A recent tax case highlighted the freedom with which HMRC can make available to the press the details of your tax affairs say Harris & Co accountants Northampton. It is a worrying case for all taxpayers as it seems that HMRC are at liberty to dosclose details of your tax affairs to the press with impunity!
High Court (QBD, Administrative Court)
Mr Justice Sales
Judgment released 25 October 2013
Application for judicial review – HMRC disclosure of information relating to Claimants to Times journalists in ‘off-the-record’ briefing – Subsequent publication of articles in the Times, drawing upon and quoting statements made by HMRC official in the briefing – Claimants seeking declaratory relief that the disclosures unlawful
The High Court dismissed the Claimants’ application, by way of judicial review, for a declaration that HMRC had acted unlawfully in breach of their obligations under public law, in disclosing to journalists of the Times newspaper certain information relating to the Claimants.
This was an application for judicial review of a decision by HMRC, acting by one of their most senior officials, the Permanent Secretary for Tax at the time, Dave Hartnett (‘H’), to disclose information relating to the two Claimants in an ‘off-the-record’ briefing with journalists from the Times newspaper.
In early 2012, HMRC was approached by a Times’ journalist for a background briefing on the subject of tax avoidance, which was attracting much attention in the media. HMRC suggested a meeting with H, to take place ‘off-the-record’. Prior to the meeting the journalist told the HMRC Press office that the Times had amassed a good deal of information about tax avoidance schemes which he would be prepared to make available to HMRC if Times’ lawyers agreed. H was briefed about this.
H was keen to do the briefing to try to influence journalists’ views on the challenges faced by HMRC, and the messages about tax avoidance which they would convey to the public. In particular there was at this time media speculation about the willingness of HMRC to enter into ‘cosy’ details with certain taxpayers, thereby being unduly generous and lenient to them in the collection of tax, which H wished to counter. H also wished to impress upon the journalists, and through them the wider public, HMRC’s disapproving and sceptical attitude in relation to film investment schemes, and that HMRC were serious in trying to combat tax avoidance through such schemes.
In relation to the briefing, H was very conscious of his obligations regarding taxpayer confidentiality. In view of the private, ‘off-the-record’ nature of the briefing, he expected that nothing said in it would be quoted, published or attributed, at any rate without reference back to HMRC’s Press Office for agreement on a form of words. In conducting the briefing, H was keen to develop a rapport with the journalists, which meant he felt he had to be relatively open and frank, using colloquial language which he would not use in more public contexts. At the end of the briefing, H asked the journalists for the information they held about the matters discussed (although in the event, despite a follow-up request, this was not provided).
Subsequently, the Times published articles about tax avoidance. The principal article set out significant quotations and information taken from the briefing by H, including H’s reference to a £5 billion figure for tax avoided by means of film investment schemes, and the fact that Mr McKenna was on ‘his radar’ and viewed as a ‘big risk’ for HMRC. The Claimants protested to HMRC at the release of information about them to the Times, which they claimed involved breach of confidence, defamation and misfeasance in public office. Upon HMRC’s refusal to issue a public disclaimer of the comments reported, the Claimants commenced judicial review proceedings.
The judge set out the following grounds of challenge by the Claimants:
(1)Under the Commissioners for Revenue & Customs Act 2005, s. 18, HMRC officials may not disclose information which is held by HMRC in connection with a function of HMRC, except a disclosure ‘which is made for the purposes of a function of HMRC and does not contravene any restriction imposed by the Commissioners ...’.
A ‘function’ here means ‘any power or duty (including a power or duty that is ancillary to another power or duty)’.
The Claimants submitted that HMRC acted in breach of s. 18 and their conduct was not authorised by anything contained in the exception.
(2)2. HMRC Guidance in relation to handling information held by HMRC stated (at section IDG 40430) that:
The Claimants submitted that the Guidance at IDG 40430 constituted a ‘restriction’ imposed by the Commissioners within s. 18 above; alternatively, that it provided a statement of the approach which HMRC will adopt to the exercise of their discretionary functions in relation to disclosure of information and therefore gave rise to a legitimate expectation that it would be complied with. The Claimants maintained that H failed to comply with the Guidance.
(3)Article 8 of the European Convention on Human Rights (‘ECHR’) states that ‘everyone has the right to respect for his family life, his home and correspondence’, and that a public authority shall not interfere with the exercise of such right ‘except ... as is necessary ... in the interests of ... the economic well-being of the country, for the prevention of ... crime, ... or for the protection of the rights and freedoms of others’.
The Claimants submitted that the disclosures made by HMRC violated Mr McKenna’s right to respect for the confidentiality of information, and the right to protection of his reputation as an aspect of his private life. This reputational point applied also to Ingenious Media.
(4)Article 1 of the First Protocol (‘A1P1’) to the ECHR provides that ‘every ... person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law ...’
The Claimants submitted that the HMRC disclosures also interfered with the peaceful enjoyment of the Claimants’ possessions, in the form of business goodwill enjoyed by them: the disclosures were made with the intention that potential investors in the film schemes run by the Claimants would be discouraged from investing in them.
(5)Lastly, the Claimants submitted that the HMRC disclosures were unlawful, since they involved an abuse of power by H in singling the Claimants out for criticism and release of confidential information relating to them specifically, rather than taxpayers in general, and acting on a personal hostile view of the Claimants and their business.
The judge dealt with these points in order as follows:
(1)He did not accept the Claimants’ submissions by reference to s. 18. In the judge’s view, there was a rational connection between the function of HMRC to collect tax in an efficient and cost-effective way and the disclosures made by H in the course of the briefing: H’s decision to make the limited revelations he did was based on a judgment that fell well within the lawful parameters of s. 18.
In this connection, there were two features to draw out:
(a)The decisions regarding what to say to the journalists, in order to promote a sensible dialogue with them, called for evaluative judgments to be made by H both before and during the briefing. It was not for the Court to ‘second-guess’ those decisions. The Court should only intervene if H’s judgment that it would be conducive to the functions of HMRC to make the disclosures was irrational. The judge considered that H could properly and rationally take the view that it would assist HMRC in the exercise of their tax collection functions to seek to foster a spirit of co-operation with the journalists, and that the limited disclosures which he made in relation to the Claimants were directly relevant to foster such a spirit; and that the sharing of information would encourage the journalists to understand and convey to the public the negative attitude of HMRC to film investment schemes, and help deter members of the public from being too ready to participate in such schemes. He did not accept there was an illegitimate objective for HMRC because there had been no Tribunal ruling that film investment schemes of the type promoted by the Claimants should be regarded as ineffective or unlawful schemes for avoiding tax; on the contrary, it was desirable that HMRC’s message about their sceptical attitude to certain forms of taxpayer behaviour should be conveyed to the public;
(b)There should be emphasised the limited nature of the disclosures made by H and the particular circumstances in which made. It was agreed that the briefing was to be ‘off-the-record’. The discussion of Ingenious Media and Mr McKenna proceeded only after it was clear that the journalists were aware of Mr McKenna’s identity and involvement in film investment schemes. No information was passed to the journalists that Ingenious Media or Mr McKenna had passed to HMRC. The information that was disclosed was about HMRC’s attitudes to them.
(2)H had acted in compliance with IDG 40430 and did not breach it. The same reasoning as on s. 18, above, applied. In particular, although IDG 40430 requires a standard of ‘necessity’ to be applied in deciding whether information held by HMRC may be disclosed, it also supplies its own definition and guidance, in that a disclosure which is sufficiently directly related to, and not remote from, providing assistance to HMRC in the performance of their functions will be taken to satisfy the test. H could rationally take the view that the measured degree of disclosure he made at the briefing was necessary, in compliance with such guidance.
Nor did the Guidance constitute a ‘restriction’ for the purposes of s. 18. It did not lay down any such ‘restriction’ with the clarity and formal precision one would expect in an instrument intended to operate in a formal and legally binding derogation from the wider powers of disclosure set out in s. 18.
(3)In relation to Article 8, the release by a public authority, responsible for the relationship between citizen and state in some important respect (such as tax), of confidential information about that citizen, will usually involve the interference with the citizen’s right to private life, which will require justification under Article 8(2). That was the position here.
But again, the disclosures were made for legitimate objectives, which promoted the economic well-being of the country (proper, efficient, cost-effective collection of tax) and protection of the rights and freedoms of others (fair distribution of the tax burden across all taxpayers). And, having regard to the limited nature of the disclosures made and the ‘off-the-record’ nature of the briefing, the disclosures were proportionate to those objectives.
Nor did the judge consider that the disclosures involved sufficient direct or grave interference with the Claimants’ reputational interests as to infringe Article 8, or, even if there were sufficient interference, such limited interference was objectively justified and proportionate on the same reasoning as above.
(4)In relation to interference with peaceful enjoyment of possessions under A1P1, if a state takes measures deliberately and illegitimately intending to damage possessions of an individual, even though the actual effects of such measures may be likely to be minimal, the judge considered the individual would be entitled to complain of violation of A1P1. But again, such interference as was involved by the giving of the briefing with the intention described, was justified as being proportionate action to promote legitimate public interest objectives. The attitude of disapproval and scepticism which HMRC adopted in relation to use of film investment schemes, and the decision to seek to inform the public about that attitude in order to influence their behaviour, fell well within the wide margin of appreciation applicable to state authorities in the field of tax policy.
(5)The allegation that H deliberately targeted the Claimants without good reason, and in abuse of HMRC’s powers, was rejected. Mention of the Claimants arose naturally in the context of the questions regarding tax avoidance, with particular reference to film investment schemes. H did not target the Claimants capriciously or out of spite or other improper motive.
For these reasons, the judge dismissed the claims brought by the Claimants.
Perhaps the decisive points here, which would tell in other cases too, comprise the combination of:
‘(a)rationality’ on the part of the public official involved, in terms of the pursuit of HMRC’s wider objective of proper and efficient tax collection; and
(b)the relatively limited nature of the disclosures made by that official.