The Chancery Division of the High Court did not have jurisdiction to entertain an appeal in respect of a claim for tax relief based on the principle of legitimate expectation. The correct remedy in such a case was by an application to the Administrative Court for judicial review of the disputed decision.

Facts

The taxpayer had claimed tax relief in respect of certain business travel expenses between his homes in Chester and London. The taxpayer said that prior to making the claim he had called the tax office and had been reassured that he would be allowed to make such a claim so long as the expenses were reasonable. However, his subsequent claim for relief was in fact rejected by Revenue and Customs on the basis that the sums claimed were not a legitimate expense. The taxpayer appealed, taking the view that it was unreasonable for the Revenue to retract what they had previously told him. That appeal was dismissed inter alia on the ground that there was no record of the alleged call to the tax office and the taxpayer had failed to produce any evidence to corroborate his claim.

The taxpayer continued to maintain that his travelling costs were a justifiable business expense since he had a legitimate expectation that the Revenue would not object since he had purportedly been informed that such expenses were deductible. Accordingly he appealed to the Chancery Division by way of case stated. The Revenue contended that the Chancery Division did not have the necessary jurisdiction to hear a claim based on legitimate expectation.

Issue

Whether the taxpayer was entitled to a deduction in respect of travelling expenses in circumstances where he had purportedly been informed by the Revenue that such expenses were deducted.

Decision

Judge Pelling QC (sitting as a High Court judge) (dismissing the appeal) said that a taxpayer would only have a legitimate expectation that he could hold the Revenue to a ruling or statement regarding his fiscal affairs if he had approached them with clear and concise proposals about the future conduct of those affairs, made it plain that a considered ruling was being sought, and indicated that he intended to make use of any ruling; and if the Revenue had given the taxpayer an unequivocal statement as to the treatment of his affairs.

In the light of the relevant authorities, it was clear that the principle of legitimate expectation could only be considered by way of judicial review (R v IR Commrs, ex parte MFK Underwriting Agents Ltd & Ors [1989] BTC 561; Steibelt (HMIT) v Paling [1999] BTC 184; Hatt v Newman (HMIT) [2000] BTC 42; Venables & Ors v Hornby (HMIT) [2003] BTC 559; Demibourne Ltd v HMRC (2005) Sp C 486 applied). In the present case, the taxpayer faced a difficulty in that he was already out of time for making an application for judicial review and had not been informed before that judicial review was the only remedy. Against that background, the court would accept the Revenue's undertaking not to enforce the sums due from the taxpayer for six weeks conditional upon the taxpayer informing them within that period of his case on legitimate expectation. Furthermore, they agreed not to enforce payment until they had reached their decision on the issue and to permit the taxpayer to apply for judicial review if he was still not satisfied.

Chancery Division
Judgment delivered 18 June 2008.