Article.

HMRC on the naughty step for telling tales out of school

13/12/2016

At a glance

HMRC’s breach of duty of confidentiality owed to the taxpayer

The Supreme Court has recently held that HMRC has breached its statutory duty of confidentiality set out in section 18(1) of the Commissioners for Revenue and Customs Act 2005 (the “Act”) in disclosing confidential information relating to Ingenious Media Holdings (“Ingenious”) to two journalists during an “off the record” press briefing by the head of HMRC.  In allowing Ingenious’ appeal, the Supreme Court held that HMRC was not entitled to rely on the exception to the statutory duty of confidentiality as set out in section 18(2)(a)(i) of the Act because it was not part of HMRC’s function to pass on confidential information to the press.

Harvey Rands and Eleanor Hassani discuss.

In detail

Analysis

The case concerned comments made by David Hartnett of HMRC to two journalist from The Times in 2012 about Ingenious and its CEO, Patrick McKenna, in the context of HMRC’s investigation of film investment schemes.  Ingenious was a promoter of such schemes, which were intended to allow taxpayers to take advantage of certain tax reliefs and exceptions.  HMRC considered that these schemes were ineffective.

The subsequent article quoted Mr Hartnett’s comments (expressed to be from an unnamed source).  Ingenious brought judicial review proceedings on the basis that the disclosures by Mr Hartnett were unlawful and in breach of section 18(1) of the Act.

The relevant sections of the Act state:

“Confidentiality

(1)    Revenue and Customs officials may not disclose information which is held by Revenue and Customs in connection with a function of the Revenue and Customs.

(2)    But subsection (1) does not apply to a disclosure – (a) which – (i) is made for the purposes of a function of the Revenue and Customs…”

The Supreme Court held that the statutory duty of confidentiality set out at section 18(1) of the Act developed from the common law duty of confidentiality owed to taxpayers, and public bodies are not immune from the ordinary application of the common law in refusing Revenue’s claim to be able to rely on the carve out contained in sub section (2).

The Court said that it was well established that where information of a personal or confidential nature is obtained or received in the exercise of a legal power or in furtherance of a public duty, the recipient will generally owe a duty to the person from whom it was received or to whom it relates not to use it for other purposes.  Where information is collected in relation to the financial affairs of taxpayers, this is to enable HMRC to assess and collect (or pay) what is properly due from (or to) the taxpayer.  The information supplied to the journalists was information of a confidential nature, in respect of which the HMRC owed a duty of confidentiality to the claimants under section 18(1).

The exception, set out in section 18(2)(a)(i) of the Act must be construed so as to permit disclosure only to the extent reasonably necessary for the revenue to fulfil its primary function of revenue collection and management.  To construe it more widely would mean that a number of specifically listed exceptions contained within section 18 would be rendered otiose.  Secondly, and more fundamentally, it would mean that protection which would otherwise have been provided to the taxpayer would be “very significantly eroded…”

There had been no suggestion that the disclosures were reasonably necessary for the purpose of the revenue’s investigations into the film investment schemes, and therefore the disclosure was not justified under section 18(2)(a).  The Court attached no bearing to the fact that the information was passed on in confidence, stating:

“… an impermissible disclosure of confidential information is no less impermissible just because the information is passed on in confidence; every schoolchild knows this is how secrets get passed on.”

Punishment

The narrow interpretation given by the Supreme Court to section 18(2)(a)(i) of the Act was necessary in order to protect taxpayers, who often provide sensitive financial information to HMRC.  The question will now be what damages can properly be recovered from HMRC’s breach of confidence.

When it comes to the assessment of damages, the Court will seek to put the taxpayer in the position as if the breach of confidence had not occurred.  For a company, this could include damage such as loss of profits (assuming that the taxpayer could prove that these had occurred, e.g. as a result of reputational damage flowing from the breach).

Individual taxpayers might seek to establish loss caused by reputational damage and also, possibly, consequential losses such as distress and disappointment.

If you have any further questions, please contact the authors Harvey Rands and Eleanor Hassani.

Contact the authors

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