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Thomas Holdings Ltd & Ors, R (On the Application Of) v Revenue and Customs
Factual and Procedural Background
This was an appeal from the dismissal of judicial review proceedings challenging four decisions by the tax authority. The decisions rejected claims that two extra-statutory concessions relieved the Appellants from liability for under-declared amusement machine licence duty relating to slot machines in bingo halls and amusement arcades. [1][2]
The assessments were made in 2008 and covered periods between December 2004 and July 2006. The judicial review proceedings were commenced in 2008 and 2010 and were stayed for a substantial period pending the Rank litigation. [3]
The machines used random number generators (“RNGs”) physically separate from their terminals. The Appellants contended that the tax authority had represented that such machines attracted VAT exemption and Category A duty. The tax authority maintained that only genuinely remote RNGs qualified, whereas the disputed RNGs were close to their terminals. [4][5][6]
The High Court dismissed the claims. The Court of Appeal allowed the appeal and quashed the decisions insofar as they refused to apply the misunderstanding concession. [7][8]
Legal Issues Presented
- Whether the tax authority had lawfully rejected the Appellants’ reliance on the misunderstanding concession. [9][7]
- Whether interpretation of the tax authority’s policy statements was for the court or merely subject to rationality review of the decision-maker’s assessment. [10][11][12]
- Whether the statements concerning “remote” RNGs meant physical separation from, rather than physical distance from, the terminal. [13][14]
- Whether the unredacted version of an internal report should be admitted as evidence on appeal. [15][16]
Arguments of the Parties
Appellants’ Arguments
- The tax authority’s letters, manual guidance and correspondence represented that machines with physically separate RNGs qualified for Category A duty and tax exemption. [5][17][18]
- The misunderstanding and misdirection concessions should be applied by the court, rather than reviewed only for irrationality. [10][19]
- “Remote” meant physically separate or non-integrated, not necessarily far away from the terminal. [20][21]
- The Appellants’ failure to seek further confirmation did not constitute negligence because the published statements left no reasonable doubt about the tax authority’s position. [22][23]
Respondents’ Arguments
- The relevant statements applied only to genuinely remote RNGs, such as those serving multiple terminals from an off-site location. [24][25]
- Application of the concessions to the facts was primarily for the decision-maker and was subject only to rationality review. [10][26]
- The Appellants should have obtained specific confirmation about the configuration of their machines, and their failure to do so supported a finding of negligence. [22][27]
- The unredacted internal report was fresh evidence that did not satisfy the criteria in Ladd v Marshall. [28]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioners for Her Majesty’s Revenue and Customs v The Rank Group plc [2015] UKSC 48 | Physical separation of an RNG does not prevent a machine from being a gaming machine for VAT purposes. | The Court treated the disputed machines as gaming machines as a matter of law, while separately considering the concessions. [29][30] |
| The Rank Group Plc and Another v HMRC [2020] UKUT 117 (TCC) | Fiscal neutrality justified VAT exemption during the relevant period. | The decision led to withdrawal of the relevant VAT assessments but did not affect AMLD. [31] |
| Finanzamt Gladbeck v Linneweber [2008] STC 1069 | Background to fiscal-neutrality claims concerning VAT treatment. | The litigation prompted proposed legislative changes and formed part of the factual context. [32] |
| Murphy v Revenue and Customs Commissioners [2023] EWCA Civ 497 | General approach to extra-statutory concessions and related statements. | Used in formulating the principles governing enforceability and interpretation. [33][34] |
| R v Inland Revenue Commissioners, ex p MFK Underwriting Agencies Ltd [1990] 1 WLR 1545 | Statements must be clear, unambiguous and devoid of relevant qualification to bind the tax authority. | Those principles informed the treatment of published tax statements. [33][35] |
| R (Teleos plc) v The Commissioners of HM Customs and Excise [2004] EWHC 1036 (Admin) | Some evaluative aspects of a concession may be primarily for the decision-maker. | The Court noted that negligence may be an evaluative matter for the tax authority. [33][36] |
| R (Accenture Services Ltd) v Revenue and Customs Commissioners [2009] EWHC 851 (Admin) | Application of a concession to facts may be subject to rationality review. | The Court accepted this general proposition but distinguished the present concessions and reserved interpretation of policy statements to the court. [37][38][11] |
| R (Medical Protection Society Ltd) v Revenue and Customs Commissioners [2009] EWHC 2780 (Admin) | Approach to the misdirection concession and legitimate expectation. | The Court considered the analogy relevant, particularly to the misdirection concession. [33][39] |
| R (ELS Group Ltd) v Revenue and Customs Commissioners [2016] EWCA Civ 663 | Extra-statutory concessions receive a fair and normal reading, without being interpreted as statutes. | The Court applied this interpretative framework. [40][38] |
| R (Davies) v Revenue and Customs Commissioners [2011] UKSC 47 | Clarity depends partly on the identity of the person to whom a statement is made; published statements are assessed from the perspective of an ordinarily sophisticated taxpayer. | The Court assessed the statements from the perspective of a BACTA member. [37][40][41] |
| R (Aozora GMAC Investment Ltd) v Revenue and Customs Commissioners [2019] EWCA Civ 1643 | Legitimate expectation and the possibility of refusing a concession where departure would not cause a high degree of unfairness. | The Court distinguished the misunderstanding concession from legitimate expectation principles. [42][19][43] |
| Tesco Stores Ltd v Dundee City Council [2012] UKSC 13 | Public bodies should not interpret their own guidance. | This supported the conclusion that interpretation of the tax authority’s policy statements was for the court. [44] |
| Hollington v Hewthorn [1943] KB 587 | General inadmissibility of factual findings from separate proceedings. | The Court generally disregarded factual findings from the Rank litigation. [45] |
| Ladd v Marshall [1954] 1 WLR 1489 | Criteria governing admission of fresh evidence on appeal. | The Court held that the criteria did not govern the unredacted version of the report in the circumstances, although they applied more readily to other evidence. [28][46][16][47] |
| Al Sadeeq v Dechert LLP [2024] EWCA Civ 28 | Ladd v Marshall provides guidance but does not limit the court’s discretion where justice requires admission. | This supported admission of the unredacted report. [16] |
Court's Reasoning and Analysis
The Court distinguished between interpreting the tax authority’s published statements and applying the concessions to factual circumstances. Interpretation was an objective question for the court, assessed from the perspective of an ordinarily sophisticated taxpayer. [48][49][11][12]
The misunderstanding concession had a threshold requirement of a bona fide misunderstanding, followed by four separate conditions. Condition (d) concerned whether tax was charged, or could reasonably be charged, to customers; it did not require a separate assessment of fairness. [50][51]
The Court held that the letters to the trade association were general guidance intended for dissemination. The internal manual was also relevant to whether the Appellants had misunderstood the position and whether there was evidence of negligence. [52][53]
Read in context, “remote” was equated with an RNG that was not an integral part of the terminal. The statements therefore concerned physical separation, not the degree of distance between the RNG and terminal. The manual’s unqualified statement that the terminals were not gaming machines reinforced that interpretation. [20][14]
The Appellants’ understanding was objectively reasonable and was supported by the legislative context, because the relevant provisions focused on the function providing the element of chance rather than on physical distance. [54][55]
The Court rejected the argument that failure to seek specific confirmation was evidence of negligence. A reasonable taxpayer with the relevant industry knowledge would not have been left in doubt by the statements and correspondence. [56][23]
The Court also found that the tax authority’s contemporary internal position supported the Appellants’ understanding. The later argument that “remote” meant far away was a product of subsequent thinking and was inconsistent with the approach adopted during the relevant period. [57][58]
The unredacted internal report was admitted. It was substantially the same document that had been before the High Court, the redactions were no longer maintained, and admission furthered the interests of justice without unfair prejudice to the Respondents. [46][59]
Holding and Implications
APPEAL ALLOWED. The decisions were quashed insofar as they refused to apply the misunderstanding concession. The Court did not determine the misdirection concession because that was unnecessary. [7][60][8]
The direct consequence was that the tax authority was required to make fresh decisions. The opinion identifies no broader consequence beyond requiring reconsideration under the correct legal approach; no new precedent was set. [61][8]
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