The High Court held that it was not generally unfair for the Inland Revenue to resile from an agreement whereby the employees of an airline were entitled to a flat rate expense allowance (FREA) under a scheme by which the Revenue permitted fixed levels of expenses and hence deductions on that account from taxable emoluments. The Revenue's legitimate aim of recovering, in the public interest, tax that, strictly speaking, ought by statute to be recovered, outweighed any contrary argument that the agreement should generally be kept in force.

Facts

An airline employed some 2,000 pilots and cabin crew. In 1991 the Revenue agreed in writing with the airline a ‘flat rate expense allowance’ (FREA) so that the pilots and cabin staff would be entitled to claim expenses (and hence deductions on that account from their taxable emoluments) at new agreed fixed levels without having to prove that such expenses had in truth been incurred and paid. There were then increases in the levels for pilots and cabin crew respectively by reference to inflation until, in 1997, the levels had reached £525 p.a. for each pilot and £140 p.a. for each member of the cabin crew. Between then and 2004 there were no further increases. In 2004, negotiations began to agree a new FREA. Following three months of negotiations, a clear and unambiguous agreement was made on 9 June 2004 and the airline quickly supplied the information to the Revenue which it needed in order to make the changes for the tax codes which were required in consequence of the June Agreement. On 14 June, by a letter signed jointly by the taxpayer and the airline, the pilots were advised of the new agreed figures which, the letter said, represented a significant increase in the tools of the trade allowance.

On 19 November the Revenue informed the airline that the June agreement was so out of line with Revenue policy and practice that the Inland Revenue could not live with the agreement in its present form. No repayments would flow, said the Revenue, in the foreseeable future. By letter dated 30 November 2004 the Revenue resiled from the June agreement. The taxpayer who was one of the airline pilots and also represented the other pilots as the British Airline Pilots’ Association (BAPA) representative, applied to quash the November letter.

Issue

Whether it was substantially unfair for the Revenue to resile from the June agreement.

Decision

Lawrence Collins J (dismissing the application in general) said that where there was a substantial public interest in a public body behaving as it had done or intended to do then, absent a marked degree of unfairness or of disproportionality, relief of the character of judicial review against the public body was likely to be withheld.

The mere presence of some unfairness might not suffice to lead to relief that preferred the private to the public interest. Moreover, the court could be expected to require detailed evidence to substantiate whatever unfairness was relied upon. As there was no ambiguity or lack of clarity in the June agreement, no allegation of abuse of good faith nor any sharp practice and as there was no error of expression or forgetfulness, the question was whether resiling from the agreement was a proportionate response to a legitimate aim pursued by the Revenue in the public interest. Whilst there had been no ‘policy’ on the subject, on the evidence, it had been the Revenue's almost universal practice to allow FREAs to apply only for the current and future years. To that extent the June agreement was exceptional in permitting retrospectivity of some six years’ duration. There was thus a public interest in the Revenue not being seen to have permitted an agreement, such as the June agreement, so out of accord with its general practice. Further, it was apparent from the figures in the June agreement, and the comments on them, that the June agreement represented a deal that was of unusual generosity in comparison with similar deals made for employees of other airlines. Even though direct comparisons might be difficult, those other airlines would be looking for consistency in the Revenue's attitude to aircrew expenses and would, no doubt, be soon pressing for corresponding generosity to be available to their own employees. The measure of tax which, on a strict view, should be recovered but which, were there to be FREAs negotiated with other airlines at the same level, would be left unrecovered could exceed the £4.6m or so which the Revenue feared it would have to pay out if the June agreement itself were fully to be implemented.

It was one thing for the Revenue to negotiate and implement FREAs where its manpower and similar concerns made them not merely practical but economic and quite another where there was a real risk that taxes truly payable would, in substantial amounts, be left unrecovered. To that extent there was a substantial public interest pointing towards the Revenue being entitled to resile from the June agreement (R v IR Commrs, ex parte Unilever plc [1996] BTC 183 applied).

Where there was a public interest going one way but some degree of unfairness going the other then it was not that any unfairness would serve to outweigh that public interest. The unfairness needed to be such as evinced an abuse of power on the public authority's part. To that extent, there would be cases in which lesser unfairness went unrelieved. Bitter disappointment, of itself, was unlikely to suffice. But if an employee, by reference to his individual circumstances, could show illogicality, immorality or outrageous unfairness or disproportionality on the Revenue's part, he could thereby keep the June agreement in force between himself and the Revenue. However, in so far as the taxpayer's application was an attempt to bar the Revenue from resiling from the June agreement in general, it was dismissed. The taxpayer's personal application would be adjourned with liberty to restore pending further evidence being adduced.

Queen's Bench Division (Administrative Court). Judgment delivered 21 December 2005.