Tax: HMRC's duty of confidentiality
The Supreme Court ruling in the Ingenious Media case may change HMRC attitudes, explains Donald Drysdale.
Statutory duty of confidentiality
Under section 18(1) of the Commissioners for Revenue and Customs Act 2005 (‘the Act’), HMRC officials may not disclose information which is held by HMRC in connection with a function of HMRC.
Section 18(2)(a)(i) of the Act states that this prohibition does not apply to a disclosure which is made for the purposes of a function of either the Commissioners of HMRC or an officer of HMRC (my emphasis added).
Confused? If so, you may be interested in a recent UK Supreme Court ruling that has a direct bearing on HMRC’s duty of confidentiality.
The facts of the case
In the official report on R (on the application of Ingenious Media Holdings plc and another) v Commissioners for HMRC  UKSC 54, the facts are introduced as follows:
‘Mr Patrick McKenna is a former senior partner of a global firm of chartered accountants. He is the founder and chief executive officer of Ingenious Media Holdings plc. The company and its subsidiaries (collectively ‘Ingenious Media’) are an investment and advisory group specialising in the media and entertainment industries. Among other things they have promoted film investment schemes involving film production partnerships. The schemes were devised by Mr McKenna and utilised certain tax relief which was then available. The marketing of the schemes stopped when the tax relief ceased to be available.’
The report goes on to explain that on 14 June 2012 the Permanent Secretary for Tax in HMRC, Mr David Hartnett, gave an interview to two financial journalists from The Times. They had requested the meeting to discuss tax avoidance. The meeting was recorded and was agreed to be ‘off the record’.
A week later The Times published two articles on the subject of film schemes and tax avoidance, including assertions regarding Mr McKenna and Ingenuous Media Holdings plc. There was no dispute that Mr Hartnett imparted information to The Times regarding the tax activities of Mr McKenna and Ingenious Media and regarding HMRC’s attitude towards them, derived from information held by HMRC about them.
The Supreme Court verdict
In the Supreme Court, the leading judgment was delivered by Lord Toulson, a former Chairman of the Law Commission, a Lord Justice of Appeal and a Master of the Bench of the Inner Temple. He is also co-author of a definitive textbook on the law of confidentiality.
Among its key conclusions, the Supreme Court observed that HMRC’s duty of confidentiality doesn’t spring solely from section 18 of the Act. It is a well-established principle of the law of confidentiality 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 in general owe a duty – to the person from whom it was received or to whom it relates – not to use it for other purposes.
The general principle of HMRC’s duty of confidentiality regarding taxpayers’ affairs is long established. In passing the Act, Parliament could not be supposed to have envisaged emasculating the primary duty of confidentiality recognised in section 18(1), so it follows that section 18(2)(a)(i) must be interpreted as creating a narrow exception – only permitting disclosure to the extent reasonably necessary for HMRC to fulfil its primary function.
Lord Toulson said in his ruling that the fact that Mr Hartnett did not anticipate his comments being reported was in itself no justification for making them. The whole idea of HMRC officials supplying confidential information about individuals to the media on a non-attributable basis is, or should be, a matter of serious concern.
Reversing earlier judgments by the High Court and the Court of Appeal, the Supreme Court held that the information supplied by Mr Hartnett to the journalists about Mr McKenna and Ingenious Media was information of a confidential nature, in respect of which HMRC owed a duty of confidentiality to them under section 18(1). It was limited in scope, but it was not insignificant, as is evident from the use made of it in the articles which followed the interview.
Repercussions of the judgment
It has been suggested that the Supreme Court’s ruling may make HMRC and other public bodies more circumspect when providing information to the media or responding to Freedom of Information requests.
Taxpayer confidentiality is fundamental. Even Mr Hartnett himself had articulated this in 2011 when refusing to give any information to the House of Commons Public Accounts Committee about taxpayers with whom HMRC had reached settlements. It would be invidious if HMRC were prepared to use their duty of confidentiality as an excuse not to disclose what they don’t want to say, while disregarding it when it suited them to publicise information about individual taxpayers.
As an aside, it may be worth mentioning that the guidance on Professional Conduct in Relation to Taxation (PCRT), prepared jointly by ICAS and certain other professional bodies, contains useful information on a practitioner’s duty of confidentiality – a different perspective.
The public interest
As a general rule, HMRC’s duty of confidentiality should prevent taxpayers’ names being mentioned in public in connection with any tax situation.
There are certain exceptions. In clearly defined circumstances, HMRC are permitted to ‘name and shame’ taxpayers and other persons. Since 2010 they have had power to publish the names and addresses of any individual or company penalised for deliberately failing to notify any tax due, and Finance Act 2016 has broadened the scope of these rules in relation to offshore tax evasion. From April 2017 HMRC will have new powers to publish the names, addresses and certain other details of ‘serial tax avoiders’ – taxpayers who persistently engage in tax avoidance schemes which HMRC defeat.
In spite of HMRC’s duty of confidentiality, it is to be hoped that they will to continue to use the media to publicise general information about schemes which they intend to challenge. This can serve a useful purpose by alerting unsuspecting taxpayers to the dangers of using them.
Article supplied by Taxing Words Ltd