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HMRC internal manual

Admin Law Manual

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HM Revenue & Customs
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Incorrect Advice to Customers: Collection and management

HMRC’s duty to apply the law correctly

The Commissioners for Revenue & Customs are charged by Parliament with collecting or paying and managing all of the taxes formerly the responsibility of HM Customs and Excise and the Inland Revenue, including tax credits and National Insurance. The Department has a duty to collect the correct amount of tax as required by statute and has limited powers to decide to do otherwise.

The Commissioners have some limited discretion with regard to this collection and management, under section 5 of the Commissioners for Revenue & Customs Act 2005, but can only forgo the collection of taxes if this would obtain a higher net return for the national exchequer (for example, if it would cost £500 to collect tax of £50, forgoing the tax in question increases the overall yield by reducing the cost of collection). This principle has been expressed in a number of tax cases, most notably Wilkinson-v-Commissioners of Inland Revenue in the Court of Appeal 2003.

Legitimate Expectation

In some cases, HMRC might act in such a way that it leads a person to believe he is acting correctly when in law he is not. In this situation, the person might be entitled to rely on the advice he received from HMRC. The person has a ‘legitimate expectation’ that HMRC will treat him in a certain way and is protected by the courts on the basis that the principles of fairness, proportionality, predictability and certainty should not be disregarded. This manual deals only with situations arising from incorrect specific advice given to individual taxpayers and businesses. If you have a case concerning any other aspect of legitimate expectation, please contact Tax Admin Policy in Central Policy for further advice.

The starting point for all cases is that HMRC is not bound by any advice it gives which is incorrect in law. However, in some instances which will be outlined in more detail later in this manual, HMRC might be bound by such incorrect advice, especially if we are able to apply discretion under our powers of collection and management. Please see ADML1300 for the tests to apply to decide if HMRC is bound by incorrect advice.

In all circumstances, where we have given incorrect advice, we must correct the position for the future. See ADML2000 for more detail.

Obligations on HMRC as a public body

HMRC also has a duty under public law to treat taxpayers fairly. There will be some circumstances in relation to incorrect advice in which the courts would rule that to apply the strict letter of the law would be so unfair as to amount to an abuse of power. However, the circumstances need to be exceptional for a court to consider our conduct to be an abuse of power.