by incorrect guidance].
Whatever the merits of the particular litigation strategy, the case is nevertheless a useful reminder of the utility of administrative law principles for taxpayers.