Reliance on HMRC guidance – Mansworth v Jelley
The taxpayer received employee share options from his employer and he exercised those options in 1999 and 2000. Following the decision in Mansworth v Jelley in which the grant of an option and its exercise were deemed to be a single transaction, HMRC issued its 2003 guidance, which stated that the income tax payable had to be added to the base cost and confirmed it would apply the same treatment to shares acquired under options before April 2003.
The taxpayer therefore sought to amend his returns to claim a capital tax loss to offset against subsequent capital gains. HMRC opened enquiries into the taxpayer’s self-assessment, warning him that they did not accept his additional losses and his claims remained open. Six years later, HMRC issued corrected guidance announcing that its 2003 guidance had been wrong in law and that the base cost would be treated as the market value of the shares at the date of acquisition unless the taxpayer could show real detrimental reliance on the previous guidance.
It was accepted by the parties that HMRC’s guidance had given rise to a legitimate expectation that HMRC would be bound by the guidance. However, the Court held that it is open to a public body to change a policy if it has acted under a mistake. HMRC’s decision could only be successfully challenged if it caused conspicuous unfairness, which in this case the Appellant was unable to show.
This article appears in the JHA July 2017 Tax Newsletter, which also features:
