HMRC Insider tips on Tax
UK Tax rules and regulations are extremely complex and they are full of ‘grey areas’. As a result, tax payers and professionals who deal with tax calculations refer to HMRC’s guide. This can be handy when tax treatment applied to a transaction or an event is not as straightforward as we sometime want it to be.
That being said, HMRC manuals don’t carry the force of law. Naturally, the questions arises, how reliable is the HMRCs’ manuals in the eyes of tax law? HMRC provides some warning about its manuals (HMRC Manuals):
‘You shouldn’t assume that the guidance is comprehensive or that it will provide a definitive answer in every case. HMRC will use their own reasoning, based on their training and experience, when applying the guidance to the facts of particular cases.
The guidance in these manuals is based on the law as it stood when they were published. HMRC will publish amended or supplementary guidance if there’s a change in the law or in the department’s interpretation of it. HMRC may give earlier notice of such changes through a [HMRC] brief or press release.
Subject to these qualifications you can assume the guidance normally applies, but where HMRC considers that there is, or may have been, avoidance of tax the guidance will not necessarily apply.’
HMRC manuals could be reliable
Aozora GMAC Investment Ltd, R v Revenue and Customs  EWHC 2881 considered the reliance on HMRC’s reliance. In this case the Hight Court considered that HMRC’s guidance could be considered as a ‘relevant representation’ and it was concluded that HMRC had such a (inaccurate and later removed) law statement in its manuals.
…in fact the guidance was not relied upon
The HIgh Court proceeded with fact-finding, weather reliance had been made on HMRC’s guidance. It was noted that professional advice was given to AUK in UK’s double tax relief rules.The professional advice had had comfort from HMRC’s guidelines.
On the other hand, it was also noted that AUK did not draw sufficient comfort and encouragement from the HMRC’s manuals. Due to this and other factors the claim for judicial review was dismissed.
Caution is the key
As the claimant Aozora didn’t succeed with its facts and evidences, it tells the taxpayers to be cautious and be encouraged in other judicial review claims based on a legitimate expectation that HMRC’s manuals and guidances can be taken as relevant representation.
If a taxpayer is relying on a professional advice, the expert should draw the taxpayers attention to HMRC’s manuals and guidances. In this instance, takin into account the case quoted above, the expert and the taxpayer should fully rely on HMRC’s guidances and it should form a substantial part of decision making process.
In rear cases of uncertainty on the tax law interpretation, it is possible to gain some clarification from HMRC on the tax implications before the transaction takes place. (More details)
Read the full article here.