Cases often reveal the Judiciary’s assumptions about the society in which we live. Those assumptions are often startlingly unrealistic.
The case of Murphy and another v. HMRC was an interesting judicial review case concerning the application of ESC B18 (concerning payments out of discretionary trusts). It contains a useful review of the principles governing the construction of extra statutory concessions.
Extra statutory concessions are not, the presiding Judge, Mr Justice Chamberlain, said:
‘ … statutes and should not be interpreted as such … . It cannot therefore be assumed that every principle that applies when construing a statute applies to them. But some principles of statutory construction are just formalised expressions of linguistic interpretive techniques that are used when interpreting any formal text.’
Mr Justice Chamberlain went on to say that because:
‘The authorities make clear that, because an extra-statutory concession relieves taxpayers of a liability imposed by the law, any ambiguity should in general be resolved against the taxpayer.’
The case is particularly interesting on the principle of ‘customary meaning’. HMRC had presented evidence of its dealings with another taxpayer in respect of the ESC B18 to prove that the construction customarily given to the concession was that for which it contended.
Mr Justice Chamberlain was sceptical whether any general principle of construction from ‘settled practice’ or ‘customary meaning’ existed at all. He did not express a decided opinion on the matter, but he did state that, if ‘customary meaning’ does apply in deciding matters of construction, it will only be in limited circumstances:
‘More generally, a principle of “customary meaning” would only be consistent with an objective approach to interpretation if the custom in question was widely known and understood. In those circumstances, it might be said that, as Lord Carnwath put it, “those interested should be able to continue to order their affairs on that basis without the risk of being upset by a novel approach”, citing a judgment of his own in Isle of Anglesey County Council v Welsh Ministers … But it is difficult to see how such an approach could apply to the interpretation of extra-statutory concessions.
HMRC’s dealings with individual taxpayers are private. Its evidence in these proceedings is that it has consistently applied the 6-year income limit to UK resident beneficiaries of non-UK resident trusts; and that other than the Claimants’ there has only been one query about this practice. But an ordinarily sophisticated taxpayer would not necessarily have any means of knowing this. The Claimants did not, and nor did their accountants, at least until HMRC responded to their query in 2018. In my judgment it would be incompatible with the objective approach to interpretation of policy to attach weight to the existence of a long-standing practice if the practice is visible only to HMRC.’
The knowledge of the ‘ordinarily sophisticated taxpayer’ was relevant because Mr Justice Chamberlain had earlier referred to the judgment of the Supreme Court in R (Davies) v. HMRC [2011] in which:
‘Lord Wilson asked how the booklet [the HMRC booklet at issue in the case] would be read by the “ordinarily sophisticated taxpayer”, which provides further confirmation that an objective approach to interpretation is required.’
The ordinarily sophisticated taxpayer envisaged by Mr Justice Chamberlain seems a most unusual creature. He explained that:
‘Such a taxpayer would read the text of the concession in context, not in a vacuum. The context would include the statutory provisions or scheme whose rigour the concession tempers. It would also include previous iterations of the concession, read against the statutory provisions in force when they were issued, any other relevant statements by HMRC made at or before that time, provided that the notional taxpayer could be expected to be aware of them.
It is surely unrealistic to think that an ‘ordinarily sophisticated taxpayer’ will have read the statutory provisions relevant to his tax affairs or the extra statutory concessions which might apply to them and even more unrealistic to think that he will have read superseded versions of those extra statutory concessions. Of course, it is to be hoped that his advisers would have done so but Mr Justice Chamberlain did not consider the extent to which the knowledge of the taxpayer’s professional advisers or the knowledge which his professional advisers would have had had those advisers been competent, might be imputed to the taxpayer. In the absence of such imputation, however, the judgment posits a view of the ‘ordinarily sophisticated taxpayer’ of enormous implausibility.
