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High Court dismisses judicial review challenge to HMRC's decision to restrict the availability of the Liechtenstein disclosure facility

18 February 2016. Published by Alexis Armitage, Senior Associate

In R (on the application of City Shoes Wholesale Ltd) v Revenue & Customs Commissioners [2016] EWHC 107 (Admin), the High Court rejected an application for judicial review of HMRC's refusal to grant the nine claimants, all of whom had operated employee benefit trusts (EBTs), the full benefits of the Liechtenstein disclosure facility (LDF).

The court dismissed the claimants' application for judicial review on the basis that their applications were never registered and therefore they had no legitimate expectation to receive full benefit of the LDF, and there had been no abuse of power or error of law by HMRC.


In 2011, the claimants engaged in correspondence with HMRC about whether the LDF could be utilised to settle disputed liabilities arising from their EBTs. During these discussions HMRC indicated this would be possible.

In July 2013, HMRC advised the claimants that it was reviewing the benefits available under the LDF. Towards the end of 2013, the claimants applied for registration and HMRC then put their applications on hold pending review. The claimants' applications were subsequently never registered.

Notwithstanding the earlier discussions, in 2014, HMRC advised the claimants that the full LDF benefits were not available to them as there had been on-going enquiries into their EBT arrangements at the time the application was made. The claimants were advised that only limited LDF benefits would be available to each of them.

The claimants challenged HMRC's decision by way of an application for judicial review.

The High Court's decision

In dismissing the claimants' application for judicial review, the court considered the following issues: 

  1. whether the claimants had a legitimate expectation to any substantive benefits under the LDF;
  2. whether HMRC's decision was 'conspicuously unfair' (i.e. so unfair so as to amount to an abuse of power); and
  3. whether HMRC failed to take into account all relevant considerations or to give proper prominence to those considerations which favoured the continuation of full LDF benefits for the claimants. 

1. Legitimate expectation

The judge commented that although the LDF was capable of engaging the doctrine of legitimate expectation, the LDF merely invited taxpayers to apply for registration; it offered them no promise that their applications would be accepted and without registration there could be no legitimate expectation. The court therefore concluded that as the claimants' applications were never registered, the claimants could have no legitimate expectation to the full benefits under the LDF. 

2. Conspicuously unfair

With regard to this ground, the judge commented that as the claimants had no legitimate expectation to the full benefits under the LDF it would be difficult for them to show 'conspicuous unfairness' in HMRC's decision to deny them full LDF benefits because the claimants had no expectation that they would receive such benefits in the first place. However, notwithstanding this observation, the court considered each of the arguments put forward by the claimants in support of their contention that HMRC's decision was so unfair so as to amount to an abuse of power. 

a) The claimants were induced by HMRC to believe that they would receive the full benefits of the LDF but at the 11th hour and without warning many of the benefits available under the LDF were withdrawn 

Whilst the judge accepted that the claimants had been "led up the garden path" by HMRC by being encouraged to use the LDF, the claimants were not given any assurances that they would receive full benefits under the LDF and therefore HMRC's decision was not so unfair that it should not be allowed to stand (R v IRC ex p Unilever plc [1996] STC 681 applied). This argument was therefore rejected. 

b) The treatment received by the claimants was contrary to HMRC's own published policy 

The judge commented that the LDF itself stipulated that full LDF benefits would only be available to taxpayers who were registered. As the claimants were never registered, the judge concluded that HMRC's decision to deny the claimants full LDF benefits was not a departure from the stated policy. In the view of the judge, this argument was misconceived and it was therefore rejected. 

c) The decision in fact reflected a decision in principle made six to twelve months earlier and such backdating was therefore retrospective in effect 

The judge concluded that this argument must also fail for the same reasons stated at b) above, namely, that the benefits conferred under the LDF were conditional upon registration under the LDF. Throughout the relevant period, the claimants were never registered and therefore there was no 'backdating'. Rather, there was merely a change in the terms of the LDF available with prospective effect to those taxpayers who became registered after that date. This argument therefore also failed. 

d) HMRC's decision was discriminatory because others in a materially identical situation to the claimants were permitted to benefit from the LDF without limitation 

The judge said that these other taxpayers were in a different position to the claimants because their applications had been accepted and registration certificates had been issued to them. Taxpayers in such a position did have a legitimate expectation to the full benefits under the LDF because their applications had been accepted and their eligibility for those benefits had been confirmed. This argument therefore failed. 

The court therefore concluded that it was unable to accept that HMRC's decision had been 'conspicuously unfair'. 

3. HMRC failed to take into account all relevant considerations

The judge considered in detail the factors which HMRC had taken into account before reaching its decision. Amongst the many factors considered were: (i) the significant adverse tax yield implications of permitting any of the EBT users to settle by means of the LDF; (ii) the interests of taxpayers generally, that tax will be collected in accordance with the statute; (iii) the purpose of the LDF, which was to enable HMRC to reach settlements and realise tax from taxpayers whose liabilities had previously been unknown to HMRC; (iv) the possible reputational damage to HMRC, and the possibility of legal action, if HMRC permitted the LDF to be used for EBT settlements; (v) HMRC's Litigation and Settlement Strategy, which sets out HMRC's policy on reaching settlements with taxpayers, amongst other things; (vi) the comparatively less advantageous terms of the EBT Settlement Opportunity, through which some EBT users had settled; and (vii) the non-availability of the LDF to those EBT users who did not have any foreign assets at the relevant date.  

The judge did not consider that any material consideration had been left out or given inappropriate weight by HMRC in arriving at its decision. No fault could be identified in its approach or evaluation. 


What is perhaps most interesting about this case is the fact that other taxpayers who utilised EBTs were allowed to use the LDF. HMRC regularly reminds us that it treats all taxpayers in similar circumstances the same. The claimants in this case may take issue with this claim. HMRC must be seen to treat every taxpayer equally. No taxpayer should be treated more favourably than another and HMRC should not allow itself to be influenced by its dislike of EBT arrangements when implementing this policy.

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