Tribunal no power to consider ‘legitimate expectation’

Posted: 27th February 2013

In a ruling which clarifies the law, the upper tribunal (UT) has rejected a taxpayer’s plea that he had a ‘legitimate expectation’ that he would be granted a VAT input tax credit after being given an assurance to that effect during a telephone call to the national advice service (NAS) provided by Her Majesty’s Revenue & Customs (HMRC). The tribunal ruled that the public law concept of legitimate expectation had no application to a case where the credit sought was precluded by statute.

Following a building dispute, the taxpayer had sought the credit in respect of invoices relating to legal and adjudication costs. During a telephone call to NAS, he said that he was told that he had three years in which to register for VAT and claim such a credit. However, the credit was later refused by HMRC on the basis that the invoices were in respect of services which had been supplied to the taxpayer more than six months prior to the effective date of his registration for VAT.HMRC

Although that refusal was based upon a correct interpretation of regulation 111(2)(d) of the Value Added Tax Regulations 1995, the first-tier tribunal (FTT) ruled at first instance that the taxpayer had an enforceable legitimate expectation that the credit would nevertheless be granted.

Allowing HMRC’s appeal against that decision, the UT ruled that the FTT had no jurisdiction to give effect to the taxpayers’ legitimate expectation. Although the FTT did have authority to consider the fairness of HMRC decisions in appropriate cases, there was no such power in circumstances where HMRC had no discretion to grant the credit sought.

Emphasising that the role of NAS is to give general advice on receiving inquiries from the public, rather than to provide binding ‘rulings’ on tax matters, the UT also concluded that, on the facts of the case, HMRC’s refusal could not be viewed as unfair or an abuse of power.