In Accenture Services Limited v The Commissioners of Her Majesty's Revenue and Customs [2009] EWHC 857 the Administrative Court (Sales J) held that HMRC had acted rationally in finding that an extra-statutory concession known as the "staff concession" (the Concession) did not apply to staff secondment arrangements between Accenture Services Limited (ASL) and its client Barclays Bank plc (Barclays). ASL had argued that HMRC's decision to assess it for output VAT in respect of its supply of staff to Barclays was in breach of a substantive legitimate expectation, based on the Concession.

Key points

  • Generally, in a substantive legitimate expectation claim the claimant does not have to show that the decision-maker acted irrationally. The test is whether it would be unfair or an abuse of power for the decision-maker to renege on a clear, unambiguous promise or assurance. However, the Court found that because HMRC had to make an evaluative judgment about the applicability of the Concession, the proper approach for the Court was to limit its review to the question of whether HMRC had acted rationally on the evidence before it.
  • The effect of this approach may be to increase the difficulty of such challenges for claimants, since as is well known the threshold for showing that a decision-maker has acted irrationally is a hard one to meet.

The outsourcing and staff secondment arrangements and the Concession

Barclays entered into an agreement with Accenture (UK) Limited (AUK), under which Barclays outsourced to AUK the management and development of its IT department. Relevant Barclays staff were transferred to a wholly owned subsidiary of AUK, namely ASL and AUK took over dominant management responsibility for these people. ASL then entered into a secondment agreement with Barclays.

The Concession relied upon by Accenture had been applied by HMRC in some form since the 1970s. Its effect was to allow a business to second staff to a client without having to charge and account for VAT in respect of their salary costs, in circumstances where the client paid salary direct to the staff and paid tax, NI and pension contributions directly to the relevant bodies.

The decision under challenge

HMRC decided that ASL's supply of staff to Barclays did not fall within the Concession, with the result that ASL would be liable to account for VAT chargeable in respect of the salary and other contributions paid by Barclays.

Legitimate expectation - the test to be applied by the court

The starting point for the Court was that where a taxpayer claims to be entitled to take advantage of an extra-statutory concession promulgated by the tax authorities, its claim is in the nature of a claim to benefit from an enforceable substantive legitimate expectation. In this case, the expectation was said to arise from HMRC's promise or assurance, in the form of the Concession, that ASL would not be subject to VAT.

ASL argued that it was for the Court to decide whether it was entitled to claim the benefit of a legitimate expectation, having regard to the terms of the Concession and evidence about ASL's reliance on it, including evidence not available to HMRC when it made its decision. It also argued that it did not need to allege or prove that HMRC had acted irrationally, it being for the Court to decide whether the necessary element of unfairness or abuse of power had been established. On the other hand, HMRC argued that the correct approach in a case of this nature, which had involved the making of complex evaluative judgments as to the applicability of the Concession on the facts of the case, was to decide whether HMRC's decision had been irrational. This would mean having regard only to the evidence before HMRC at the time when it made its decision. Sales J noted that the judgements were whether ASL was "supplying staff" to Barclays as that expression was understood in the Concession and carrying on an "employment business" as defined in the Employment Agencies Act 1973.

Sales J adopted HMRC's approach, deferring to HMRC as the body entrusted by Parliament with the role of administering the tax system and with experience and expertise in making evaluative judgements of the kind in question. He took the view that provided that HMRC properly interpreted the terms of the Concession (an issue which it was for the court to decide) and reached a rational conclusion that it did not apply it could not properly be said that HMRC had acted unfairly or committed an abuse of power (judgment, para 35).

On the facts of the case, having regard to the true nature of the arrangements between ASL, AUK and Barclays, the reality of those arrangements was such that they did not fall within the terms of the Concession. In particular, ASL retained predominant control over its employees. The commercial substance of the arrangement was that AUK was providing a complete service to Barclays in the form of an outsourced IT function, rather than merely supplying staff.


Traditionally, in order to establish a substantive legitimate expectation a claimant has to show:-

  1. the representation or expectation sought to be relied upon must be clear, unambiguous and unqualified;
  2. the claimant must be within the class of persons entitled to rely upon the representation or alternatively it must be reasonable for the claimant to rely upon it;  
  3. there must usually but not always be reliance upon the representation and detriment to the claimant; and  
  4. there must be no overriding public interest which would entitle the defendant to renege from its representation.  

It is normally the Court which considers for itself each of elements (a) to (d). So, typically a court would consider the meaning of the representation and whether the particular claimant falls within its ambit. However, the significant feature of this case is that Sales J took the view that, because of the judgements which had to be made in relation to the availability of the Concession, so long as HMRC acted rationally in interpreting and applying it then the Court would not intervene. It is particularly significant that one of the judgements taken by HMRC related to the meaning of "employment business" in primary legislation because courts will often be willing to interpret primary legislation for themselves even if they sometimes give some latitude to the approach of an expert regulator to statutory terms. The consequence of Sales J's approach for claimants, not only in the tax context but in any context where complex or detailed judgements might be called for, is that there will be a greater tendency to approach legitimate expectations from a rationality perspective than to look at them as always involving "hard-edged" questions that the courts should determine for themselves and this approach could make it more difficult for such claimants to succeed in legitimate expectation cases.