ADML1400 - Incorrect Advice to Customers: Detriment
In all cases where a customer has received incorrect advice, it is important to examine the facts in light of the guidance in ADML1300. The starting point for all considerations must be that the courts will seek to apply the law. In other words HMRC should collect the correct amount of tax unless there are compelling reasons to not do so. This might be difficult or embarrassing for HMRC, but there are only specific and limited circumstances in which HMRC can exercise some discretion.
One of the criteria to be considered is whether the correct application of the law would result in detriment to the taxpayer. If a customer’s livelihood or business would be seriously affected then the more likely it is that the courts could consider this to be unfair and an abuse of our power. Although the other criteria in ADML1300 must also be met, HMRC could then be bound by our incorrect advice for the past whilst ensuring the law is applied correctly for the future.
The customer must suffer real and significant detriment before HMRC can regard itself as bound by incorrect advice and detriment is thought to mean suffering real harm or loss as opposed to mere disappointment or upset.
Caselaw does recognise that whilst detrimental reliance is not a prerequisite to demonstrating a substantive legitimate expectation, it is a relevant and important factor when assessing unfairness and remedy. In theory a legitimate expectation challenge could succeed without evidence of detriment. However, the courts have recognised that this would require exceptional facts.
HMRC recognises the possibility that a legitimate expectation could be found binding without evidence of detriment. However, HMRC will require evidence of detriment suffered in the first instance.