Taxpayers can rely on concession unless it is publicly withdrawn, rules court

In a judicial review case concerning a tax exemption for seafarers the Court decided that the taxpayer had a legitimate expectation that he would be taxed in accordance with a concession contained in published guidance issued by HMRC unless notice of the withdrawal or amendment of the concession had been publicised to the whole class of potentially eligible taxpayers.

The taxpayers in the case were seafarers working on vessels which travelled between UK ports via international waters. A seafarer who works wholly or partly outside the UK can claim a deduction from his taxable income for earnings attributable to days when he is absent from the UK. 

The individuals claimed they had relied on guidance issued by HMRC which stated they would be treated as being absent from the UK on days when they left a UK port on a voyage which would go outside territorial waters. They claimed to be entitled to the deductions even though the vessels were travelling between UK ports.

HMRC argued that they could only count days when they left the UK as being days when they were absent from the UK if they were bound for a foreign port.

The legislation states that a person is absent from the UK on any day only if he is absent "at the end of the day". It can be difficult to determine whether a ship is inside or outside UK territorial waters at a given moment.

Various pieces of guidance issued by HMRC, including a booklet known colloquially in the industry as "the Blue Book", stated that "A day of absence from the UK is any day when you are outside the UK at the end of that day (midnight). We normally treat a vessel as having left the UK at the moment it leaves berth or anchorage, on a voyage which will take it outside UK territorial waters".

Other guidance issued by HMRC included this sort of wording but only in the context where the vessel was bound for an overseas port.

The judge decided that the individuals had relied on the guidance in the Blue Book and that HMRC would remain bound by the concession until it had given notice to all seafarers potentially eligible to claim the deduction that the concession was to be withdrawn or altered.

"Inspectors have historically argued that their decisions in the application of Extra Statutory Concessions cannot be appealed. This decision will certainly make them think twice in the future," said Joe Quinn, a tax investigations expert at Pinsent Masons, the law firm behind Out-Law.com.

HMRC argued that even if at some point the individuals had a legitimate expectation based on what was in the Blue Book, that expectation ceased once HMRC had written to them denying the existence of the concession.

"If a taxpayer legitimately relies upon a statement made by [HMRC] which is contained within a document published by the [HMRC] and aimed at a class of taxpayers of which the taxpayer is one it does not seem to me that his reliance upon the document ought to regarded as unreasonable simply because an employee of [HMRC] expresses a view which is contrary to that contained in the document," said Mr Justice Wyn Wlliams.