Glass abstract of outside building.

Upper Tribunal refuses permission for judicial review of HMRC's policy on prior misapplication of law

12 January 2018

In The Queen (on the application of R Clarke and others) v HMRC [2017] UKUT 379, the Upper Tribunal (UT) refused an application for permission to judicially review HMRC's decision not to compensate the taxpayer beyond the scope of its published policy contained in Business Brief 28/04.


The claimants ran residential care homes for profit. Until 2002 HMRC erroneously treated the supplies of services provided by residential care homes as being exempt from VAT under what was then Group 7 of Schedule 9 to VATA 1994. The exemption meant that the claimants were not registered for VAT, they did not charge VAT to their customers and they could not reclaim any VAT on the inputs they acquired in order to provide their services.

In Customs and Excise Commissioners v Kingscrest Associates Ltd & another [2002] EWHC 410 (Ch), the High Court confirmed that the exemption conferred by VAT did not cover the supplies provided by the care home which had brought the appeal after being refused registration. The care home was therefore entitled to be registered. 

In Business Brief 28/04, published in 2004, HMRC said that care homes did not have to register for VAT for the period prior to the Kingscrest decision because HMRC was prepared to remit any output tax that care homes were liable to pay on the fees that they had charged their residents. However, a care home could register if it so wished and it would then have to account for VAT to HMRC.

The claimants chose not to register for VAT. However, in 2011, following advice, they registered for VAT for the past period and claimed HMRC should forgo all output tax and repay all input tax (a position which was more generous than the policy set out in Business Brief 28/04). 

HMRC rejected the claims.  

The claimants challenged HMRC's decision arguing that following an erroneous application of the law by HMRC, they had a legitimate expectation that they would be treated more favourably than HMRC's published remedy.

The proceedings began by way of application for permission to seek judicial review to the Administrative Court. They were then transferred to the UT by the Administrative Court.

UT decision

The UT dismissed the application for permission to commence judicial review.

The UT found there was no representation that HMRC would apply a more favourable policy than had been published. The only legitimate expectation created was that supplies made before Kingscrest would be treated as exempt. That expectation had been fulfilled by HMRC's policy of not insisting that care homes register for VAT for the period prior to the Kingcrest decision. Accordingly, there was no legitimate expectation and no conspicuous unfairness.

The UT considered whether the application had been made in time. The application should have been made within three months of the publication of Business Brief 28/04, as this was the reviewable decision and accordingly, the application was made substantially out of time.  


The individual letters the claimants received were critical to the UT's conclusion on the timing issue. The UT considered the letters were simply reiterations of HMRC's previous conclusion and commented that "claimants cannot manufacture a reviewable decision by a public authority by repeatedly writing to the authority asking for a different decision". In the view of the UT, the application should have been made within three months of publication of Business Brief 28/04.

A copy of the decision is available to view here.