As members of this Forum might expect my personal opinion of HMRC’s conduct in general is unprintable and therefore is also in this specific instance. It is unedifying for them to refuse to comment on the tax consequences of a self-evidently relevant issue involving a completed, not prospective or hypothetical, transaction.
The question is whether what they have done, or rather refused to do, in the precise circumstances, and not in the abstract, founds a cause of action for judicial review based on the taxpayer’s legitimate expectation, entitling the taxpayer to a declaration or mandatory order.
The starting point is what they have actually said for public consumption and the seminal case related to tax is
in R v Inland Revenue Commissioners, ex parte MFK Underwriting Agencies Ltd [1990] 1 W.L.R. 1545.
So it is in essence a question of whether:
1 HMRC have behaved so as to give the taxpayer a legitimate expectation that they would be treated in a particular way; and
2 in the particular circumstances, it would be unfair and an abuse of power for HMRC to act inconsistently with that legitimate expectation.
Their germane public statement here is ONSCG2500 referring to the guidance at https://www.gov.uk/guidance/non-statutory-clearance-service-guidance which says:
"When HMRC will not give advice under this service
If you ask for advice and HMRC does not give it, we’ll tell you why. This could be because:
- you’re asking HMRC to give tax planning advice, or to ‘approve’ tax planning products or arrangements"
I have not seen all the correspondence of course. But in principle as I have said you have asked them to consider a completed, not prospective or hypothetical, transaction and to opine on its actual IHT consequences, namely whether it attracts BPR or not. They are entirely prepared in other tax contexts to give “advance assurance” on whether statutory conditions are met or not https://www.gov.uk/guidance/venture-capital-schemes-apply-for-advance-assurance and see VCM60010. This too is a non-statutory discretionary arrangement, enforceable only by JR. And they can certainly consider even a proposed activity: see for example VCM14070 for the EIS procedure. Why would a taxpayer seek “advice” on a a completed transaction? Your client is not seeking “advice” at all but HMRC’s analysis of the tax. “Er, I can’t tell you now because I’m a bit busy and I might tell you later while you sweat on it” probably won’t do to convince a judge that this is appropriate conduct for a public body.
See also the Litigation and Settlement Strategy pages 37 and 38
https://assets.publishing.service.gov.uk/media/65a56f8d867cd800135ae8db/HMRC_Resolving_tax_disputes.pdf
I regard this document as largely propaganda but if you don’t mean it then don’t say it at all.
It is probably otiose to threaten JR without having any intention to proceed as HMRC may well start off by calling your bluff.
It is hard to see how the tax consequences of such a significant completed transaction could itself be tax planning. It may inform whether or not other similar transactions may be undertaken but that too would generate another legitimate expectation that similar transactions would be consistently regarded by HMRC. There is a suspicion that HMRC are using tax planning “advice” in a similar sense to *"*or to ‘approve’ tax planning products or arrangements" i.e. that on the basis of HMRC’s response the taxpayer will then act or not on a plan, with or without modifications, based on the response. That is not in question here. Although I fear the original very modest testing of the waters has probably coloured their attitude as doing the big one first might not have done. They might not want to ever be forced to disclose, if true, that they have a secret blanket policy of refusing clearance on one or more issues.
Obtaining the opinion of HMRC on anything at all might well inform a taxpayer’s future tax planning and if this invariably absolved HMRC from offering an NSC on an actual irrevocable transaction it might occur, even to to a judge, that HMRC were not genuinely offering to give clearance, or were being selective and so not even-handed by using the tax planning advice criterion unreasonably and capriciously as a filter, and so were acting unreasonably in either case. Taxpayers should be entitled to expect that everyone in like circumstances will be treated alike and that if there are issues on which HMRC will not provide clearance as a matter of policy they should itemise them clearly: as they do in TSEM4004 and in the highlighted first main paragraph of NSC guidance, although they used to do so at an earlier period.
The JR pre-action protocol is essential readinghttps://www.justice.gov.uk/courts/procedure-rules/civil/protocol/prot_jrv
A letter before claim might set the ball rolling and the client might be prepared to authorise the costs of at least making HMRC focus on whether it would be worth fighting this one. They might think it was not a bluff and accept reluctantly that it was not a good use of resources to resist: no binding precedent would be set in relation to a particular company at a particular moment in time, so they could always try the same trick of refusing clearance on the same grounds to other taxpayers, provided they settled this case before the publicity of reported proceedings risked cramping their style in future.
Jack Harper
| paul.storrie
2 September |
I am trying to establish whether the shares that my client owns in his company qualify for IHT Business Property Relief (IHTA84 s.105) or whether the company’s activities fall foul of s.105(3).
I made an application under the Non-Statutory Clearance Service, but HMRC refused to grant the clearance requested on the basis that they considered we were asking for tax planning advice.
In an attempt to force the Revenue’s hand, we undertook a transfer of said shares into trust putting c. £5k of IHT (at the lifetime rate) at risk. HM Revenue & Customs SAV division initially made enquiries into the trading status of the company, but then abruptly dropped their investigation stating that the sum of tax at stake didn’t warrant further efforts on their part – they granted BPR on a without-prejudice basis. We enquired as to what sum of tax would warrant their further attention, but they refused to state a figure.
Subsequently, we undertook 2 further transfers of said shares into trust putting c. £30k and then c. £100k of tax at risk respectively. These transactions have been passed without enquiry.
Can the forum offer any suggestions/comments please?
Paul Storrie
Storrie and Company