Mansworth v Jelley – Part Two

by Tax Faculty Team on 23.04.2012 13:18

HMRC is sending standard letters to those pursuing a claim

In our February 2012 news item Mansworth v Jelley we reported that HMRC was sending letters to all taxpayers who had claimed Mansworth v Jelley losses. The letters invited them to withdraw their claim so that all enquiries could be closed.

For those who did not wish to withdraw their claim HMRC asked for an explanation, together with any supporting documentary evidence, to be submitted within 40 days of its letter. The final paragraph of the letter promised, ‘HMRC will review your case on an individual basis and decide how best to take your case forward’.

We are therefore very disappointed to have received reports from members that, where a taxpayer has indicated that they do not intend to withdraw the claim because of the existence of ‘legitimate expectation’ – and this will be the case for the majority, if not all – HMRC is sending a standard letter in response. This is despite the fact that the taxpayer’s reply to the February letter set out the reasons for their decision not to withdraw their claim. It also seems to be the case that, regardless of the date when HMRC sent this latest letter, it is asking for a reply by 1 May 2012.

We think it is unacceptable for HMRC to request a detailed explanation from a taxpayer and then to ignore it when one has been supplied. We have expressed our concerns to HMRC and are awaiting its response.

In this new letter HMRC reiterates its interpretation of ‘legitimate expectation’, as set out in Revenue and Customs Brief 60/09, and continues:

“General guidance such as that published by the Inland Revenue on 8 January 2003 following the decision of the Court of Appeal in Mansworth v Jelley does not in itself necessarily generate ‘legitimate expectation’ for you. Whether you have a legitimate expectation will be determined by the facts and circumstances of your particular case.

“Please bear in mind that your post Mansworth v Jelley loss claims were based on transactions which had already been carried out prior to the guidance note being issued. You did not undertake the transactions with a view to generating the losses; they were in fact a by-product of previous operations. It must follow that, in generating the losses, you could not have been relying on the HMRC guidance as the transactions had already occurred.

“Please also note that the changes which have been made to HMRC guidance only return your position to what it was before the decision in Mansworth v Jelley. You are in the same position as you were when you when you undertook the initial transactions. HMRC opened enquiries into your claim to check the position, and as we have not closed our enquiry the claim has not been agreed. As you were aware that HMRC still had open enquiries into your loss claims, you should also have realised that these losses were, potentially, not going to be available to be set against capital gains in future tax years. It is therefore, at first sight, difficult to see how you can believe that you have a legitimate expectation that the losses would be allowed.”

The taxpayer is then asked to consider their position and is asked for a full explanation and evidence if they still believe that they have a legitimate expectation.

We expressed our concerns over the comments made about legitimate expectation in Revenue and Customs Brief 60/09 in TAXGUIDE 1/10, see paras 41–70, and in particular HMRC’s narrow interpretation of ‘detriment’. Our views remain unchanged.

We should be interested to hear if any members have received a detailed response, as opposed to the standard letter, for those clients who do not wish to withdraw their claim to Mansworth v Jelley losses. Please post a comment here or email paula.clemett@icaew.com.