Rory Mullan and Harriet Brown (directly instructed through Bar Direct Access Scheme ) for the claimant; Akash Nawbatt (instructed by HMRC Solicitors Office ) for the defendant.
From 1989 to 2008 the claimant was employed by a bank. As part of his remuneration, he was granted options in a company called Armadale Ltd at a nominal exercise price. The claimant exercised options he held in the Armadale scheme in tax years 1999 and 2000, disposing of the shares on the same day. On 8 January 2003, the commissioners published a technical note headed “Tax treatment of options following Mansworth v Jelley” (“the 2003 Guidance”). It recorded that the effect of Mansworth v Jelley [2003] STC 53 would be to increase the capital gains acquisition cost which might mean that on a subsequent disposal of the assets, the higher cost might reduce the capital gain or turn a gain into an allowable loss. On 29 January 2003 the claimant made a claim for capital losses on the 1999 and 2000 share disposals, based on the 2003 Guidance. On 2 June 2003 the commissioners wrote to the claimant to tell him that they were opening an inquiry into his claims and amendments. During lengthy correspondence from 2003 to 2009 the claimant repeatedly asserted his right to claim Mansworth v Jelley losses, which was the term commonly used to refer to claims based on the 2003 Guidance. The claimant submitted self-assessment tax returns for 2005/6 and 2006/7 setting the claimed Mansworth v Jelley losses against capital gains accrued in those years. The commissioners opened inquiries into those returns. They finally wrote to the claimant in November 2010 ruling that the Mansworth v Jelley losses would not be allowed and closure notices were issued on that date for the years 2005/6 and 2006/7. The claimant sought judicial review of that decision on the ground, inter alia, that he had a legitimate expectation that the Mansworth v Jelley loss claims would be considered and dealt with consistently with the published 2003 Guidance which set out the commissioners’ view of the law at the time that the claim was made, and the closure notices breached that legitimate expectation.
Held, allowing the claim, that the commissioners should be held to their published statements. The publication of those statements was itself in the public interest, it provided certainty among taxpayers, it was part of the cooperative relationship between the commissioners and the public, and ultimately it was part of the commissioners’ tax collection function. At the time the claimant originally exercised the share options in 1998 and 1999, he had no expectation that their disposal would generate a loss for capital gains tax purposes. The 2003 Guidance was a statement formally published by the commissioners to the world. It was clear, unambiguous and devoid of relevant qualification. The claimant fell clearly within its terms. He had relied on the 2003 Guidance in submitting his claim. The consequence was that the claimant had a legitimate expectation arising out of the 2003 Guidance that his claim for capital losses on the disposal of his shares would be taxed in accordance with that Guidance. That legitimate expectation was no lesser or different because, as time progressed, the commissioners came to view the 2003 Guidance as a mistake which had given those taxpayers who had relied on it a windfall to which they were not entitled as a matter of tax law. That was a feature typical of legitimate expectation in tax cases. Once a legitimate expectation on the part of the taxpayer had been established, the commissioners were obliged to balance all aspects of unfairness to determine whether, overall, there would be conspicuous unfairness in collecting the tax due. The claimant was complaining of unfairness which went far beyond detrimental reliance. The commissioners did not consider those other aspects of unfairness. Accordingly, the closure notices which were the product of the balancing exercise would be quashed.