TC09596 - [2025] UKFTT 00895 (TC)

Over a number of years before their visit to Thompsons Carpets, HMRC had visited a number of the Appellant’s own stores to conduct VAT checks and did not advise of any issues with the Appellant’s VAT position. It was only following their visit to Thompsons Carpets in 2020 that this changed. Following HMRC’s enquiries in relation to Thompsons Carpets, the Appellant’s management reiterated to its staff that they should make sure they were operating the fitting referral system as instructed, and not outside of that. HMRC subsequently withdrew the assessment raised for Thompsons Carpets.

Mr Jones submits that HMRC had stated that they had decided to take no further action to disturb the status quo as regards the VAT treatment adopted by the Appellant, but that they would review the sector more broadly and, if appropriate, issue clarificatory guidance in the future. Mr Jones further submits that the FtT has jurisdiction to consider a legitimate expectation argument on an appeal brought under s 83(1)(p) VATA against an assessment made under s 73 VATA: KSM, at [84]. He also submits that the word ‘may’ in s 73(1) is permissive, not mandatory. He adds that it follows that an assessment is made not by operation of the statute, but by a discretion exercised by HMRC: KSM, at [72]. Miss McArdle disagrees that a legitimate expectation arises, or indeed that the FtT has the jurisdiction to consider such an argument.

There is, therefore, a significant divergence between the parties in respect of the jurisdiction (if any) of the FtT on the issue of legitimate expectation, in the circumstances of this appeal.

In determining this, we have considered the authorities and the relevant statutory scheme. The FtT is a creature of statute and its jurisdiction is wholly derived from statute. The FtT was created by s 3(1) of the Tribunals, Courts and Enforcement Act 2007 (‘the TCEA’) for the purposes of exercising the functions conferred on it by virtue of the TCEA. This point was made clear by the House of Lords in C & E Comrs v J H Corbitt (Numismatists) Ltd [1981] AC 22 (‘J H Corbitt (Numismatists)’).

In Aspin v Estill [1987] STC 723 (‘Aspin v Estill’) (at 727), Nicholls LJ said this:

“The taxpayer is saying that an assessment ought not to have been made. But in saying that, he is not, under this head of complaint, saying that in this case there do not exist in relation to him all the facts which are prescribed by the legislation as facts which give rise to a liability to tax. What he is saying is that, because of some further facts, it would be oppressive to enforce that liability. In my view that is a matter in respect of which, if the facts are as alleged by the taxpayer, the remedy provided is by way of judicial review.”

The starting point is that appeal grounds which concern public law arguments should be pursued in judicial review proceedings, rather than before the FtT.

In R & C Comrs v Hok [2013] STC 225 (‘Hok’), the UT said this, at [41]:

“41.

There is in our judgment no room for doubt that the First-tier Tribunal does not have any judicial review jurisdiction. That was made abundantly clear by the House of Lords in Customs and Excise Commissioners v J H Corbitt (Numismatists) Ltd [1981] AC 22. That case related to the Value Added Tax Tribunals rather than the First-tier Tribunal, but they too were a creature of statute with no inherent jurisdiction, and the relevant principles are identical. Lord Lane (with whom the majority agreed) said, in what remains the classic statement on the point:

“Assume for the moment that the tribunal has the power to review the commissioners’ discretion. It could only properly do so if it were shown the commissioners had acted in a way which no reasonable panel of commissioners could have acted; if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. If it had been intended to give a supervisory jurisdiction of that nature to the tribunal one would have expected clear words to that effect in the [Finance Act 1972]. But there are no such words to be found. Section 40(1) sets out nine specific headings under which an appeal may be brought and seems by inference to negative the existence of any general supervisory jurisdiction.”

The point was also made by Jacob J in C & E Comrs v National Westminster Bank plc [2003] STC 1072, where he adopted what had been said by Moses J in Marks & Spencer plc v C & E Comrs [1999] STC 205, at 247c, as follows:

“….in so far as the complaint is not focused upon the consequences of the statute but rather upon the conduct of the commissioners then it is clear that the tribunal had no jurisdiction. Its jurisdiction is limited to decisions of the commissioners and it has no jurisdiction in relation to supervision of their conduct.”

This principle was applied by Warren J in the UT in HMRC v Abdul Noor [2013] UKUT 71 (‘Noor’), at [28]. At [87], the UT said this:

“In our view, the FTT does not have jurisdiction to give effect to any legitimate expectation which Mr Noor may be able to establish in relation to any credit for input tax….In contrast, a person may claim a right based on legitimate expectation which goes behind his entitlement ascertained in accordance with the VAT legislation (in that sense); in such a case, the legitimate expectation is a matter for remedy by judicial review in the administrative court; the FTT has no jurisdiction to determine the disputed issue in the context of an appeal under s83.”

Noor concerned an appeal pursuant to s 83(1)(c) VATA (concerning recoverability of input tax). Consistently with Hok, the UT concluded that the FtT had no judicial review jurisdiction.

The Court of Appeal decision in MIS (McCombe David Richards and Newey LJJ) concerned whether s 84(10) VATA enabled MIS to advance a legitimate expectation claim in the context of appeals to the FtT, rather than by way of judicial review. The Court of Appeal considered Noor, at [19] to [20], where Newey LJ said this:

“19.

Secondly, the School’s interpretation of section 84(10) of the VATA would appear to imply that public law arguments could routinely be advanced in appeals to the FTT. That would clearly be the case where HMRC had rejected a legitimate expectation claim in advance of the decision under appeal, but other public law arguments could presumably also be put forward. Where, say, it had been suggested to HMRC that it should take a particular matter into account, and HMRC had announced before making an assessment that it did not consider it appropriate to do so, it could be suggested that the assessment depended on a prior decision that could be impugned on public law grounds.

20.

That would be a very surprising result. In Revenue and Customs Commissioners v Noor [2013] UKUT 71 (TCC), [2013] STC 998, the UT (Warren J and Judge Bishopp) held, departing from views expressed by Sales J in Oxfam v Revenue and Customs Commissioners [2009] EWHC 3078 (Ch), [2010] STC 686, that “the right of appeal given by s 83(1) [of the VATA] is an appeal in respect of a person’s right to credit for input tax under the VAT legislation” and that the FTT did “not have jurisdiction to give effect to any legitimate expectation which [the taxpayer] may be able to establish in relation to any credit for input tax” (paragraph 87). The UT observed:

“a person may claim a right based on legitimate expectation which goes behind his entitlement ascertained in accordance with the VAT legislation (in that sense); in such a case, the legitimate expectation is a matter for remedy by judicial review in the Administrative Court; the FTT has no jurisdiction to determine the disputed issue in the context of an appeal under s 83 (paragraph 87.)”

At [21], the court observed that the consequence of the submissions made on behalf of the taxpayer would be that:

“... legitimate expectation (and, seemingly, other public law) arguments could be raised in the F-tT without any need to satisfy the requirements as to obtaining permission and time limits that govern applications for judicial review...  It is highly improbable that Parliament intended this when it enacted what has now become s 84(10).”

At [24], the Court of Appeal said this:

“In the context of an appeal against "the VAT chargeable on the supply of any goods or services" (section 83(1)(b) of the VATA) or an assessment (section 83(1)(p)), I find it hard to see how the decision under appeal could have "depended" on any prior decision in the relevant sense unless the latter decision dictated whether or not there was legal liability. A decision as to whether, for example, it was "oppressive to enforce that liability" (to quote from the judgment of Nicholls LJ in Aspin v Estill) would, it seems to me, appropriately be the subject of judicial review proceedings rather than an appeal to the FTT.”

The appeal in KSM (which has also been referred to as ‘Henryk Zeman’ or ‘Zeman’) related to s 73(1) VATA, which includes a “may” provision, not a “shall” provision, in a best judgment assessment (such as that which is relevant to this appeal). The appeal was made under s 83(1)(p) VATA, which did not ex facie appear to oust the FtT’s jurisdiction.

In relation to s 83(1)(p) (the provision also engaged in the present appeal), the UT began by looking at the wording of the section:

“71.

In the present case, the relevant statutory language provides that if certain conditions are fulfilled, the Commissioners 'may assess the amount of VAT due … to the best of their judgment' (s 73(1)), and if they do then an appeal shall lie to the tribunal 'with respect to' the assessment or its amount (s 83(1)(p)).

72.

The word 'may' is permissive, not mandatory. It must follow that an assessment is made not by operation of the statute but by a discretion exercised by HMRC. We prefer a construction of s 73(1), and therefore of s 83(1)(p), which recognises and gives effect to that word. We therefore respectfully disagree with the approach adopted in Gore at [30] and [44] (see [65] and [67] above), which treats the word 'may' as descriptive of a separate enforcement function and attributes no weight or meaning to it in the context of s 73(1) looked at on its own terms.

73.

A taxpayer has a right of appeal to the tribunal 'with respect to … an assessment … under section 73(1).' Although made in a different context, and indeed in the context of statutory language which is narrower than that in s 83(1)(p) (see [39] above), we agree with the comments of Sales J in Oxfam at [63] as to the ordinary and natural meaning of the phrase 'with respect to'. As a matter of language, it defines the scope of the tribunal's appellate jurisdiction not by reference to any particular legal regime or type of law, but instead by reference to the subject-matter of the subsection.”

The UT noted that the scope of s 83(1)(p) VATA is wider than that of s 83(1)(c) VATA. Section 73 VATA is a discretionary and to “best judgment” matter. The statutory language upon which KSM turned was permissive and not mandatory because, in that case, HMRC had had a discretion. The UT also considered the relevant policy considerations, at [82]:

“82.

In such circumstances, it seems to us there are good policy reasons for not adopting a construction of s 83(1)(p) which strictly limits the appellate jurisdiction of the FTT in the manner identified in the Gore decision at [30] (see [65] above), and which therefore excludes consideration of a legitimate expectation argument. We refer again to the comments of Sales J in Oxfam quoted at [39] above. Were one to adopt such a restrictive approach, there would be an obvious risk of duplication, delay and potential injustice given the potential for disputes to arise as to which forum any particular challenge should be brought it.”

The UT concluded that legitimate expectation issues could be considered in an appeal under s 83(1)(p), as follows, at [84]:

“84.

Coming back then to where we started our analysis, the critical question in this case (see Beadle at [44]) is whether the relevant statutory scheme expressly or by implication excludes the ability to raise a public law defence of legitimate expectation (again, see Beadle at [44]). For all the reasons given above, we do not consider that s 83(1)(p) does exclude that ability. On the contrary, on the facts of this case and given the broad subject-matter of s 83(1)(p), we see strong reasons for thinking that it would be artificial and unworkable to exclude a defence based on the public law principle of legitimate expectation from the tribunal's appellate jurisdiction. We therefore consider that the FTT did have jurisdiction to determine that question in this case.”

It has, consistently, been argued by HMRC that:

Indeed, the same submissions were made by Miss McArdle in the appeal before us. Miss McArdle submits that applying the appropriate principles of statutory construction, an appeal lies with respect to whether an assessment’s statutory pre-conditions have been met, such as being made to HMRC’s best judgment: see for instance comments on the Court of Appeal in Rahman (T/A Khayam Restaurant) v C & E Comrs [2003] STC 150 (‘Rahman (No 2)’), at [5] to [6]. She adds that the jurisdiction of the FtT does not extend to the distinct matter of the decision to assess at all, for instance, because of the possibility of a contrary legitimate expectation. She further submits that the KSM analysis of s 73(1) was erroneous (see for instance [81]), where it was considered that “best judgment” imports a jurisdiction to consider the question of whether to assess. In this respect, she submits that the words “best judgment” permit the FtT to determine questions such as whether the assessment has been correctly calculated, and that the calculation has not been capriciously performed, but not wider public law concepts such as whether the decision to assess at all was contrary to a legitimate expectation.

Mr Jones, on the other hand, submits that:

The question of whether KSM was rightly decided has been the subject of some adjudication and consideration in the FtT. In Drinks and Food UK Ltd v HMRC [2023] UKFTT 00979 (TC), which dealt with a different statutory scheme (and which is not binding on us being a decision of the FtT), Judge Brown KC concluded, at [143] to [146], that:

“143.

…Finally, and in light of the Court of Appeal decision in David Beadle v HMRC [2020] EWCA Civ 562, (Beadle) and subsequent decisions of the Upper Tribunal, it is not clear that the decision [Henryk Zeman] is soundly reached.

144.

In Beadle the Court of Appeal confirmed that the tax tribunals have no inherent judicial review jurisdiction but concluded that in the context of an enforcement decision (i.e. a decision to assess for tax or penalty) there is a presumption that a taxpayer will be able to challenge the decision on public law grounds save where the scope for challenging alleged unlawful conduct has been circumscribed by the relevant statutory scheme. In the context of enforcement action the question will be whether the statutory scheme in question excludes the ability to raise a public law defence in proceedings which are dependent on the validity of the underlying administrative act (see paragraph 44 in particular).

145.

In the case of The Executors of David Harrison (Deceased) and others v HMRC [2021] UKUT 273 (TCC) (Harrison) the Upper Tribunal confirmed that in the context of an enforcement decision a challenge on public law grounds was permissible unless the statutory scheme precluded such a challenge. However, in the context of other (nonenforcement) decisions of HMRC clear words are required within the statutory language to permit the taxpayer to challenge the reasonableness of HMRC’s decision on appeal. The UT considered that there was no strong presumption against the FTT having power to consider public law arguments in a non-enforcement appeal; rather it was a question of statutory construction (see paragraphs 34 – 36).

146.

The Upper Tribunal has affirmed that position in Caerdav Ltd v HMRC [2023] UKUT 179 (TCC).”

There was, therefore, a question raised as to whether KSM was soundly reached. However, in Queenscourt, Judge Vos said this:

“158.

It does not however follow from this that the Upper Tribunal in Zeman reached the wrong conclusion.  It clearly considered the decision of the Court of Appeal in Beadle to be binding on it and that this therefore required it to approach the question of statutory construction on the basis that Zeman could rely on legitimate expectation unless the relevant statutory provisions excluded its ability to do so. 

159.

In this sense, Beadle represents a clear development of the law as far as the approach to be taken to the question of statutory interpretation in this area is concerned, based on a line of cases which, it appears, were not considered in Hok, Noor, BT Pension Scheme or Metropolitan International.

160.

The question as to whether or not the Tribunal in Zeman had jurisdiction to consider the legitimate expectation argument could not therefore be based on general statements about the likelihood (or otherwise) of Parliament conferring a jurisdiction on the Tribunal to consider such points but had to be based on an examination as to whether or not s 83(1)(p) VATA excluded (expressly or by implication) any ability of the Tribunal to consider such points.”

Furthermore, in Treasures of Brazil Ltd, at [40] to [44], the FtT held that the conclusions on the jurisdictional issue by the UT in KSM were not obiter, and that KSM was correctly decided. Judge Frost said this, at [41] to [45]:

“41.

In Zeman, the Upper Tribunal first decided that the taxpayer did not in fact have a legitimate expectation, before considering the question of whether or not the First-tier Tribunal would have had jurisdiction to consider such issues.

42.

The fact that the Upper Tribunal decided the question of whether or not the taxpayer had a legitimate expectation at an early stage in its reasoning meant it did not need to consider the jurisdiction question. However, despite not needing to, the UT did in fact go on to consider the jurisdiction point.

43.

Therefore, the entire decision of the Upper Tribunal was (i) that the First-tier Tribunal had jurisdiction but (ii) that there was no legitimate expectation. If the Upper Tribunal had decided there was no jurisdiction then the legitimate expectation question would have itself been redundant. The jurisdiction point was therefore a constituent part of the decision made. We do not consider that the fact that the Upper Tribunal could have chosen not to determine the jurisdiction question means that it is open to this Tribunal to treat the jurisdiction question as obiter.

44.

We are supported in that view by authorities such as Jacobs v LCC [1950] A.C. 361, (at p369 per Lord Symonds):

“there is in my opinion no justification for regarding as obiter dictum a reason given by a judge for his decision, because he has given another reason also. If it were a proper test to ask whether the decision would have been the same apart from the proposition alleged to be obiter, then a case which ex facie decided two things would decide nothing.”

45.

In any event, even if the Upper Tribunal’s analysis in the Zeman case were not binding upon us, we consider that it is a correct statement of the law.”

We agree with the propositions in Treasures of Brazil, which though not binding on us, we find to be highly persuasive.

The FtT may have jurisdiction to consider appeal grounds based on public law arguments - such as legitimate expectation - depending on the statutory provisions under consideration. Thus, the statutory context is key. Whether or not there is jurisdiction in any case turns on the language of the relevant legislation and the nature of HMRC’s act or discretion. In Beadle v HMRC [2020] EWCA Civ 562 (‘Beadle’), the Court of Appeal noted, at [38], the general rule (explained in O'Reilly v Mackman [1983] 2 AC 237 at [285]) that a person will not generally be allowed to challenge a public law decision other than by means of judicial review (known as “the exclusivity principle”).  However, at [45], the Court of Appeal stated that express words in a statutory scheme should not necessarily be looked at in isolation when considering whether public law grounds should be excluded. That might be the implication:

“when the relevant statutory scheme is construed as a whole and in light of its context and purpose…”

The cases of Caerdav and Hoey provide some support for the proposition that the starting point is that appeal grounds concerning public law arguments should be pursued in judicial review proceedings - rather than in the Tribunal - unless the statutory context indicates otherwise. In Caerdav, at [154] and [155], the UT pointed out that (as the UT in KSM had found) there is a discretion inherent in s 83(1)(p) VATA, when read together with s 73 VATA as it must be. The UT also cited, with approval, the decision in Noor.

In Hoey, at [132], the Court of Appeal held that:

“The question of jurisdiction can only be determined by reference to the particular statutory scheme in question that governs the tax tribunal’s jurisdiction.”

The Court of Appeal made clear, at [132], that the FtT cannot confer jurisdiction on itself, and that the parties cannot agree to confer jurisdiction on the FtT.

The appeal in BT Pension Scheme concerned, inter alia, a legitimate expectation argument in the context of an extra-statutory concession relating to time limits. The court said this:

“129.

Our own view is that HMRC's construction of ESC B41 is almost certainly correct and is conclusive of this issue. But the Upper Tribunal did not decide the point on this basis. It held that it had no jurisdiction to decide what amounted to a challenge to the lawfulness of the Revenue's refusal to extend to the Trustees the benefit of the extra- statutory concession because it amounted to a public law challenge which should be brought by way of an application for judicial review in the Administrative Court. In so doing, the Upper Tribunal refused to follow the decision of Sales J in Oxfam v. HMRC:

“401.

Our reasons for saying that the Tribunal has no jurisdiction to give effect to the Extra-Statutory Concessions stems from the recent decision of the Upper Tribunal in HMRC v Hok Ltd [2012] UK Upper Tribunal 363 (TCC) (“Hok”) a decision of Warren J and Judge Bishopp. Mr Vajda has relied on the decision of Sales J in Oxfam v. HMRC [2009] EWHC 3078 (Ch), [2010] STC 686 (“Oxfam”), paragraphs 61 to 79 to demonstrate that the Tribunal does have jurisdiction. However, that decision turned on a construction of 83(1)(c) of the Value Added Tax Act 1994 which Sales J held gave jurisdiction to the VAT Tribunal to deal with legitimate expectation in the context of an appeal as to the amount of input tax. It lends no support at all to the view that the Tribunal has a general jurisdiction to deal with public law matters, whether in the context of direct tax or indirect tax, in particular to require, in the exercise of some sort of supervisory jurisdiction, HMRC to give effect to a concession. The suggestion that there is a jurisdiction in the context of direct tax is refuted by the decision in Hok.”

...

141.

We have heard no argument about s.83(1) VATA and therefore express no view about the correctness or otherwise of the judge's interpretation of that section. But, in agreement with the Upper Tribunal, we do not consider that the decision in Oxfam v HMRC should be treated as authority for any wider proposition and we reject the suggestion that the reasoning of Sales J can or should be applied to the jurisdiction of the FTT and the Upper Tribunal to determine the appeals in this case.

142.

The statutory jurisdiction conferred upon the FTT by s.3 TCEA 2007 is in our view to be read as exclusive and the closure notice appeals under Schedule 1A TMA do not extend to what are essentially parallel common law challenges to the fairness of the treatment afforded to the taxpayer. The extra-statutory concession is, by definition, a statement as to how HMRC will operate in the circumstances there specified and its failure to do so denies the legitimate expectation of taxpayers who had been led to expect that they would be treated in accordance with it...

143.

We therefore consider that the reasoning of Sales J in Oxfam v HMRC has no application to the statutory jurisdiction under s.3 TCEA 2007 in the sense of giving to the FtT and the Upper Tribunal jurisdiction to decide the common law question of whether HMRC has properly operated the extra-statutory concession.”

However, in The Executors of David Harrison (Deceased) and others v HMRC [2021] UKUT 273 (TCC) (Harrison), at [36], the UT indicated that it “overstates matters” to say that the FtT does not have the power “to consider public law arguments to the effect that HMRC have exercised discretion wrongly, with that strong presumption being rebutted only with clear words or necessary implication”. It is “simply a matter of statutory construction”.

The relevant statutory language in the appeal before us provides that if certain conditions are fulfilled, the Commissioners “may assess the amount of VAT due … to the best of their judgment” (s 73(1)), and if they do then an appeal shall lie to the tribunal “with respect to” the assessment or its amount (s 83(1)(p)). The right of appeal to the FtT is governed by s 83 VATA. The scope of the appeal right and the jurisdiction of the FtT differs between the various matters listed, as determined by case law. The present appeal is under s 83(p) VATA. The provision states, inter alia, that:

“83 Appeals

(1)

Subject to sections 83G and 84, an appeal shall lie to the tribunal with respect to any of the following matters—

…

(p)

an assessment— (i) under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act; or (ii) under subsections (7), (7A) or (7B) of that section; or the amount of such an assessment; ...”

An appeal against “the amount of input VAT which may be credited” (which implies the need to determine a specific figure) is of a different quality to an appeal against “a decision of the Commissioners” (which implies consideration of the decision in question, and therefore the legality of that decision) and of a different quality again to an appeal against “an assessment”. We agree that the word ‘may’ is permissive, not mandatory, and that it must follow that an assessment is made not by operation of the statute, but by a discretion exercised by HMRC. This is not, however, determinative of the issue of whether a legitimate expectation arose in the circumstances of this appeal. We proceed to consider what is required to found such a claim.

In order to find a claim of legitimate expectation, a promise or representation relied upon must be “clear, unambiguous and devoid of relevant qualification”: R v Inland Revenue Comrs, Ex p MFK Underwriting Agents Ltd [1989] BTC 561; [1990] 1 WLR 1545 (‘MFK’), per Bingham LJ, at 1569G. Bingham LJ’s classic test has been widely approved and applied. In R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No. 2) [2009] AC 453 (‘Bancoult’), Lord Hoffmann said this, at [60]:

“It is clear that in a case such as the present, a claim to a legitimate expectation can be based only upon a promise which is 'clear, unambiguous and devoid of relevant qualification': see Bingham LJ in R v Inland Revenue Comrs Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545, 1569. It is not essential that the applicant should have relied upon the promise to his detriment, although this is a relevant consideration in deciding whether the adoption of a policy in conflict with the promise would be an abuse of power and such a change of policy may be justified in the public interest, particularly in the area of what Laws LJ called 'the macro-political field': see R v Secretary of State for Education and Employment, Ex p Begbie [2000] 1 WLR 1115, 1131.”

In Veolia, Nugee J considered the principles applicable to a claim for breach of legitimate expectation. The claims by Veolia and Viridor were that they had been led to believe that the refund claims they had made in respect of landfill tax would be repaid. The expectation was said to have arisen from the terms of a business brief issued by HMRC. As to when a legitimate expectation can be created by HMRC, Nugee J summarised the principles in Veolia, at [103], as follows:

“(1)

HMRC may create a legitimate expectation that a person’s tax affairs will be treated in a particular way either by the promulgation of general guidance to a body of taxpayers or by a specific statement or ruling given to a taxpayer.

(2)

A legitimate expectation will only arise if the guidance or the specific statement is clear, unambiguous and devoid of any relevant qualification.

(3)

If a taxpayer approaches HMRC for a ruling, he has an obligation to place all his cards face up on the table, in the sense of giving full details of the transaction on which he seeks the revenue's decision.

(4)

Provided there was a clear and unambiguous statement, and provided the taxpayer has placed all his cards face up on the table, he will generally be entitled to rely on an assurance given to him as binding on HMRC. A similar entitlement arises in relation to guidance issued by HMRC.”

Nugee J considered that a claim for legitimate expectation requires the determination of the following questions:

Once it is established that a legitimate expectation has been created, the circumstances of HMRC’s attempt to resile from it fall to be considered. In some cases, HMRC will be allowed to resile from the legitimate expectation they have created, provided they satisfy the court on the material before it that there was an objective justification for doing so, which is proportionate in all the circumstances. The burden of establishing justification is on HMRC: see Veolia at [160]. It is then for us to decide whether the decision is so unfair as to amount to an abuse of power (requiring conspicuous or substantial unfairness). Applying R v IRC ex parte Unilever [1996] STC 681, in relation to objective justification, Nugee J concluded that this boils down to the question whether the decision to depart from any legitimate expectation which had been engendered in the recipient was so unfair as to amount to an abuse of power, for example, conduct that is “outrageously or conspicuously unfair”: see R (on the application of Hely-Hutchinson) v R & C Comrs [2017] EWCA Civ 1075, at [75]).

As further explained by Sir Ross Cranston in Glint Pay Services Ltd, R (On the Application Of) v HMRC [2023] EWHC 1621 (Admin), at [36] to [38], there is a high threshold to satisfy before legitimate expectation can be made out in the taxation context:

“36…The hypothetical representee is the "ordinarily sophisticated taxpayer" irrespective of whether he is in receipt of professional advice: R (on the application of Aozora GMAC Investment Ltd) v Revenue and Customs Commissioner [2019] EWHC Civ 1643, [27], per Rose LJ (as she was).

37.

In R (on the application of Hely-Hutchinson) v Revenue and Customs Commissioners [2017] EWCA Civ 1075 Arden LJ (as she was) helpfully gathered together the legitimate expectation principles relevant in the taxation context: HMRC is a public body invested with the power to collect tax, and taxpayers must expect to pay the right amount of tax; a taxpayer's only legitimate expectation is, prima facie, that they will be taxed according to statute, not concession or a wrong view of the law; in assessing the meaning, weight and effect reasonably to be given to statements of HMRC, the factual context, including the position of HMRC themselves, is all important; a statement formally published by HMRC to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them; there was a distinction between a decision that amounted to "mere unfairness" (conduct 'a bit rich' but understandable), and a "decision so outrageously unfair that it should not be allowed to stand": [37], [40], [42].

38.

As to unfairness, Rose LJ explained in Aozora that it "has to reach a very high level; it has to be outrageously or conspicuously unfair." She also said: "47…There is a strong public interest in the imposition of taxation in accordance with the law, and so that no individual taxpayer, or group of taxpayers, is unfairly advantaged at the expense of other taxpayers. There is also a real public interest in the revenue making known the general approach which it will adopt, and the practice which it will normally follow, in specific areas … But there are likely to be few cases where a taxpayer can plausibly claim that a representation made in general material of this nature is so clear and unqualified that the taxpayer is entitled to rely on it and to be taxed otherwise than in accordance with the law.”

A taxpayer then has the obligation to place all of his cards “face up on the table”, in the sense of giving full details of the transactions on which he seeks HMRC’s decision. Provided there was a clear and unambiguous statement, and provided that the taxpayer has placed all of his cards face up on the table, he will be entitled to rely on an assurance given to him as binding on HMRC (a similar entitlement arises in relation to guidance issued by HMRC). It is only then if those four conditions are met that the taxpayer has a legitimate expectation.

In relation to whether the taxpayer put all of his cards face up on the table, in MFK, Bingham LJ said that what is required is that the taxpayer must:

Bingham LJ emphasised the role of notions of fairness in the doctrine of legitimate expectation and said that the doctrine of legitimate expectation is rooted in fairness, but fairness is not a one-way street; it imports the notions of equitableness of fair and open dealing, to which the authority is as much entitled as the citizen.

Turning to the circumstances of this appeal, by a letter dated 6 July 2021, Officer Hothi wrote to the Appellant in the following terms:

“Further to your email and attachments dated 23rd November 2020 regarding the new contractual arrangements implemented by UC in August 2020. After further internal deliberation, and addressing your concerns raised in our telephone conversation on the 9th June 2021, I can confirm:

• HMRC has reviewed the current business contractual arrangements implemented in August 2020 as per your letter dated 23rd November 2020 and has decided to take no further [sic] at this time. However, this is a finely balanced decision.

• HMRC will be considering how the sector more broadly arranges its supplies, and

• This further review may result in HMRC clarifying its view of common contractual arrangements both in this sector and beyond.

I hope this answers your queries and if you need any further information, please do not hesitate to contact me.”

It is this that is relied on by the Appellant as having created a legitimate expectation. Mr Jones submits that the hypothetical, ordinarily sophisticated taxpayer would have understood Officer Hothi’s letter to the Appellant of 6 July 2021 to be a statement that HMRC had deliberated the matter internally, reviewed the Appellant’s contractual arrangements and decided to take no further action (including raising the Assessments) at that time. The reference to it being a “finely balanced decision” was said by Mr Jones to imply to the hypothetical taxpayer that this was something of a concluded position on the part of HMRC, and one in the taxpayer’s favour; rather than a decision to continue deliberating or to defer taking any action. In other words, he submits that it was a concluded view to take no further action against the Appellant (i.e., to leave the status quo undisturbed). Consequently, it is submitted on behalf of the Appellant that there was a legitimate expectation that the Assessments (or some of them) would not be raised.

Mr Jones submits that the hypothetical taxpayer would understand Officer Hothi to be drawing a contrast between (a) the status quo and (b) the position following the issue of such revised guidance to the sector as HMRC might issue following their review. In the circumstances, to the “ordinarily sophisticated taxpayer” that was a clear and unambiguous statement that, whilst there might be guidance issued by HMRC in the future which could change the position, until then the Appellant could continue as it had done without threat of retrospective action by HMRC.

Whilst we accept that the Appellant did put all of its cards “face up” on the table by engaging with HMRC to clarify the position following Officer Hothi’s letter of 6 July 2021, and whilst we accept the contextual background leading up to that letter, we are satisfied that Officer Hothi unequivocally stated that no further action was being taken “at this time”. We are further satisfied that Officer Hothi clearly stated that HMRC would be considering the sector more broadly, and that this may result in HMRC clarifying their view. We are fortified in our view by the fact that the Appellant stated that the letter gave it “no certainty or clarity”, (the 13 July 2021 letter from the Appellant to HMRC). This is insufficient to give rise to a legitimate expectation. We find that there was no “clear and unambiguous statement” creating a legitimate expectation in Officer Hothi’s letter. The Appellant’s claim in respect of whether a legitimate expectation had been created therefore falls at the first hurdle. The Legitimate Expectation Issue is, however, academic, given our findings and conclusions on the Supply Issue.