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A rare taxpayer success in judicial review

Successful claims for judicial review in the tax context are few and far between. However, the recent decision of the Upper Tribunal in R (on the application of Vacation Rentals (UK) Limited) v HMRC [2018] UKUT 383 shows that it can be done…


Vacation Rentals was a booking agent for holiday property owners. Its role involved collecting payment from holidaymakers on behalf of the property owners. When payment was made by credit or debit card, Vacation Rentals charged a separate fee for “card handling services”.

In Bookit v HMRC [2006] STC 1367, the Court of Appeal clarified the VAT treatment of such fees, holding that they were exempt for VAT purposes. A similar decision was also reached by the Court of Session in SEC v HMRC [2008] STC 967. Following these decisions, HMRC issued Business Brief (BB) 18/06. In summary, BB 18/06 identified four components to the card handling supply in Bookit, and stated that if a taxpayer charged for a separately identifiable service which included a particular one of those four components, “then the additional charge will be exempt [under the relevant VAT exemption]”.

Vacation Rentals relied on BB 18/06 and treated its supplies as exempt. However, HMRC disagreed and sought to assess VAT. Vacation Rentals sought a judicial review of HMRC’s decision to raise the assessments, on the grounds that it had a legitimate expectation to be taxed in line with HMRC’s guidance as expressed in BB 18/06.

There were two questions in the appeal:

  • HMRC accepted that BB 18/06 was capable of giving rise to a legitimate expectation – the question was whether Vacation Rentals’ particular circumstances fell within its terms on their proper interpretation; and
  • If so, whether it would be unfair and an abuse of power for HMRC to resile from the guidance in Vacation Rentals’ case.

The Upper Tribunal resoundingly found in Vacation Rentals’ favour on both counts. It therefore allowed the claim for judicial review and quashed HMRC’s assessments.

The Upper Tribunal began by rehearsing the law on judicial review on the grounds of legitimate expectation, in particular in the context of HMRC guidance. In summary, for guidance to give rise to a legitimate expectation, it must be “clear, unambiguous and devoid of relevant qualification”. The guidance must be interpreted as it would appear to the hypothetical “ordinarily sophisticated taxpayer”, and not with the same rigour as a statute or a contract. Further, it must be unjust or an abuse of power for HMRC to resile from the guidance - a relevant factor here is whether the taxpayer has relied on the guidance to its detriment.

The Upper Tribunal then answered the two questions in the appeal as set out above. As to the first question, it found that the guidance in BB 18/06 was clear, unambiguous and unqualified. It focussed on the presence of a particular component as being the key to treating a supply as exempt. The supply made by Vacation Rentals contained that component and so it fell within the terms of the guidance.

HMRC argued that BB 18/06 should be interpreted in light of the facts in Bookit; and as there was a key distinction between the supplies made by Vacation Rentals and those in Bookit, Vacation Rentals did not fall within the terms of BB 18/06. The Upper Tribunal gave this argument short shrift. The particular factual distinction relied on by HMRC was not relevant to the finding in Bookit (and was not even present in SEC); and in any event the terms of BB/06 were clear on their face to the ordinarily sophisticated taxpayer. HMRC were taking “an inappropriately technical and rigorous approach” to construing the guidance.

As to the second question, the Upper Tribunal expressed surprise that HMRC even argued the point where it was established that the taxpayer had a legitimate expectation.

HMRC sought to rely on the fact that Vacation Rentals was “very sophisticated” with access to high quality advice and BB 18/06 only summarised publicly available court decisions. It could therefore make up its own mind about the correct tax treatment. HMRC’s arguments were again rejected. The Upper Tribunal found that once there is a legitimate expectation, this can only be overridden where there is a sufficient public interest to do so. The burden is on HMRC to justify this, and in this case they had not even come close to doing so. The fact that Vacation Rentals was able to obtain legal advice was irrelevant. It would therefore be unfair and an abuse of power for HMRC to resile from BB 18/06.


The decision is encouraging for taxpayers, although there is still a high bar to succeed in such a claim. A taxpayer’s primary expectation is to be taxed in accordance with the law, not HMRC’s view of it. However, with the right facts and the right guidance, it is possible to hold HMRC to their guidance even if it is not strictly in accordance with the law. It remains to be seen whether HMRC will appeal.

The decision also highlights the importance of examining closely the particular guidance in question. The Upper Tribunal focussed on the layout of BB 18/06, the headings of the relevant sections and where the main guidance was to be found. It is worth noting (though this did not feature expressly in the decision) that BB 18/06 was a standalone piece of guidance, so could be interpreted as such. The position is different with HMRC’s manuals, for example. These are subject to a general introductory “health warning”, including that the guidance will not necessarily apply where HMRC suspects tax avoidance (which was of particular relevance in the Court of Appeal’s decision in Samarkand Film Partnership No 3 and others v HMRC [2017] STC 926).

Further, cases of this nature emphasise the importance in practice (for both taxpayers and advisers) of being aware of when reliance is being placed on HMRC guidance, rather than the strict letter of the law, for a particular tax treatment. There was no issue in this case as to whether the taxpayer had relied on the guidance to its detriment. However, the position is not always so straightforward. The High Court’s decision in R (on the application of Aozora GMAC Investment Ltd) v HMRC [2018] STC 11 is a recent example where a taxpayer was able to establish a legitimate expectation on the basis of HMRC guidance, but its claim failed because (among other things) it could not show it had relied on that guidance to its detriment.

Finally, it is worth reiterating that claims for judicial review must be commenced in the High Court (the Administrative Court division), and not the First-tier tax tribunal. Taxpayers facing an HMRC decision or assessment where they have relied on HMRC guidance should consider carefully whether to make a judicial review claim, either alongside, or instead of, an appeal in the First-tier Tribunal on tax technical grounds.

For more information please contact Hugh Gunson on +44 (0)20 7438 2252 or at

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