Can we rely on Revenue manuals?

How much can taxpayers rely on HMRC’s statements on the way in which tax law operates? In particular, what reliance can be placed on Revenue manuals?

Older readers will remember when the manuals were shrouded in secrecy. They were available only to Inland Revenue staff, and leakage of information was a serious matter. Now, the manuals are in the public domain.

In the most recent film scheme case (Samarkand Film Partnership No 3 and others v CRC), the Upper Tribunal considered in some depth whether a taxpayer could rely on an analysis of the law set out in the manuals.

The essential point is encapsulated at para 163 of the judgment:

“The Business Income Manual is not primarily addressed to taxpayers at all, and does not set out to tell taxpayers what points will or will not be taken. What it sets out to do is tell HMRC staff how to apply the legislation. We entirely accept of course that it is also published with the intention that taxpayers and their professional advisers ‘may gain a better understanding of how [HMRC] determines tax liabilities’, but that understanding cannot be found by picking out particular statements in the manual and treating them as a definitive statement of what points HMRC will or will not take in all circumstances. It is necessary to have regard to the relevant parts of the manual as a whole.”

The significance of the need to look at the manuals as a whole is that they contain an explicit warning that they will not necessarily apply where there may have been avoidance.

Moreover, the part of the manual on which the taxpayer was to rely also had plenty of warnings about avoidance. The evidence that HMRC were able to put to the tribunal was that, although the arrangement appeared on the face of it to be straightforward internal emails from the promoter, gave a quite different picture.

So, the tribunal had no difficult in reaching the conclusion that the Revenue was not bound by what it had said in the manuals.

Read paragraph 177 of the Samarkand judgment, where some of the appellants’ emails are published (“Don’t mention this, it smells of pre-ordained”).

Are you creating similar hostages to fortune that could cause embarrassment in the future? If you are okay, can you be certain your staff are also well-disciplined? Might it be worth running an internal training session to reinforce the right messages?