Guidance issued to taxpayers by HM Revenue and Customs (HMRC) can generally be relied upon – but what happens if it is mistaken in law? The Court of Appeal tackled that issue in the case of a financier who sought to set off certain losses against his profits from the exercise of employment-related share options.
After exercising the options in the late 1990s, the financier duly informed HMRC of the transactions. He subsequently took advantage of an apparent change in the law that on the face of it enabled him to set off against accrued benefits losses that he had sustained in later periods. He did so in reliance on guidance that had been issued by HMRC in 2003. However, HMRC later decided, on legal advice, that that guidance was wrong in law and amended it in 2009.
HMRC agreed that the financier had a legitimate expectation that the 2003 guidance would be adhered to. However, it did not accept that he had placed detrimental reliance upon it. The losses were thus rejected and closure notices were issued on that basis in respect of four consecutive tax years. The financier’s judicial review challenge to that decision was subsequently upheld by the High Court and HMRC was ordered to reconsider the matter.
In allowing HMRC’s appeal against that decision, the Court of Appeal noted that it is open to a public body to change a policy if it has acted under a mistake. In the present case, there was no sufficient unfairness to prevent amendment of the flawed guidance. Money problems that the financier had endured were not caused by his reliance on the 2003 guidance. He had thus suffered no conspicuous unfairness, either individually or in comparison to the treatment of other taxpayers.