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R (on the application of City Shoes Wholesale) v HMRC

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Our pick of this week's cases

In R (on the application of City Shoes Wholesale) v HMRC [2016] EWHC 107 (26 January 2016), the High Court rejected an application for judicial review of HMRC’s refusal to grant to a group of taxpayers the full benefits of the Liechtenstein Disclosure Facility (LDF), as it had existed at the time of their application.

This was an application for judicial review by nine claimants, all of whom operated employee benefit trust schemes (EBTs). They challenged HMRC’s decision to limit the benefits of the LDF available to each of them in relation to their EBTs. They contended that the decisions were so unfair as to amount to an abuse of power. They articulated that unfairness in four different ways:

1.    They had been led to believe that they could benefit from the LDF, but HMRC had withdrawn many of the benefits at the last minute and without warning. The High Court accepted that the claimants had been led up the garden path by HMRC. However, no guarantee or promise had been given that either the LDF would be available or that its terms would remain unaltered.

2.    The treatment imposed by HMRC was contrary to its own published policy. Again, the High Court accepted that at the time the claimants had applied for registration, the LDF had been in different and more advantageous terms than post-August 2014.  However, as the claimants were not, prior to the August 2014 changes, registered under the LDF, there was no unfairness in refusing to apply the full benefits of the LDF to them. This was precisely what the LDF envisaged by requiring registration. 

3.    The decisions had been backdated by six months. The High Court reiterated the point that the benefits of the LDF only apply to those who are registered. Since the claimants were not registered prior to August 2014, there had been no backdating.

4.    The decisions were discriminatory because others in a materially identical situation to the claimants were not subject to it. The High Court noted, however, that the claimants were comparing themselves to taxpayers whose applications had been accepted and who had therefore been registered. This difference meant that these taxpayers had had a legitimate expectation of receiving the full benefits of the LDF.

Finally, the claimants also argued that HMRC had failed to take all the relevant considerations into account. The court found, however, that HMRC had undertaken a careful review of the many public interest and private interest factors engaged.

Read the decision.

Why it matters: The High Court observed that the real complaint underpinning the second and third arguments may be that HMRC had failed to process the applications for registration more quickly, so as to secure the full LDF benefits for the claimants before the August 2014 changes.  However, this was not a valid basis on which to challenge HMRC’s decisions. The claimants (who had their applications for registration put on hold pending HMRC’s consideration of the availability of the LDF for EBT users) had been in a materially different position from those whose registration had already taken place.

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