Judicial Review in Tax Disputes – An Overview

Judicial review remains an important tool for taxpayers to challenge HMRC's decisions and it is important that taxpayers and practitioners alike understand the judicial review process. While judicial review is a complex subject, what follows is an overview of the basics of judicial review.

This blog is based on an article written by Adam Craggs and Liam McKay that appeared in Tax Journal on 26 February 2025.

What is judicial review?

Judicial review is the main way the courts supervise bodies exercising public functions to ensure that they have acted lawfully and fairly. HMRC is a public body and its decisions are therefore subject to judicial review.

If a taxpayer is dissatisfied with HMRC's exercise of an administrative power or discretion, they may seek a judicial review of such a decision by the High Court or by the Upper Tribunal. The First-tier Tribunal (FTT) has no judicial review jurisdiction.

It is important to appreciate that the role of the court in judicial review proceedings is not to remake the decision being challenged, or necessarily to inquire into the merits or correctness of that decision. Fundamentally, the court's role is to conduct a review of the process by which the decision was reached in order to determine whether that decision was properly arrived at.

Both claimants and public bodies are expected to assist the court as far as possible and to be open and candid. In R (on the application of Shoesmith) v Ofsted [2009] EWHC B35 (Admin), the court confirmed that defendants have a duty to make full and fair disclosure of all relevant materials, even if they might undermine the defendant's position. It is partly for this reason that there is generally no specific disclosure regime in judicial review proceedings.

The judicial review jurisdiction of the High Court

The judicial review process in the High Court is dealt with in Part 54 of the Civil Procedure Rules (CPR) and the Administrative Court Judicial Review Guide 2024. 

Judicial review is often described as a remedy of last resort. Although the number of judicial review claims have increased in recent years, judicial review remains a discretionary remedy and the court is likely to refuse permission to commence judicial review proceedings if there is an adequate alternative remedy. A taxpayer should therefore consider whether they can, and should, pursue an appeal before the FTT, before applying for permission to commence judicial review proceedings against HMRC.

Of course, in some cases, a taxpayer will have an issue that falls within the jurisdiction of the FTT, such as their liability to tax, and another issue that should properly be determined by way of judicial review, such as whether they have a legitimate expectation that HMRC will follow its published guidance. It will depend upon the facts and circumstances of the case which issue should be decided first. In general, an appeal must be pursued before the FTT if there is a statutory basis for the appeal.

In circumstances where it is considered that an appeal should be pursued before the FTT before commencing judicial review proceedings, it might be appropriate to make a ‘protective’ application for judicial review at the outset as the claim form must be filed with the court ‘promptly’ and ‘in any event within three months after the grounds to make the claim first arose’ (CPR, r 54.5). The parties may not extend this time period by agreement, but the court may extend the time limit under its general powers of management where there is good reason for doing so. If appropriate, the judicial review proceedings can then be stayed pending the outcome of the appeal proceedings before the FTT.

Who can apply for judicial review?

An application for judicial review can only be made by someone who has sufficient interest in the matter to which the application relates. Although the courts have avoided defining this phrase, the general trend in recent years has been to give this phrase a broad interpretation.

The courts have identified a number of factors that are relevant in determining whether a claimant has sufficient interest in the matter to commence judicial review proceedings, such as the importance of maintaining the rule of law, the nature of the breach of duty and the extent of the claimant's interest in the issue. Pressure groups or individuals with no private interest, who raise an issue of public importance that would not otherwise be raised, are also generally considered to have sufficient standing.

The question of whether the claimant has sufficient interest should not be treated as a preliminary issue at the permission stage, unless it is clear that they are no more than a ‘meddlesome busybody’. If permission is granted, the court can then consider this issue at the substantive hearing of the application for judicial review.

Grounds for judicial review

Although the grounds for judicial review are constantly evolving, they have traditionally been categorised under the following three main heads:

(a) illegality;

(b) irrationality; and

(c) procedural impropriety.

Illegality

HMRC will act illegally, for the purposes of judicial review, when it has misunderstood the nature of a power which it has been granted by Parliament or misdirected itself when exercising that power. 

A claim based on illegality arises where the decision-maker has misconstrued a statutory provision or failed to take account of a consideration that they are expressly, or implicitly, required to take into account, or taken account of considerations that are irrelevant. A claim of illegality against HMRC may also be valid where it has abused its powers. For example, HMRC must act fairly when exercising its powers and if it makes representations to a taxpayer as to how they will be taxed following full disclosure of all relevant facts and circumstances by the taxpayer, it may constitute an abuse of power by HMRC if it seeks to resile from the representations it has made.

Irrationality

A decision may be challenged as being irrational if it is so unreasonable that no reasonable authority could have come to that decision. This is often called ‘Wednesbury unreasonableness’, after the decision in Associated Provincial Picture Houses Limited v Wednesbury Corporation [1947] EWCA Civ 1.

It should be noted that the courts are reluctant to find that a decision is Wednesbury unreasonable, particularly where the decision-maker is an expert. However, in R v Inland Revenue Comrs, ex parte Unilever plc [1996] STC 681, the Court of Appeal held that the Revenue's decision to resile from a previous arrangement with Unilever was, in addition to being an abuse of power, irrational. 

Procedural impropriety

This ground may arise if the decision-maker has not properly observed a relevant statutory procedure, such as a failure to give reasons or consider representations, or there has been a failure to observe the principles of natural justice in the decision-making process, such as a failure to hear an affected party.

In essence, procedural impropriety involves a breach of natural justice by HMRC seeking to exercise discretionary powers without first giving the taxpayer an opportunity to make representations in respect of a matter that will adversely affect them.

Legitimate expectation is a particular ground of judicial review that comes under the procedural impropriety umbrella. A legitimate expectation can be enforced against HMRC where it has resiled from a representation or promise made to the taxpayer that is clear, unambiguous and devoid of relevant qualification (R v Inland Revenue Comrs, ex parte MFK Underwriting Agencies Ltd [1989] STC 873). To determine whether there is a basis of challenging a decision for breach of legitimate expectation it is necessary to ask:

(1) Is there a representation by HMRC that can be enforced?

(2) Has HMRC made an unambiguous statement to an individual or group?

(3) Has the taxpayer relied on the representation to their detriment?

(4) Are there any public interest issues that must be taken into account to determine whether the legitimate expectation should be enforced?

Remedies

The question of remedies can be of paramount importance in judicial review proceedings as it will often determine whether it is worthwhile bringing a claim in the first place and whether permission will be granted by the court to bring the proceedings.

The remedies available in judicial review proceedings in the High Court are set out in CPR, r 54.2 and r 54.3 and are as follows:

(a) A mandatory order, which is an order requiring an inferior court, tribunal or public body (for example, HMRC) to carry out a judicial or other public duty.

(b) A prohibiting order, which is an order restraining an inferior court, tribunal or public body (for example, HMRC) from doing something which it does not have the power or jurisdiction to do.

(c) A quashing order, which is an order setting aside the decision in question.

(d) A declaration, which is a binding declaration as to the rights of the parties or as to a principle of law.

(e) An injunction, which restrains a person from acting in any office in which he is not entitled to act.

(f) Damages, but only where another established cause of action is available for which damages may be sought, such as for breach of the Human Rights Act 1998.

Application to the High Court to bring judicial review proceedings

Before making an application to the High Court for judicial review, the claimant should follow the Pre-Action Protocol for judicial review (which requires a letter before action and consideration of alternative dispute resolution). The objective of the Protocol is to avoid litigation and failure to comply with it without good reason may lead to an additional costs liability.

An application for judicial review involves a two-stage process:

1. there has to be an application to the court for permission to bring the judicial review claim; and

2. if permission is granted, the application will then proceed to a full substantive hearing, usually before a single judge of the Administrative Court.

The duty of candour

The duty of candour is a special duty that applies to parties (both claimants and defendants) in judicial review proceedings. The Administrative Court Judicial Review Guide describes the duty of candour in the following terms:

"This requires the parties to assist the Court by ensuring that information relevant to the issues in the claim is drawn to the Court’s attention, whether it supports or undermines their case. Where a party relies on a document, and the document is significant to the decision under challenge, it will be good practice to disclose the document rather than merely summarise it, because the document is the best evidence of what it says. The same may be true in other situations, for example where the precise terms of a document are relevant to an issue in the case. In such situations, it may in practice be difficult to comply with the duty of candour without disclosing the document. However, this may not be enough. The duty of candour may also require the party in its statements of case to identify and explain the significance of information and/or documents adverse to that party’s case."

For claimants, the duty of candour imposes an obligation to disclose in the claim form and the supporting written evidence all material facts of which they are aware or which they should have made reasonable inquiries about prior to the application. It should be noted that the court takes a firm approach to duty of candour responsibilities and non-compliance with those responsibilities, and a failure to comply with the duty of candour may result in permission to bring a judicial review claim being refused, refusal of the remedy sought, and practitioners being required to explain to the court the reasons for non-compliance (see, for example, R (Babbage) v Secretary of State for the Home Department [2016] EWHC 148 (Admin)).

Decision on permission

A decision on permission will normally be made on the papers without an oral hearing within four to five months of the application being submitted to the court. The purpose of the permission stage is to prevent claims that are hopeless or vexatious from proceeding.

The order granting or refusing permission will be served by the court on the parties. If permission is refused, a claimant is entitled to request an oral hearing. 

If permission is granted, the defendant must file and serve a detailed response to the claim and accompanying evidence within 35 days of service of the order granting permission. 

The substantive hearing

The substantive hearing is likely to take place within 10 to 15 months of permission being granted.

Once a case is listed for a substantive hearing, the claimant must file and serve a skeleton argument and a paginated and indexed bundle of documents 21 days before the hearing. The defendant and any interested party must file and serve a skeleton argument 14 days prior to the hearing.

The substantive hearing will usually take place in public before a single judge nominated to hear cases in the Administrative Court. Evidence is by witness statement and it is rare for there to be oral evidence, although the court does have the power to order a witness to attend and to be cross-examined (see Fluid Systems Technologies (Scotland) Limited & Others v HMRC [2024] UKUT 322 (TCC), for a recent example of the Upper Tribunal ordering limited cross-examination of an HMRC witness in judicial review proceedings).

Appeals

Following a substantive decision, either party may apply to the Administrative Court, or to the Court of Appeal, for permission to appeal in accordance with CPR, r 52. If permission is granted, following the Court of Appeal decision, a further appeal will lie (with permission) to the Supreme Court.

Conclusion

Judicial review remains a powerful tool for taxpayers seeking to challenge HMRC's decisions on public law grounds. It is therefore essential that tax practitioners have a firm understanding of the general principles of judicial review and the practical aspects of advancing a judicial review claim.