Mark McLaughlin looks at taxpayer clearance applications to HM Revenue and Customs and whether clearances given can be relied upon.
Whilst death and taxes are said to be the only certainties in life, certainty is often conspicuously absent when seeking to establish the tax treatment of an event or transaction.
HMRC’s views
HM Revenue and Customs (HMRC) recognises the need for taxpayers and advisers to have certainty, or at least a statement of HMRC’s view, on important tax issues. Consequently, HMRC has published a plethora of information on the Gov.uk website.
For example, probably the most useful guidance for tax advisers is published in HMRC’s manuals (www.gov.uk/government/collections/hmrc-manuals), which contain technical guidance for HMRC staff and tax professionals.
However, the manuals do not provide certainty, because they do not generally carry the force of law.
Is that clear?
Tax law provides for applications to HMRC for clearance on the tax treatment of certain transactions (i.e., ‘statutory clearances’). Furthermore, HMRC offers a ‘non-statutory clearances’ service in some other areas of uncertainty. A ‘clearance’ is broadly written confirmation of HMRC’s view on the application of tax law to a particular transaction or event, which the taxpayer can generally rely upon.
However, there are exceptions to the general rule on certainty, such as if proposed transactions are not carried out exactly as described. The information provided in the clearance application must be complete, accurate and correct to the best of the applicant’s knowledge and belief. 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”.
Not accurate enough
Hence, clearance applications must be drafted very carefully; otherwise, the application may be rendered void, and any clearance given by HMRC withdrawn.
For example, in Airline Placement Ltd, R (On the Application Of) v Commissioners for His Majesty's Revenue and Customs [2023] EWHC 1191, the appellant obtained (non-statutory) clearance from HMRC, which gave a favourable VAT treatment. However, HMRC later revoked the clearance on the basis that the taxpayer’s application was materially inaccurate and misleading. The First-tier Tribunal held that there had not been “full and frank” disclosure, and therefore the taxpayer had no legitimate expectation that the ruling would not be revoked by HMRC.
Moving goalposts
Worryingly, even if a clearance application is complete and correct, that does not necessarily provide certainty. Guidance on when information or advice provided by HMRC can be relied upon (tinyurl.com/HMRC-Info-Advice) states:
‘HMRC have a duty to collect the correct amount of tax as required by the law as it applies at the time.
Advice is also based on the understanding of the law at the time it is given. If this is changed by the courts, we must collect the correct amount of tax as required by the new understanding of the law.
This may mean that HMRC can no longer be bound by advice, information or guidance it has previously given. We may decide not to apply the new understanding retrospectively and may only apply it moving forward instead’ (emphasis added).
Whilst HMRC clearances can be helpful, it is therefore important to be mindful of the limitations in their reliability before making clearance applications.
Practical tip
Useful guidance on how to apply for HMRC’s clearance or approval of a transaction is available on the Gov.uk website (tinyurl.com/HMRC-CG).
