Thomas Elsbury v The Information Commissioner

This appeal is against the Commissioner’s Decision Notice (IC 298140-V1D6) dated 11 November 2024, which held that HMRC was entitled to refuse to confirm or deny that it holds the requested information.

On 14 December 2023, the Appellant had submitted a request to HM Revenue and Customs (HMRC) in the following terms:

HMRC responded on 8 January 2024, confirming that it holds the information requested but was withholding it under section 31(1)(d) FOIA (prejudice to the assessment or collection of tax or duty).

On 9 February 2024, the Appellant asked HMRC to carry out an internal review.

Only after the Appellant had complained to the Commissioner on 2 April 2024 (see below) did HMRC provide the outcome of that internal review on 24 May 2024 maintaining its original position, namely reliance on s.31(1)(d) FOIA to refuse to comply with the request.

On 2 April 2024, the Appellant complained to the Commissioner about HMRC's handling of his request.

In his complaint, the Appellant challenged HMRC's position and asked for his request to be dealt with in an expedited manner, and additionally sought a full response to his request for an internal review (see above, provided by HMRC on 24 May 2025).

During the Commissioner's investigation, HMRC stated in its letter to the Commissioner dated 3 September 2024 that it had "considered whether to reverse or amend its position. Having done so, I regret to advise that the response to the request was incorrect... I have determined that the department should have in fact relied upon s. 31(1)(3) [sic] with reference to s.31(1)(d)."

HMRC went onto explain that it was relying on the "neither confirm or deny" (NCND) exclusion in s. 31(3) FOIA. HMRC stated that it recognised the general public interest in promoting transparency, accountability and wider understanding surrounding public authorities - and that publishing the requested information would, on the face of it, reassure the public that its compliance activities are fair, robust and applied equitably.

However, HMRC also stated that the level of information in the public domain on R&D tax relief compliance satisfies the requirement for transparency and accountability which adequately facilitates public debate on the matter. HMRC stated its belief that there is no additional interest in disclosing information which puts its compliance activities at risk when the subject has already been openly discussed and confirmed through a variety of platforms.

HMRC concluded by saying that it was "in no way dismissive of the public interest...nor impact which fraudulent claims of R&D tax relief have had so far on the public purse... the requirement to protect the public purse from any further abuse than it has already been subject to outweighs the public interest in disclosure of the requested information."

On 11 November 2024, the Commissioner issued his Decision Notice.

In summary, the Commissioner concluded that HMRC confirming or denying whether it held the requested information would assist those intent on defrauding the system, which would in turn prejudice the collection of tax. The Commissioner then considered the public interest and, whilst he gave appropriate weight to the clear public interest in transparency in the information sought, he concluded that the public interest in maintaining the exemption was stronger.

On 4 December 2024, the Appellant sent a Notice of Appeal to the Tribunal, challenging the Decision Notice.

The Appellant submits that the Decision Notice was wrong in law and also that the Commissioner ought to have exercised his discretion differently when deciding, having taken into consideration the public interest in disclosure of the requested information, that HMRC was entitled to rely upon s.31(3) FOIA.

In summary, the Appellant submitted:

The Notice misapplied the "prejudice" test in s.31(3) FOIA by relying on speculation rather than concrete evidence of:

The Appellant invites the Tribunal to set aside the Notice and substitute it with a decision notice which requires HMRC to disclose the information requested.

Section 1(1)(b) of FOIA imposes a duty on a public authority, in response to a request, to provide information held by it. By virtue of section 2(2)(b) of FOIA, the duty does not extend to information if it falls within an absolute exemption, or within a qualified exemption and “the public interest in maintaining the exemption outweighs the public interest in disclosing the information".

In this case, the exemptions claimed are set out in sections 31(1)(d) and 31(3):

The Court of Appeal in DWP v Information Commissioner [2016] EWCA Civ 758 (at paragraph 22) approved the approach of the Tribunal in Hogan and Oxford City Council v Information Commissioner {2011} 1 Info LR 188 as a correct statement of the approach to determining "prejudice".

In summary, the prejudice test in relation to s. 31 FOIA comprises three limbs:

The Tribunal has the following powers when determining appeals against the Commissioner’s decisions for the purposes of FOIA.

The effect of section 58 is that the right of appeal to this Tribunal involves a full merits consideration of whether, on the facts and the law, the public authority’s response to the FOIA request is in accordance with Part I of FOIA (Information Commissioner v Malnick and ACOBA [2018] UKUT 72 (AAC); [2018] AACR 29, at §45-46 and §90).

The Upper Tribunal in Montague v Information Commissioner and DIT [2022] UKUT 104 (AAC), at §86 decided “…the public authority is not to be judged on the balance of competing interests on how matters stand other than at the time of the decision on the request which it has been obliged by Part I of FOIA to make.” In the current appeal, HMRC refused the request on 8 January 2024. It is therefore at that date that the public interest balance must be assessed.

The parties had submitted written evidence to the Tribunal prior to the hearing, comprising an Open Bundle of 89 pages (including indices). The panel additionally had access to a Closed Bundle.

The Appellant gave evidence and made submissions at the hearing. The Information Commissioner was neither present nor represented at the hearing.

The Commissioner relies on the Notice and HMRC's submissions during his investigation. The Commissioner's observations on the Appellant's Grounds of Appeal were as follows:

The prejudice test

The Commissioner accurately referred to the requirements for the prejudice test in the Notice and remains satisfied with HMRC's submissions in that regard. The Commissioner said he would be "consulting with HMRC to ascertain what, if any, of those submissions can appear in the open hearing bundle."

Public Interest Test

The Commissioner notes that there is no explicit presumption in favour of disclosure under FOIA. Where the public interests in favour of, and against, disclosure are evenly balanced, the information ought to be disclosed according to the Court of Appeal decision in Department of Health v IC and anor [2017] EWCA Civ 374 at § 46.

The public interest factors advanced by the Appellant, both during the Commissioner's investigation and on appeal are, in the Commissioner's submission, insufficient to outweigh the stronger public interest in either confirming or denying whether the information is held in this case as set out in the Notice and in HMRC's submissions. Ultimately, the Commissioner considers the public interest to be better served by not prejudicing the collection of tax as a result of confirmation or denial.

The "open" public interest factors advanced by HMRC and largely adopted by the Commissioner in his Notice are (in summary):

The "closed" public interest factors advanced by HMRC and relied on by the Commissioner are set out in the confidential annex to this decision. The 'gist' of these factors is that they comprise a more detailed explanation of HMRC's reasoning for maintaining its NCND stance.

In addition to the submissions in his Notice of Appeal, the Appellant made the following submissions in support of the requested information being disclosed:

As the founder of a business which specialises in Research & Development (R&D) tax relief, the Appellant often works with would-be applicants for such relief and their advisers. Some have shared correspondence from HMRC with tell-tale signs of AI usage such as American spellings and use of the "em-dash" punctuation mark. Moreover, the content of some HMRC letters - while framed convincingly - does not align with the relevant facts.

The above has triggered concerns in the industry, as has the increasing frequency of inquiries into R&D applications. The Appellant wonders whether HMRC Officers are making errors and misjudgements; or whether they are using generative AI without proper authorisation or training, perhaps using inappropriate prompts such as "reject with reasons" to write letters to taxpayers. Some of the letters taxpayers receive are nonsensical.

Further, if HMRC is using such AI, what safeguards are there around transparency, security (especially bearing in mind the intellectual property inevitably involved in Research & Development claims) as information fed into LLMs is used to "train" them; and is HMRC using its own AI configuration or modifications of the existing models? There are huge risks to R&D in the UK if legitimate and sensitive information given to HMRC is being used insecurely.

The Appellant's request was not purely personal or professional curiosity but in the public interest of the wider community in sufficient transparency to understand how taxes, penalties, and reliefs applications are being dealt with by HMRC and how the confidentiality of taxpayers' affairs is being protected and kept secure.

Speculation is mounting in the industry that, whether HMRC admits or not, AI is being used, either as a legitimate policy decision (though this gives rise to security and other concerns) or by rogue HMRC Officers (where the concerns are even greater).

Further context is that publicly available statistics from HMRC show that R&D tax relief claims in 2022-23 (the latest published figures) were 66,000 which represents a significant drop from 80,000-90,000 in the years before. This still amounts to billions of pounds' worth of claims, some of which were undoubtedly abusive or even fraudulent.

However, there are still many tens of thousands of legitimate claims but applicants are being discouraged from applying because making claims is complex; the science and technological R&D has to be explained to HMRC Officers in terms they can understand; and the frequency of HMRC challenges has recently increased from 2-5% to around 20%.

All these features are discouraging genuine applicants for applying, especially those dealt with by the ISBC unit within HMRC which deals with small business compliance. This unit deals with around 80% of the total applications.

ISBC applicants must use a central HMRC email address (rather a named HMRC caseworker as larger companies do) with no individual's name stated on correspondence nor any contact details. This results in cases - and challenges - being dealt with by multiple HMRC staff which is repetitive, frequently inconsistent and exasperating for applicants, especially when they then receive incomprehensible, seemingly AI-generated letters from HMRC.

Moreover, if ISBC challenges a claim, everything is dealt with in writing rather than by telephone or meetings. This is time-consuming, slow and stressful - especially as the applicant being challenged may ultimately face repaying tax relief previously granted plus penalties and interest.

It is accepted that HMRC's collection of tax is the applicable interest when considering the s. 31(1)(d) FOIA exemption claimed as the basis of withholding the information.

However, neither HMRC in its submissions nor the Commissioner in his Notice or Response to this appeal has produced any evidence let alone discharged the "evidential burden" of showing that some causal relationship exists between the potential disclosure and “real, actual or of substance" prejudice. HMRC has merely identified an unsubstantiated theoretical risk on which the Commissioner has relied.

Likewise, neither HMRC nor the Commissioner has established - merely asserted - thatthere is "a very significant and weighty chance of prejudice ... such that there 'may very well' be prejudice...even if the risk falls short of being more probable than not".

Overall, the result is that - despite HMRC's own statement that R&D tax relief is "designed to incentivise R&D in companies"- the way the scheme is being administered is undermining and actually discouraging genuine applicants, as well as likely reducing small companies' investment in R&D for which they are entitled to tax relief yet are increasingly reluctant to apply.

The Appellant is aware of cases where small businesses with R&D tax relief claims worth between £5,000-£10,000 are choosing to repay the relief with interest rather than incur the time, stress and legal fees in responding to HMRC's seemingly AI-generated correspondence and enquiries.

The balance of the public interest lies in disclosing the information requested.

Both industry and public confidence in HRMC's method of administering R&D relief is being undermined by evidence suggesting that AI is being used to assess and reject R&D relief claims. Disclosure of the requested information would either allay these fears or provoke public debate about the proper and secure use of AI for the important task of assessing and collecting tax and, where appropriate, challenging and rejecting claims for relief.