Enforcing HMRC Policies – a New Future of Possibilities?
A recent judgment opens additional routes of defence against adverse HMRC decisions which depart from their published position/known policy.
Analysis of an interesting recent judgment
In December 2022, the Court of Appeal handed down its judgment in The Good Law Project v The Prime Minister & Ors (Good Law Project). The key issue was whether government officials were required to comply with policies restricting the use of private emails and communications while conducting official business. The Court’s decision gives important guidance on the extent to which published policies are binding. HMRC have a broad spectrum of policies. Whilst some will not be enforceable, many could be. This is an important issue for taxpayers, especially when HMRC are failing to apply – or are looking to depart from – a published position. Critically, Good Law Project may lessen the need to show reliance or even knowledge of a policy.
HMRC have a range of different types of policies. Broadly, they fall into four different categories:
- First, HMRC frequently publish their interpretation of the law. These include the Manuals and HMRC VAT notices. There are good arguments that these should be considered policies, as they are essentially a policy of HMRC’s understanding of the law;
- Second, HMRC have policies on their wider collection and management powers. These essentially set out HMRC’s approach to the use of those powers generally or in specific cases which fall within the interstices of the tax legislation. Extra-statutory concessions are a prime example;
- Third, HMRC have internal policies on the exercise of their discretionary powers when dealing with taxpayers. For example, Codes of Practice 8 and 9 could fall within this category, as would any exercise of discretion to allow amendments of returns or surrenders out of time. These policies are normally addressed to HMRC officers but they govern HMRC’s relationship with taxpayers in a meaningful way; and
- Finally, it is likely HMRC have a number of purely internal policies which do not affect a taxpayer. These are likely to include internal governance documents, such as those which require internal escalation from HMRC officers to central policy or a higher governance board.
Typically, the legal effect of a policy in public law will be considered as part of the well-known doctrine of legitimate expectation. A policy may, for example, create a good basis for a legitimate expectation if it was relied on by a taxpayer. However, recent judgments of the Supreme Court have found that in certain cases, a public authority must comply with its published policy unless there is a good reason not to, regardless of whether the taxpayer enjoys a legitimate expectation.
These decisions have helped to protect taxpayers in cases where the success of a legitimate expectation might be in doubt (e.g. because the taxpayer did not know about or rely on the policy). However, they did not sit comfortably with other decisions of the Supreme Court in which policies were not given legal effect.
In Good Law Project, the Court of Appeal has provided important guidance on how these various decisions sit together. The Court had to consider whether public officials had a public law duty to comply with government policies when there was no legitimate expectation. The Court concluded that some (but not all) policies do come with a duty to comply and are therefore binding on their publisher. These policies are those which constitute “the epitome of government policy”. The Court did not expand on what that test encapsulates. But it found that the policies under challenge in Good Law Project were not enforceable because they governed the internal administration of government departments only. They did not, therefore, involve the exercise of public power or impugn the rights of an individual.
Good Law Project has important consequences for all taxpayers:
- It seems likely that HMRC’s policies on the interpretation of law are or may be binding. These policies affect taxpayers and the amount of tax they may owe. There is therefore a good argument that they are the epitome of government policy;
- In addition, there is a good argument that policies on collection and management and on the use of discretionary powers may also be binding on HMRC. These policies directly affect HMRC’s relationship with taxpayers and the amount of money which may be claimed as tax. A Court may therefore accept that they are also the epitome of government policy; and
- It is, however, very unlikely that HMRC’s purely internal policies will be enforceable.
The developing case law on policies may give taxpayers another important public law safeguard. Critically, it does not seem to rest on reliance. Where a policy is the epitome of government policy, taxpayers may be able to rely on it in litigation even if they did not rely on it or even know about it at the time they became chargeable to tax. To this extent, taxpayers may be able to protect their position despite the Court of Appeal’s recent decisions on legitimate expectation (see, for example, Azora). It will be critical however to properly plead this argument. Taxpayers who try to raise it as part of a broad-brush approach may be barred from doing so.
It is unlikely that a claim based on a policy could be run in a tax appeal. It may need to be made exclusively by way of judicial review. Judicial review is frequently a taxpayer’s best or only option, but taxpayers considering judicial review must remember that a claim must be made promptly and not later than three months after the grounds to make the claim first arose. Those grounds may pre-date an appealable decision or a review conclusion letter. Taxpayers should seek legal advice as soon as possible at the first suggestion that HMRC will fail to apply or depart from a published policy.
KPMG Law’s market-leading Disputes team includes a number of public law specialists and it has significant experience of judicial review. They would be delighted to discuss any potential case and how they can assist.