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  • 6 Apr 2016
  • In the recent City Shoes case against HMRC, the High Court has decided to reject the claimants’ application for judicial review.

    All nine claimants were in communications with HMRC back in 2011 to determine whether they could utilise the Liechtenstein disclosure facility (LDF) to settle disputed liabilities arising from their employee benefit trusts (EBTs). At this point HMRC indicated to the claimants that this would be possible. They then submitted applications to register under the LDF, but HMRC did not issue certificates confirming their registration.

    By 2014, HMRC issued a joint declaration stating that full LDF benefits would no longer be available to the claimants. This was due to the fact that their arrangements were already under enquiry by the time the LDF applications were made. The claimants, represented by BDO, then challenged HMRC’s decision on a number of grounds of conspicuous unfairness by way of an application for judicial review.

    The claimants articulated that unfairness in the following ways:
    1. That the claimants had a legitimate expectation to benefit from the LDF;
    2. HMRC’s decision was ‘conspicuously unfair’ because others in a materially identical situation to the claimants were not subject to the decision; and
    3. HMRC failed to take into account all relevant considerations or give proper prominence to those considerations which favoured the continuation of full LDF benefits for the claimants.

    The Judgement
    The judge, Mrs Justice Whipple, rejected all of these arguments and denied the claimant’s application, despite criticising HMRC for leading the claimants “up the garden path”. She considered that the claimants had been encouraged to use the LDF by HMRC when it was no longer an option to take. However her overall conclusion held that the taxpayers were merely invited to apply for LDF registration, so there should be no grounds to believe that HMRC would accept their applications. Additionally, without formal registration for the LDF, there could be no legitimate expectation from the claimants for the full benefits.

    Having the backing of expert technical knowledge can make a substantial difference to the eventual outcome of a tax case. Despite the result of the judicial review, other taxpayers who utilised similar EBTs were allowed to use the LDF, which casts a shadow over HMRC’s claim that it treats all taxpayers in similar circumstances equally. At Pathfinder we continually keep up to date with the latest changes to regulation as well as HMRC enquiry outcomes to provide our clients with a first class service of support and advice.

    If you have a tax dispute matter you wish to discuss with us, please do not hesitate to get in contact.

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