The High Court, in the recent case of R (Biffa Waste Management Services Ltd) v the Commissioners for HMRC  EWHC 1444 (Admin), has provided much needed clarification on taxpayers’ entitlement to rely upon rulings by HMRC where the ruling is general in nature but framed to apply only to specific transactions.
The claimant, Biffa Waste Services Limited (“Biffa“), a supplier of waste disposal services that operates 12 active landfill sites in the UK, challenged HMRC’s direction to Biffa on 20 October 2014 (the “Contested Decision“) to treat the use of material in the construction of a “regulation layer” – the layer above the final layer of soft waste placed below the “cap” that seals the landfill containment system – as subject to landfill tax (“LFT“). The decision reinstates HMRC’s revocation on 31 May 2012 of a ruling on 28 September 2009 (the “Ruling“) that the regulation layer at North Herts Landfill Site (“North Herts“) was not subject to LFT.
In 2009, Biffa sought clarification from HMRC on the tax treatment of its installation of a regulation layer as part of restoration works at North Herts, in light of legislative changes to LFT that were about to come into force under the Landfill Tax (Prescribed Landfill Site Activities) Order (SI 2009/1929) (the “Prescribed Activities Order“). This prompted HMRC to issue the Ruling, which stated in unambiguous terms that the installation of a regulation layer at North Herts fell outside the scope of LFT. In reliance upon the Ruling, Biffa did not account for LFT in the material used to construct the regulation layer at North Herts nor at any of its other landfill sites, on the footing that the regulation layer at each of those sites was materially the same as the regulation layer at North Herts.
On 31 May 2012, following tax audits of other landfill sites operated by Biffa, HMRC revoked the Ruling, describing it as an “incorrect decision” that wrongly interpreted the Prescribed Activities Order and that did not apply to “the regulation layer at any site other than [North Herts]”. On that basis, HMRC issued a protective assessment against Biffa for more than £69m of LFT from 2009 to 2012. Ernst & Young, on behalf of Biffa, requested an independent review of the decision, which ultimately led to HMRC issuing the Contested Decision.
Biffa filed an appeal against the substantive nature of the Contested Decision in the First-tier Tax Tribunal. However, as it was precluded from advancing public law grounds before the Tribunal, Biffa also applied for judicial review of the Contested Decision on grounds that it breached Biffa’s legitimate expectation under EU law and its right under Article 1 of Protocol 1 of the European Convention of Human Rights. In its High Court challenge, Biffa contended that: (i) the Contested Decision was contrary to the Ruling as it represented that the regulation layer was not subject to LFT; and (ii) HMRC may not apply the Contested Decision retrospectively, i.e. in respect of material used in the regulation layer prior to 31 May 2012.
The central issue discussed in Sir Kenneth Parker’s judgment is the meaning and the scope of the Ruling. Disagreeing with HMRC’s principal argument that the Ruling was confined to North Herts, he found the Ruling “implicitly” to extend to other sites as being “a general statement by HMRC […] as to the meaning and effect of the relevant legislation that could legitimately be relied on, not only in respect of the regulation layer at [North Herts], but also in respect of a regulation layer […] at any other landfill site.” The judge primarily cited the facts that Biffa’s request for clarification in 2009 was for general guidance on the application of the new legislative regime to the regulation layer and that HMRC’s correspondence with Biffa following the request but before the Ruling was put in general terms and not confined, either expressly or impliedly, to North Herts.
Moreover, there was nothing to suggest either that the regulation layer was unique to North Herts, that the relevant operating procedures or regulatory position was materially different at other Biffa sites, or that the Ruling turned, or could rationally turn, upon characteristics specific to North Herts. On that basis, and as it was evidenced that HMRC knew that Biffa deployed a regulation layer at their sites generally, Sir Kenneth Parker went so far as to state that: “Indeed, in my view, it would have been irrational if Mr Hart [of HMRC] had concluded the Ruling by expressly stating that it applied, and applied only, to [North Herts], and that it could not be relied upon in respect of any other Biffa site.“
The Court allowed Biffa’s claim.
Criticism of HMRC
It is of note that the judge was highly critical of HMRC’s conduct in the case, particularly in relation to failures to disclose relevant documents: “It is deeply unattractive, to put the matter at its lowest, for HMRC to advance a case, based upon incomplete material known to the taxpayer, that a particular representation should be given a very narrow scope, when HMRC has in its possession further significant documents that, on a fair reading, show that no such narrow scope was intended at the time by HMRC. The position reached in this case, as far as I am aware, is without precedent, and I sincerely hope that it will never recur.“
Sir Kenneth Parker went on to suggest that for a public authority to put forward as the true meaning of a particular representation an interpretation that is wholly inconsistent with what the public authority intended at the time was “simply offensive to justice and unlawful“.
This case provides helpful guidance from the Court on the taxpayer’s right to rely on tax rulings where there is no material difference between the subject matter of the tax ruling and that in the later scenario. HMRC in particular often frame rulings by reference to specific facts. The lesson is that if the taxpayer has asked for general guidance, that framing may not be enough to stop the ruling being seen as a general one.
This is one of a number of current HMRC judicial review cases where HMRC seek to resile from guidance having concluded it be wrong in law. In some of those, HMRC argue that they simply have no duty to honour guidance which turns out to be incorrect. In others, HMRC say that guidance which merely interprets the legislation cannot bind them. Neither argument was advanced here.