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The Budget was going to be delivered by the Chancellor of the Exchequer on 6th November. But not any more – it has been overtaken by Events.
Mr Javid had admitted that the abolition if IHT is something which was “on his mind”. Maybe it will stay there – but I guess that will depend on the Events.
Given that such abolition could not be expected to last, there would certainly have been lots of activity to take advantage of the opportunity. Including perhaps the widespread massacre of the older generation so as to avoid missing out on a tax free inheritance.
I don’t think I will be losing much sleep over the prospect – particularly now.
Reliance on HMRC Manuals
It is a matter of profound importance that taxpayers and professional advisers are able to rely on the published statements of HMRC in connection with their own tax affairs and the affairs of their clients.
The very idea that we might not be able to trust the public statements of one of the most important and prestigious organs of government, must surely be unthinkable.
It is in this context that the recent decision of the Court of Appeal in Aozora GMAC Investment Ltd v HMRC [2019] EWCA Civ 1643 assumes some importance.
The case was all about whether the company was entitled to double taxation relief which had been refused by HMRC on the authority of section 793A ICTA 1988. The company said that HMRC’s interpretation of section 793A was wrong – but crucially, even if HMRC were right, the relief should still be given because the HMRC Manuals said that relief would be available in these circumstances. The company had a legitimate expectation that HMRC would apply the law in accordance with their published guidance on which taxpayers were entitled to rely. That is what Judicial Review is for.
Not so fast Monsieur. You need a bit more than this. It is necessary to consider (and weigh) a number of issues, for example, whether the taxpayer or the persons advising them, relied on the published statements for this purpose; whether the public explanation published by HMRC was clear, unambiguous and devoid of any relevant qualification; whether the taxpayer had suffered a substantial detriment from relying on it, and whether it would be conspicuously unfair for the relief to be denied. Tough call.
I do not want to dwell on the particular facts of this case which were inevitably complicated but to highlight one of the conclusions of the Court of Appeal which reads as follows:
“… it is necessary for [the taxpayer] to show a high degree of unfairness arising in its particular circumstances in order to override the public interest in HMRC collecting taxes in accordance with a correct interpretation of the law”.
In the current environment, it is difficult to see that such a test would ever be satisfied. It will always be possible to say that the public interest in collecting the right amount of tax according to the law must trump the interests of an individual taxpayer who has been disadvantaged.
However, I would respectfully suggest that this must be the wrong way round. Surely fairness should always prevail. Were we not taught that this is the whole foundation of Equity, and that since 1615, in the event of such a conflict, Equity should prevail.
A suggestion that taxpayers can be misled and disadvantaged (and to bring us completely up to date, might commit suicide), by relying on official statements which the State can disown on the altar of the public interest, is not just the thin end of the wedge, it is the gates of the Kremlin.
Commercial Realities:
A point which often arises in many tax disputes is whether the contractual rights and obligations relating to a transaction should prevail over the commercial realities of the arrangements.
It is tempting to suggest that both the taxpayer and HMRC are likely to take the view which is to their advantage. That is understandable as far as the taxpayer is concerned, but not so much for HMRC. As a public body they ought to be arguing for the right answer (which would happily accord with their mantra that the taxpayer should pay the right amount of tax) rather than seeking an interpretation which gives rise to the largest amount of tax.
However, philosophy aside, this is an issue which has been exercising the Courts recently.
In HMRC v Hargreaves Lansdown Asset Management Ltd [2019] UKUT 0246 the Upper Tribunal was concerned with the proper tax treatment of certain payments to investors. The Upper Tribunal held that the tax treatment of the payments should follow the contractual arrangements – not the commercial reality behind the payments. The commercial realities were not determinative of the substance of the arrangements and were only relevant if they were reflected in the contracts.
However, in American Express Services Europe Ltd v HMRC TC 7342, the FTT held that it was necessary to consider whether the contractual arrangements were consistent with the commercial realities of the situation. They found that as a question of fact, they were consistent – so there was no problem. But they made it clear that if there had been a conflict, the tax treatment would have followed the commercial realities and not the contractual analysis.
The decision of the Upper Tribunal has much greater weight as it represents precedential authority but even so, this conflict is not very helpful in enabling us to understand what is important where the contracts and the commercial realities do not correspond.
The commercial realities can also have a wider significance – for example, in determining whether there is a genuine trade being carried on by the taxpayer – and certainly the commercial realities are something which has been important to the GAAR panel when making their decisions. And of course, there is always Ramsay ….
It might therefore be a bit optimistic to rely too much on the decision in Hargreaves at least for the moment and probably best to ensure as far as possible that the contractual arrangements and the commercial realities coincide.
For more information, please contact:
Peter Vaines, Field Court Tax Chambers, 3 Field Court Gray‘s Inn, London, WC1R 5EP
Tel: 020 3693 3700 pv@fieldtax.com www.fieldtax.com
