Where an adviser relies on advice found in HMRC’s manuals and then relays this to a client, and HMRC's manual is subsequently found to be incorrect, the taxpayer cannot claim the defence of “reasonable expectation” as the advice has come from the adviser and not directly from HMRC.

This seems unfair but it was the finding of the First Tier Tax tribunal in Hanover Company Services Ltd [2010] UKPTT 156 (TC), a VAT case. The taxpayer was going to appeal this decision, however it was later withdrawn.

The defence of reasonable expectation applies where a taxpayer has relied on HMRC's guidance, which in turn is found to be wrong. Where a taxpayer relies on their agent's advice and that advice, where ever sourced is incorrect, the fault lies with the agent, if the agent itself had been misled by HMRC.

Agents can minimise this type of risk by checking that any material that is relied on is up to date. In direct taxes you can often tell if a manual is out of date if it is still quoting from ICTA 1988. Even then it may not be wrong in law as there may have been no subsequent legal developments.

There is a time delay between the date of publication of a new Finance Act and updates in manuals and so other changes may not be easy to track.

For VAT purposes, advisers should do a search to check to see that they are relying on the latest business brief (this was the problem in the Hanover case).

When an agent does rely on HMRC’s manuals, it should quote the manual in full when advice is given so that the client can then (if necessary) demonstrate that it relied directly on that guidance and will therefore have some grounds for a claim for legitimate expectation. It will also be essential for the client to prove this in order to avoid potential tax penalties.

For legitimate expectation to apply all the guidance relied on must be clear, unambiguous and devoid of relevant qualification.

In Aozora GMAC Investment Limited v HMRC [2017] EWHC 2881 (Admin) the High Court considered whether the taxpayer had a legitimate expectation that it could rely on HMRC’s published guidance in it's Inernational manual. The Court held that the manual constituted a “relevant representation”, so it was reasonable for a taxpayer to assume that this was correct however, they rejected Aozora’s claim, because on reviewing the evidence provided to them, they were not convinced that Aozora (or its advisers) had actually relied on the guidance in question.

The decision in Hanover abve is at odds with a more recent decision on tax penalties; in B & J Shopfitting Services v HMRC the tax agent was mislead by HMRC's guidance on SA paper filing. The Tribunal found that the HMRC's guidance was sufficiently unclear to the taxpayer to claim reasonable excuse, even though the error was that of its agent.

HMRC’s Manuals, the health warning:
It should not be assumed that the guidance is comprehensive nor that it will provide a definitive answer in every case. HMRC are expected to use their own judgement, based on their training and experience, in applying the guidance to the facts of particular cases. In particular difficult or complex cases they are able to obtain further guidance from specialists in Head Office.

The guidance in these manuals is based on the law as it stood at date of publication. HMRC will publish amended or supplementary guidance if there is a change in the law or in the Department's interpretation of it. HMRC may give earlier notice of such changes through Tax Bulletin or a press release.”


Historically there is a particular problem for VAT: HMRC has not been in the habit of listing updates to its Revenue & Customs Briefs and so it can be difficult for the non-specialist to keep on top of updates. The Joint VAT Consultative Committe (formed of the professional bodies and other interested parties) has been pressing for HMRC to be more tranparent about updates. 


Grounds for appeal: legitimate expectation

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