The Court of Appeal’s decision in the Ingenious case was released yesterday. If rumours are true, it was a case HMRC did everything imaginable – indeed, if they’re true, some things barely imaginable – not to have to fight. And it’s a case which HMRC has now won twice: once before Mr Justice (now Lord Justice) Sales in the High Court and now again, on appeal, before the Court of Appeal.
I don’t usually write about cases on this blog. But this case is rather interesting – it concerns (quite explicitly) the question whether the law prevents HMRC from serving the public interest.
The facts don’t especially matter (is there a more welcome phrase a tax lawyer can utter?) but because they’re engaging I’ll give them to you anyway.
Alexi Mostrous, Times Journalist and Inventor of the Tax Scoop, met with David Hartnett to discuss some information that had come into Alexi’s possession and which he thought might be of interest to HMRC. Accounts of the basis on which that meeting was held vary but during the course of it the subject of Ingenious (the largest promoter of what it would style film investment structures) and its architect, Patrick McKenna, cropped up. And this exchange ensued:
Mr Mostrous: With McKenna do you think he is enacting any active schemes or any schemes that could be used to deprive the Revenue of tax now?
Mr Hartnett: I don’t know
Mr Mostrous: He’s not on your radar?
Mr Hartnett: Oh, he’s never left my radar.
Mr Mostrous: What do you think of him because he presents a very different profile.
Mr Hartnett: He’s an urbane man, he’s a former Deloitte partner, he’s a clever guy, he’s made a fortune, he’s a banker, but actually he’s a big risk for us to so we would like to recover lots of tax relief he’s generated for himself and for other people. Are we winning? I would say, beginning to. I think we’ll clean up on film schemes over the next few years”
Mr Mostrous: That applies to Mr McKenna as well as film schemes in general?
Mr Hartnett: I think we’ll clean up on film schemes over the next few years. You may end up laughing at that statement because maybe we’ll lose it in the courts, litigation’s a hell of a risk, but you won’t find anybody here at all, even the most pro-wealthy people, and I’m not sure we’ve got any, who thinks film schemes are anything other than scams for scumbags.
Mr McKenna and Ingenious took exception to what they said was a breach of HMRC’s public law duties (found in s.18 of the Commissioners for Revenue and Customs Act 2005). They said it was unlawful for Dave Hartnett to have disclosed what he did. And they said that the fact that the disclosure was in the public interest was irrelevant.
The Court of Appeal disagreed. It roundly endorsed what had been said below:
In general, it is legitimate for HMRC to seek to maintain good and co-operative relations with the press. The efficient and effective collection of tax which is due is a matter of obvious public interest and concern. Coverage in the press about such matters is vital as a way of informing public debate about them, which is strongly in the public interest in a well-functioning democracy. HMRC have limited resources to devote to the many aspects of their tax collection work, and it is legitimate and appropriate for them to seek to maintain relations with the press and through them with the public to inform public debate about the tax regime and the use of HMRC’s resources. It is also relevant to the exercise of HMRC’s functions to provide proper and accurate information to correct misapprehensions or captious criticism regarding the exercise of their functions (such as any misplaced suggestion that they had engaged in unduly lenient “cosy deals” with certain taxpayers), in order to maintain public confidence in the tax system. If such confidence were undermined, the efficient collection of taxes could be jeopardised, as disaffected taxpayers might withhold co-operation from the tax authorities.
And it observed that the exception to HMRC’s obligation not to disclose information was a wide one. Now, I should note that the principle in Ingenious won’t justify every public interest disclosure – but it will justify many.
The ratio of the Court of Appeal’s decision echoes a throw away observation made by Lin Homer (HMRC’s CE) in the Public Accounts Committee last month where, in response to Q172, she observed to Margaret Hodge:
One of the conversations that we have had with you in my three years has been about whether we are unduly defensive about confidentiality. We have, on a number of occasions, tried to take that advice from you and move further into transparency.
This recognition is welcome – as is the Court of Appeal’s decision. But I don’t want to get carried away.
There is a world of difference between HMRC recognising that there is no legal impediment to it acting in the public interest by enhancing transparency – and HMRC actually acting in the public interest. The former can be (and hopefully now has been) accomplished in consequence of the Court of Appeal’s decision and several brutal and public Hodgeings. But we get to the latter only through internal cultural change. Let’s hope we now see some.