In R (Hely-Hutchinson) v HMRC [2017] EWCA Civ 1075 the Court of Appeal found in favour of HMRC: the taxpayer did not have a legitimate expectation that his Mansworth v Jelley loss relief claims would be allowed on the basis of incorrect HMRC guidance.
Mr Hely-Hutchinson had submitted capital loss claims for 1999-2002 following HMRC’s 2003 published guidance.
- HMRC opened enquiries in 2003 and changed its guidance in 2009.
- In 2014 HMRC issued closure notices denying the loss relief claims.
- Mr Hely-Hutchinson sought a judicial review of the closure notices.
- The High Court ruled in favour of the taxpayer on the grounds that he had a legitimate expectation that his loss claims would be allowed based on the 2003 HMRC guidance, and there was an intrinsic unfairness in treating taxpayers who were in an identical position differently.
HMRC appealed to the Court of Appeal on the following grounds:
- There is only comparative unfairness between taxpayers where they are materially identically placed. Taxpayers with open claims are in a materially different position from those with claims made in closed years. The respondent, had open Mansworth v Jelley losses and was not in a materially identical position to those with claims for closed years as HMRC had no power to re-open the claim for those taxpayers with closed years.
- The question of comparative unfairness should have been determined as at the time the 2003 guidance was withdrawn, and not at the time when it was originally published.
- There is an exception to the normal requirement for decision-makers to act consistently where the decision-maker had previously acted under a mistake as to the law, as there is nothing inherently unfair in putting right earlier errors rather than compounding them, even if this results in similarly placed individuals receiving differing treatment.
Decision of the Court of Appeal
The Court of Appeal found that:
- There was no comparative unfairness, stating that “the taxpayer’s only legitimate expectation is that he will be taxed according to statute, not concession or a wrong view of the law”.
- HMRC were not precluded from changing their policy by the fact that not all taxpayers would be able to reopen their loss claims and therefore that a disparity of treatment could result.
The Court further found that whether the withdrawal of the 2003 guidance was incompatible with Article 14 of the European Convention on Human Rights as submitted by the taxpayer, was not relevant, and upheld HMRC's appeal. The technical point regarding the availability of the losses claimed has been remitted back to the First-tier Tribunal to decide.
UPDATE: An appeal to the Supreme Court has been refused. The taxpayer has appealed the closure notices on eight grounds, six of which are struck out. The ground that the enquiries were not validly opened can be taken forward in respect of one closure notice. The other ground, that the guidance on which the taxpayer relied was unlawful and that HMRC failed to apply the law correctly was not objected to by HMRC and stands. We now await the decision of the FTT on these points and on the remittance of the availability of the losses (as above).
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