This is the second of a three part series of posts cataloguing recent administrative law cases concerning tax. Unlike Biffa Waste which concerned the issue of a standard legitimate expectations claim, the issues in the Court of Appeal case of R (ELS Group) v HMRC were i) whether HMRC guidance could apply retroactively and if not, ii) whether the taxpayer had in fact aligned its arrangements with the guidance at the relevant time. This second ground of the appeal was effectively a “factual issue” in which the court ultimately found against the taxpayer.
It is the first ground which is the concern of this post, as it is more of a legal inquiry. The relevant guidance Business Brief BB4/10 contained a concession which limited the quantum of VAT a business had to charge when seconding its own staff. The court then went about construing the guidance and whether its terms were capable of being applied retrospectively (i.e. whether the taxpayer was entitled to rely at a later time upon the guidance, having failed at the relevant time to elect for the treatment under the guidance).
Unlike Biffa Waste [blogged about here], counsel this time placed emphasis upon whether the purported treatment in the guidance was within HMRC’s power. HMRC contended (in Patten LJ’s words) that “concessions should be given a relatively narrow construction in recognition of the fact that they involve a derogation from statute”. This, he said, “seems to me that the most influential contextual element in the process of construction must be the statutory default position”. As the guidance itself did not in clear words state that it could be applied retrospectively, the taxpayer could not be said to be entitled to the concessionary treatment. The fact that the concession operated “in effect as a decision by HMRC not to collect tax that becomes statutorily due…militates strongly in my view against giving the concessions any greater scope than a fair and normal reading of the language of the concession dictates” [para 35]. Moreover, to extend the concession retrospectively to fit the current case would “create an obvious inconsistency” with the relevant legislation “and is a powerful reason why the concession should be assumed and interpreted not to have that effect” [para 36]. In brief then, the court placed significant reliance upon the proper legal position in order to dismiss the first ground of appeal, thereby contrasting with the case of Biffa Waste in which the actual legal position was regarded as irrelevant.
Aside from the distinction in litigating approaches, a secondary, broader point which can be made in relation to the two cases is that they both in effect deal with the same issue, namely, whether the taxpayer came within the terms of an HMRC statement. In Biffa Waste, the court found in favour of the taxpayer (the taxpayer fell within the terms of the ruling) and in ELS Group, the court found against the taxpayer (as the taxpayer neither fell within the terms of the concession either at the relevant time nor did the terms provide for retrospectivity). Thus whilst terms such as legitimate expectation, abuse of power, reliance, and vires are thrown about in such cases, these often serve to obfuscate relatively simple questions.