Mark McLaughlin warns that a clearance given by HMRC is not as watertight as some people might think.
Anyone working in tax knows how complex it can be. There are so many ‘grey’ areas of uncertainty. It is sometimes difficult to know whether one’s interpretation of tax law is correct.
HMRC to the rescue?
The law recognises this uncertainty for taxpayers and advisers. Statute provides for applications to HM Revenue and Customs (HMRC) for advance clearance on the tax treatment of certain transactions (i.e. ‘statutory clearances’). HMRC also offers a ‘non-statutory clearances’ service in some other areas of uncertainty.
In either case, a clearance is broadly written confirmation of HMRC’s view on the application of the law to a particular transaction or event, which the taxpayer can generally rely upon. However, there are exceptions to this general rule, such as if proposed transactions are not carried out exactly as described.
Can it be relied upon?
Of course, the information provided in the clearance application must be complete, accurate and correct to the best of the applicant’s knowledge and belief; clearance applications need to be drafted very carefully. A principle was established in R v Inland Revenue Commissioners, ex p. MFK Underwriting Agencies Ltd ([1989] STC 873) that the taxpayer “…should have put all his cards face upwards on the table”.
It goes without saying that if an application is materially incomplete or incorrect, any clearance or ruling given by HMRC based on that application cannot be relied on.
In addition, HMRC’s Non-statutory Clearance Guidance states (at ONSCG6150): “In the vast majority of cases a clearance we give will be correct in law and therefore binding on HMRC. However, there are some circumstances which mean that we can no longer be bound by a clearance we have given.”
Helpful guidance on how to apply for clearance or approval of a transaction from HMRC is available on the Gov.uk website (tinyurl.com/HMRC-CG). There is also guidance on when information or advice provided by HMRC can be relied upon (tinyurl.com/HMRC-Info-Advice).
Difference of opinion
Problems can arise where a taxpayer genuinely believes that the information in a clearance application was accurate when it was given, but HMRC considers that the information was too inaccurate for the clearance given to be valid.
For example, in Boulting & Anor, R (On the Application Of) v Revenue and Customs [2020] EWHC 2207 (Admin), HMRC gave advance clearance that capital gains tax treatment would apply on a company purchase of own shares from a shareholder. However, HMRC later decided to treat the clearance as void on the basis that the shares in question were each worth £66,900, not £600,000 per the valuation used in applying for the clearance. The High Court held that the share valuation, given the very wide disparity between the parties, may potentially have a bearing on whether the purchase of the shares was wholly or mainly for the purpose of benefiting the company’s trade. The court also refused permission for the claimants to bring a judicial review claim as there was a suitable alternative remedy, namely an appeal to the First-tier Tribunal.
Practical tip
The Boulting case concerned a clearance application for a company purchase of own shares. HMRC has published a useful help sheet on such clearance applications.
