Staysure.co.uk Limited v The Commissioners for HMRC

In this part of my decision, I make findings of fact about Staysure and Intervest about the nature of their businesses and the relevant background. Findings of fact about the issuance of the Assessment have already been set out as part of Issue One, and findings about the enquiry period are considered as part of Issue Four.

Staysure specialises in providing travel insurance for people aged 50 or over, including those with medical conditions who are likely to find it more difficult to get insurance from other providers. Staysure also provides home insurance and cover for holiday homes and motor vehicles, but taken together these formed less than 5% of its business. Mr Howsam owns and controls Staysure.

The insurance was underwritten by a single underwriter. At the beginning of the relevant period, the underwriter was ERV; ERV was later replaced by Mutualidad de la Agrupación de Propietarios de Fincas Rústicas de España (“MAPFRE”). In 2013, ERV in turn replaced MAPFRE. I return to the circumstances of this change at §78. Each of these underwriters contracted with Staysure to provide insurance to Staysure’s customers.

Mr Howsam also owns and controls Intervest, which in turn owns Intervest Software Technologies (Pvt) (“IST”), a company based in Sri Lanka which provides Intervest with programming and software. By the end of the relevant period, Intervest employed 19 staff based in Gibraltar, and IST employed 21 staff in Sri Lanka. Intervest was licensed by Staysure to use the Staysure brand.

On 1 June 2013, Staysure and Intervest signed the Contract. This opened by stating that its purpose was to “confirm the existing arrangements that have been in place since 1 January 2009 and to specify in more detail the obligations of both parties”. HMRC did not seek to argue that the position had been different in any material respect between 2009 and the signing of the Contract. The Tribunal was also provided with a draft of the Contract, which had been created at some point in 2012. Both the draft and the Contract included a statement that the parties “consider the supplies under this Agreement to be VAT exempt”.

The Contract provides that Intervest be paid commission of 28% of written premium (excluding insurance premium tax) per insurance contract transaction arranged, including renewals and repeat business. In 2009, Intervest charged Staysure £1.45m, by 2014, this had risen to £10.97m.

The Contract provided that Intervest had the following obligations:

I accepted Mr Howsam’s and Mr Stocker’s evidence, supported by the Contract, that Intervest’s primary obligation was the generation of insurance leads for Staysure from both off line and on line sources based on criteria specified by Staysure, and that the other contractual requirements were integral parts of that same obligation: the quote service filtered the leads; the process of generating the leads had to be managed so as to fit with Staysure’s available resources, and provided opportunities for further product development. Intervest carried out these obligations in the ways explained below.

The Bundle included a registration certificate dated 6 April 2016 from Nominet which stated that the domain name staysure.co.uk was owned by Intervest. Mr Howsam was asked in cross-examination when that domain name had been purchased and by whom. Mr Howsam was unsure as to the date, but said he probably purchased it in his own name before Intervest was set up, and had subsequently transferred it to Intervest.

Both he and Mr Stocker gave evidence that, although the Appellant’s name is Staysure.co.uk Ltd, it was Intervest which owned the staysure.co.uk domain name and the Website throughout the relevant period. Mr Mantle challenged that evidence on the basis that there was no documentation as to the date of transfer from Mr Howsam to Intervest, but he agreed that both Mr Howsam and Mr Stocker were honest and reliable witnesses. He also did not seek to argue that the terms and conditions (“T&C”) page of the Website, which is discussed at §85-§87, was relevant in this context. I accept Mr Howsam’s and Mr Stocker’s evidence and find as a fact that Intervest owned the staysure.co.uk domain name and the Website throughout the relevant period.

Intervest also owned and operated a small number of other websites which provided leads for Staysure, including TravelInsuranceMedical.co.uk and InsureMe4.co.uk and, but these were little used. The Website was the most significant by far.

Search engine optimisation means using targeted placement of announcements and links in order to improve the quality and quantity of potential customers who connect with a website; this is also known as “organic search”.

Intervest established a strategy for search engine optimisation to attract customers which fitted Staysure’s market. For example, in advance of “world hypertension day” on 17 May 2014, Intervest issued a news item which by careful usage of key words and other triggers within its first few lines led to it being selected as the best match for a user searching for information when the words “world hypertension day” were input into the Google search engine. Clicking on that link in Google leads to the Website, which not only contains information about hypertension, but also says (where the underlining indicates a link):

Intervest’s team, together with third party suppliers contracted to Intervest, identified opportunities for this type of targeted search optimisation. Designing news items so they come at or near the top of a user’s search requires a combination of skills, including use and understanding of algorithms as well as an awareness of external events and topical issues, such as world hypertension day. Other examples included “stroke awareness month” and “Parkinson’s awareness week”. It takes time to design links which effectively use organic search, but there are few external costs: for example, Intervest’s marketing budget for 2014 allocated £25,199 to organic search out of a total of £7,652,347.

In addition to search engine optimisation, Intervest generated leads targeted at the customer segments which fit Staysure’s market using the methods set out below. Traffic to the Website “spiked” after a marketing campaign, so demonstrating a direct link between the advertising the Website and the generation of leads. The advertising and marketing services were supplied to and utilised by Intervest, not by Staysure.

Intervest pays search engines such as Google to place adverts and links at or near the top of the first page of search results. The more people click on these links to reach the Website, the higher the cost to Intervest. It is therefore important that the adverts and links are targeted at potential clients with profiles matching Staysure’s target market, as Intervest would otherwise incur heavy costs without receiving any related remuneration; it is paid only when Staysure contracts with a customer to sell insurance (see §82). Intervest allocated almost 50% of its 2014 marketing budget to paid search (£3,688,357 out of £7,652,347).

Intervest also used the following types of advertising and marketing, all of which gave the link to the Website and a phone number for Staysure’s call centre:

As set out in the Contract, Intervest was required to “operate an online quote service…which will filter the leads based on criteria specified by [Staysure] and provide automated quotes for risks where additional underwriting is required”. IST worked with Intervest to develop an online quote engine entirely from scratch. The quote engine took into account a person’s age, medical history. personal details and other risks, and either provided an insurance quotation, or rejected the person as an uninsurable risk. The quote engine was thus a key way of filtering leads and generating sales for Staysure. Staysure did not have the staff or the technology to design, build and operate its own quote engine.

The critical elements of the quotation process lay in the setting of (a) the price paid to the underwriter (the “Net Price”), and (b) the price charged to the customer (the “Retail Price”), as explained below.

When setting the Net Price, Intervest used statistical methods to understand the probability of a customer making a claim and the probable cost of that claim. It did this by using information captured during the quotation process i.e. the customer’s age, any pre-existing medical conditions, whether they were travelling alone, their destination and the length of the trip. The quote engine put this information together to generate a personalised price that covered the risk of a claim being made leaving a profit margin for the underwriter. It also established the levels at which Intervest would decline to offer the customer a quotation.

The importance of this part of the quote engine was demonstrated by the negotiations around the change of underwriter from MAPFRE to ERV. It was well-known in the insurance market place that MAPFRE had lost significant money underwriting business brokered by Staysure, and had decided to terminate its contract with Staysure for that reason. Mr Stocker was able to show ERV that the online quote engine could be used to set pricing parameters so as significantly to reduce the risk that ERV would be in a similar position. The contract between Staysure and ERV included detailed provisions as to the creation and calculation of the Net Price so as to achieve that end, using pricing machinery within the quote engine. It was unusual for an underwriter to rely on pricing machinery both provided and operated by an intermediary, but it was essential in this case because Staysure would otherwise have been “an unappealing risk”.

Although Schedule 2 to the contract between ERV and Staysure provided for regular meetings attended by representatives of those two companies, I accepted Mr Stocker’s evidence that he also attended as representing Intervest, because of the very significant role played by the quote engine in the pricing of the products. Without Intervest’s involvement in those meetings, it would not have been possible for ERV and Staysure to resolve issues about pricing, which constituted a fundamental element of the business being written..

Some insurance brokers set the Retail Price of a product by adding an uplift to the Net Price payable to the underwriter. Intervest did not do that, but instead calculated the optimum Retail Price using complex statistical methods, including Generalised Linear Models, based on the elasticity of demand. Mr Stocker explained this as follows:

Intervest’s statistical algorithm also took into account the careful balancing act between maximising the return from a particular customer at a particular point in time, versus obtaining repeat customers in the future. For example, increasing the price would increase profits today, but reduce the likelihood of customers renewing their contracts. The model therefore also took into account opportunities for renewal business.

The difference between the Retail Price and the Net Price (after Insurance Premium Tax) is the “Broker Margin”. The purpose of the quote engine was to produce an optimal price point which maximised both the Broker Margin per sale, and the number of customers acquired in total. The Broker Margin was shared between Staysure and Intervest, with Intervest being entitled to 28% of each sale. Intervest was only remunerated if the leads were converted into sales: it received no fee for operating the Website and did not recharge any of the significant marketing costs it incurred.

The quote engine was designed to produce a personalised price for each customer which was competitive from the perspective of the potential customer and also maximised profit for Staysure, the underwriters, and Intervest. The quote engine also identified the levels at which Intervest would refuse to offer a customer a quotation, and thus decline the business. It was thus a key element in ensuring leads were filtered so as to generate both sales and profits. As Mr Stocker said, “The pricing work that Intervest performed went to the heart of whether a contract was concluded or not, within the profit constraints set by [Staysure] and the underwriter”.

Part of Mr Stocker’s role at Intervest was to ensure that the Website was usable by customers. The Website offered information to consumers about travel and insurance, promoted Staysure’s products and provided the personalised quotation and pricing process both for online sales and those purchasing through the call centre (see §90), and it supplied payment facilities for customers.

The branding on the Website was that of Staysure. The T&C page of the Website began by stating that the terms and conditions apply:

Pausing here, the reference to Staysure.co.uk Ltd is plainly to the Appellant, see §67; it is that company which provides the “holiday services” to the customers. From mid-2013, the T&C was amended to add the following paragraph, under the heading “Website Operation”:

Mr Howsam’s and Mr Stocker’s evidence was that the inclusion of this passage in the T&C simply formalised the existing position, which was that Intervest operated the Website and when the quotation was complete, the customer data passed Staysure, and I accepted that evidence.

As is clear from the citation above, the passage ends by saying that “your data will be passed to Staysure.co.uk limited, and become the property of staysure.co.uk, at the point your quote is complete” (my emphasis). As noted at §67, Mr Howsam and Mr Stocker gave clear and consistent evidence that this domain name was owned by Intervest, not by Staysure and that that the customer data transferred from Intervest to Staysure at the point where the quotation was complete. I find, in reliance on that evidence, that the usage of the domain name (without the “Ltd”) in this part of the T&C is a typographical mistake.

The position is thus that before 2013, customers would have thought that they were using Staysure’s website, and would have been unaware it was owned and operated by Intervest. After the change in 2013, customers would only have been aware of Intervest if they had clicked on the T&C page. They would also not have known that the domain “staysure.co.uk” was owned by Intervest.

Sales were made in three ways:

Intervest designed the webpages with the aim of preventing people dropping out of quotation process, either because they were not at ease with online processes or because they were worried about a medical condition: the webpages therefore repeatedly give messages along the lines of “if at any time you are unsure contact the call centre”.

The telephone number for Staysure provided on the Website was different from that provided on the advertising material, and this helped Staysure and Intervest to track how many leads were filtered via the Website.

Once the insurance contract has been entered into, any queries or claims made by the insured were dealt with by Staysure. Intervest had no further involvement.

Customers were required to declare medical conditions, but the quote engine was able to take many of those into account within the algorithmic process. When a customer declared one of those conditions, he received an online message saying “this condition is covered free. You can continue with your purchase”.

Customers who declared certain more serious conditions were offered the choice of continuing with cover but excluding coverage of those conditions, or completing a more detailed online medical screening questionnaire about all conditions. The quote engine would then process the extra information, with one of the following results:

The Tribunal was provided with figures for the period January to April 2014; neither party argued that this period was unrepresentative. Those figures showed that:

However, the figures at (4) and (5) above do not take into account the number of call centre customers whose initial contact was with the Website. I considered the evidence to see how many such calls there were.

Mr Howsam’s unchallenged oral evidence under cross-examination was that:

This second statement was not made in the context of 2014, and it is clear from the numbers set out above that it cannot apply to that year. In 2014 there were 838,342 web visits, so 25% would have been around 200,000. However, the total number of calls to the call centre that year was only 186,586. Mr Howsam’s 25% figure is therefore unrelated to 2014, but I nevertheless find as a fact, in reliance on his unchallenged evidence, that throughout the relevant period the “vast majority” of callers first contacted the Website.

The total number of leads generated by the Website was thus (a) 386,303 quotations provided to customers without any call centre involvement, and (b) the vast majority of call centre sales. Thus, almost all Staysure’s sales were directly or indirectly the result of the customer contacting the Website. The small balance of other sales resulted from targeted marketing and advertising placed by Intervest.

Intervest and Staysure worked on a collaborative basis to ensure that Intervest effectively delivered the maximum number of suitable leads to Staysure. Key staff of both companies held regular meetings, at least monthly, but often weekly, to discuss:

Mr Stocker and Mr Howsam both gave evidence about the nature of the relationship between Staysure and Intervest. Mr Stocker described it as a “partnership” in which both Intervest and Staysure had a common interest in ensuring that quality leads were generated. Mr Howsam’s evidence was that:

I accepted that the descriptions given above by Mr Stocker and Mr Howsam were accurate.

The parties agreed that Intervest was making a single supply; the dispute was whether the supply fell within the exemption for insurance intermediary services as set out in statute and explained in the related case law. However, it emerged in argument that the parties had different views as to the basis on which Intervest had made a single supply. I therefore set out the relevant provisions here, and discuss this issue at §144ff.

In Card Protection Plan Ltd v C&E Comrs (Case C-349/96) [1999] STC 270 (“CPP”) at [30] the CJEU held:

In Levob Verzekeringen BV v Staatssecretaris van Financiën (Case C-41/04) [2006] STC 766 (“Levob”), the CJEU reiterated the points made in CPP at [28]-[29] and continued:

In Město Žamberk v Finanční ředitelství v Hradci Králové (Case C18/12) [2014] STC 1703 (“Město”), the facts are at [9] of the judgment:

The Court had to decide whether this was a single complex supply which was exempt from VAT as “the supply of certain services closely linked to sport or physical education by non-profit-making organisations to persons taking part in sport or physical education”. It said at [29], citing Levob and other authorities:

The Court continued at [30], again citing Levob and a number of further authorities:

In Metropolitan International Schools Ltd v R&C Commrs [2017] UKUT 431(TCC), STC 2523 (“Metropolitan”) Ms Mitrophanos, Counsel for HMRC, submitted that the CJEU had now introduced a new “overarching” test. The UT made the following obiter observations about those submissions:

Article 13B(a) of the Sixth Directive 77/388 EEC provided that Member States should exempt “insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents”. Directive 2006/112/EC (“the PVD”) reproduced that provision as Article 132(1)(a).

VATA s 31 implements Article 132(1) of the PVD by providing that a supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9. Item 4 of Group 2 of that Schedule provides exemption from VAT for:

Note 1 to Item 4 reads:

Note 2 reads:

Note 7 reads:

I first set out the main authorities on which the parties relied, followed by my summary of the relevant principles, see §139.

In Assurandør-Societetet, on behalf of Taksatorringen v Skatteministeriet Case C-8/01 [2006] STC 1842 (“Taksatorringen”), the CJEU held at [44] that the expression “related services performed by insurance brokers and insurance agents” refers only to services “provided by professionals who have a relationship with both the insurer and the insured party”.

In Staatssecretaris van Financien v Arthur Andersen (C-472/03), [2005] STC 508 (“Andersen”), an insurer, Universal Leven NV (“UL”) subcontracted certain back office services to Andersen under what was described as a “collaboration agreement”. These were set out at [10] of the judgment as follows:

The CJEU decided that at [36] Andersen were not carrying out any of the “essential aspects of the work of an insurance agent, such as the finding of prospects and their introduction to the insurer”, and at [38] that there was also no contractual relationship between Andersen and the insured parties. Instead, UL had simply subcontracted its own back-office activities, and so the services supplied by Andersen did not come within the exemption.

In Beheer BV v Staatssecretaris van Financiën [2008] Case C-124/07 [2008] STC 3360 (“Beheer”), the CJEU held at [29] that:

In InsuranceWide and Trader Media [2010] EWCA Civ 422 (“InsuranceWide”). Etherton LJ gave the leading judgment, with which Longmore LJ agreed and Pitchford LJJ delivered a concurring judgment. As in this appeal, Ms Sloane represented the appellants.

Etherton LJ first considered the earlier EU case law on the scope of the exemption, saying at [80]:

He set out the following principles at [85]:

At [86] he applied those principles to the appellants in that case:

He continued at [87]:

In RBS v HMRC [2008] VATTR 20856 the VAT Tribunal decided that commission received by RBS from Prudential did not fall within the exemption, and RBS appealed to the High Court; the case was heard by Mann J, see Royal Bank of Scotland v HMRC [2012] EWHC 9 (“RBS”).

The facts were complex. In summary Prudential transferred its general insurance business to Winterthur Swiss Insurance Company (“Winterthur”). The terms of the transfer included the following (see [6] of the Tribunal decision and [14] and [35] of the High Court judgment):

By the time of the VAT dispute, Winterthur had novated the agreement to UK Insurance, of which RBS was a part. The Lead A sales referred to in (4) above were described by Mann J at [36] as follows:

The VAT Tribunal rejected RBS’s submission that the commissions it received from Prudential were exempt, because Prudential was acting as an insurance intermediary. The Tribunal held at [15]:

At the High Court, Mann J upheld that decision. He found at [47]:

He then continued:

In Minister Finansów v Aspiro SA (Case C - 40/15) [2016] STC 1255 (“Aspiro”), the CJEU set out at [9] a list of the activities carried out by Aspiro, and then held at [36], by reference to Andersen and Beheer, that “it is necessary to examine the content of the activities in question”, The Court continued:

In Dollar Financial UK v HMRC [2016] UKFTT 598 (TC), [2016] SFTD 953 (“Dollar”) the taxpayer provided payday loans. HMRC had decided that certain services provided by an overseas company to the taxpayer were not exempt under Article 135(1)(b) because they were not “the granting and the negotiation of credit and the management of credit by the person granting it”. The facts, as set out in the Simons Taxes headnote, were as follows:

Thus, the case considered a different exemption than that in issue before this Tribunal. However, in coming to her conclusions, Judge Mosedale also considered the case law on Article 135(3)(a), saying at [48] “the similarities between the two exemptions in both EU and UK legislation were such that it is appropriate, in my view, to draw some principles from insurance cases about intermediaries when looking at the finance intermediary exemption”.

Judge Mosedale confirmed at [69] and [79] that “mere advertising” was not sufficient to come within the exemption, adding at [97(12)] that something “extra” was required, which “could be assessing the suitability of the service provider to provide the loan or the suitability of the borrower to receive the loan”.

She considered at [74]ff HMRC's proposition that unless the intermediary carried out some kind of assessment of the suitability of the lenders to which it introduced borrowers, then its services were not exempt. She accepted that the appellant in InsuranceWide did carry out such an assessment, but pointed out that “the Court of Appeal did not say it was essential for an intermediary claiming exemption on the basis of introductory services to do so” and that there was no authority for such a proposition, adding at [78]:

She went on to say at [96] that although “a mere introduction is not enough”, the exemption was satisfied if the intermediary assessed whether the borrower was a suitable customer for the insurance being sold.

The most recent CJEU judgment on the insurance intermediary exemption is Q-GmbH v Finanzamt Z (Case C-907/19) [2021] STC 696 (“Q-GmbH”). At [37] the CJEU held that for the exemption to apply:

From the case law set out above, I derive the following principles as being particularly relevant to the issue in dispute between the parties in this case:

I have set out first a summary of the parties’ overall position and my own view, followed by their main submissions on particular areas, together with my conclusions.

Ms Sloane submitted that the supplies made by Intervest satisfied the requirements for the exemption. Intervest drives leads to the Website using advertising, it provides a quote engine to filter those leads both on the Website and in the Staysure call centre; it is paid commission per successful take-up of insurance and it actively collaborates with Staysure to maximise the match of prospective insurance customers and the insurer. These services were clearly linked to the essential aspects of the work of an insurance broker or agent, namely the finding of prospective clients and their introduction to the insurer with a view to the conclusion of insurance contracts.

HMRC’s overall case was that Intervest’s services only assisted Staysure, and that Intervest itself was not an insurance intermediary. Mr Mantle said that Intervest’s interaction with potential customers was “too passive and slight” to meet the statutory requirements, and he made submissions on the “predominant element” of the supply and the overarching test, which I consider at §145-§146 and §149-§151.

I agree with Ms Sloane for the reasons she gives, and for the further reasons set out below. I find that Intervest is making a single supply to Staysure which consists in the provision of appropriate leads, and this supply is plainly essential aspect of the work of an insurance agent or broker. In summary, but as further developed below, this is because:

Mr Mantle accepted that the marketing and advertising placed by Intervest had the purpose of attracting potential customers to call Staysure’s call centre and/or to the Website. However, he submitted that in so doing, Intervest was acting as a passive conduit between potential customers and Staysure. He said that it was clear from IW and from RBS that a company acting as a mere conduit cannot satisfy the exemption.

In his skeleton argument, he submitted that Intervest’s provision of marketing and advertising to Staysure was “the predominant element” of the supply made to Staysure, and it was clear from Note 7 to Sch 9, Group 2 Item 4 of VATA that advertising fell outside the exemption. He relied on the fact that in 2014, the total charge by Intervest to Staysure under the Agreement was £10.97 million (see §63) and in the same year Intervest’s marketing spend was £7.65 million (see §73), and thus almost 70% of Intervest’s income was spent on marketing and advertising.

By the end of the hearing, Mr Mantle’s position had changed. He now submitted that marketing was one of the predominant elements, with the others being the “operation of the website and pricing”, and that even if (which he did not accept), the quote engine taken alone did fall within the exemption, that element was insufficient for the supply to be characterised as exempt. Mr Mantle also submitted that the although there was no “overarching test”, it was permissible to take an “overarching perspective” into account, and that approach would give the same outcome.

Ms Sloane’s position was that marketing and advertising formed part of Intervest’s single supply of leads, and it was artificial to separate the individual parts of the supply. She said that Intervest was not just providing advertising, but was using targeted placement online and offline to maximise the chance of qualifying leads from Staysure’s particular demographic accessing the Website and/or contacting the call centre.

She referred to Dollar where Judge Mosedale had said that “mere advertising” was not sufficient for the exemption to apply; instead something “extra” was required. In Intervest’s case, potential clients were first targeted by Intervest’s advertising and marketing and then assessed by the quote engine, which rejected some applicants and offered others alternatives depending on the nature and extent of different levels and types of insurance cover. This was more than sufficient to meet Judge Mosedale’s “something extra” requirement. In short, Intervest was not supplying advertising, but qualified leads.

I agree with Ms Sloane. In Město, the CJEU held that in order to determine where there was a single supply so as to meet the exemption, “the predominant element must be determined from the point of view of the typical consumer…and having regard, in an overall assessment, to the qualitative and not merely quantitative importance of the elements falling within the exemption”. In Metropolitan the UT said that “the Město question would be what the typical consumer thinks he or she is acquiring” and that “it may be that…there is a main element which, at least quantitatively, predominates over the others. But if the consumer thinks that he or she is acquiring something larger…then [that element] cannot be said to predominate for the purposes of the Město test”.

On the fact of this case, the typical consumer, having considered all the elements of the single supply made to Staysure, would decide that the predominant element was the supply of leads, not the supply of advertising. That is because:

It is true that, as Mr Mantle said, Intervest spent 70% of its total income on marketing and advertising, but that is to take a quantitative approach instead of considering the point of view of the typical consumer, see Město cited at §109. Ms Sloane is instead correct that Intervest was not supplying “mere advertising” but instead used the advertising as an element in its single supply of qualifying leads to Staysure.

Mr Mantle emphasised that Intervest would have been invisible to the customer before the T&C were changed in 2013, and submitted that it was all but invisible after that, given that few people would have read the T&C. The customers would have seen that the Website used Staysure’s branding, and the domain name was staysure.co.uk. He relied in particular on RBS, where Mann J had said at [47] that:

Mr Mantle said that although visibility was “not essential”, Mann J was giving “a clear steer” that for the exemption to apply “you would expect visibility”. In his submission, it would be wrong of the Tribunal “to ignore the clear economic reality” that the customers think they are dealing directly with Staysure.

Ms Sloane submitted as follows:

I agree with Ms Sloane for the reasons she gave, that a person does not need to act as a disclosed agent to come within the insurance exemption. I also agree that RBS does not compel a different conclusion for the following reasons:

Mr Mantle accepted that the quote engine was “essential to Staysure” because without it, Staysure would be unable to broker the insurance to customers, but he submitted that the quote engine did not form “part of the chain” between Staysure and the customer, because it is “not about finding prospective clients but about filling the gap in the technical and human abilities available to Staysure”.

In his submission, the quote engine provided “technical assistance” allowing Staysure to offer quotations to the customer. He said that in the pre-digital age, a broker would price contracts by reference to a physical book of prices, and the quote engine was simply a modern version of that tool. Intervest constructed the quote engine within parameters set by Staysure, not by Intervest. Mr Mantle said that “at most” the provision of the quote engine amounted to “some limited sub-contracting of pricing by Staysure to Intervest, within the criteria set by Staysure”.

Ms Sloane emphasised that Intervest’s online quote engine, which incorporated pricing, was an essential element of the insurance intermediary service being provided to the customer and formed part of the single supply of qualifying leads. The quote engine formed part of every sale, whether the customer (a) only used the Website, (b) used the call centre, or (c) used a mixture of both. In her submission, the quote engine was not simply a modern form of pricing book, but instead sophisticated technology which interacted with potential customers to assess whether they should be accepted for insurance, and if so, on what conditions (for example, excluding or including a health condition) and at what price. I agreed with Ms Sloane for the reasons she gave.

Mr Mantle contrasted Intervest’s position with that of IW. The successful appellants in IW provided recommendations to customers as to which insurer would be most appropriate, whereas Intervest only offered Staysure’s products.

Ms Sloane invited the Tribunal to agree with Judge Mosedale’s observations in Dollar that the Court of Appeal did not say it was essential for an intermediary claiming exemption on the basis of introductory services to provide recommendations to customers: there was no authority for such a proposition; and “if brokers who make recommendations to borrowers based on the broker's self-interest were intended to be liable to charge VAT on their commission I would expect the Directive to have said so”. I agree with Judge Mosedale and thus with Ms Sloane.

For the reasons set out above, I find that Intervest was making a single supply to Staysure which consisted of the provision of suitable leads. As a result, Staysure succeeds in its appeal. However, as the other two Issues were fully argued, and in case this appeal goes further, I have set out the Issues, the parties’ arguments and my conclusions below.

The Assessment was issued on 17 December 2013 for a single long period which began on 1 January 2009 and ended on 31 March 2015. Issue Three was whether, as the Appellant contended, the Assessment was out of time, as it had been issued more than two years after the end of the quarterly accounting periods which fell within that single accounting period, or whether, as HMRC argued, the two year time limit ran from the end of that single accounting period. It was common ground that there was no authority directly on this Issue.

The Assessment was made under VATA s 73(1), which is headed “Failure to make returns etc”, and subsection (1) reads

Section 73(6) reads, so far as relevant:

HMRC could have avoided the Appellant’s Issue Three challenge to the Assessment, had it been issued within “one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge”. However, HMRC explicitly disclaimed reliance on s 73(6)(a), presumably because, as Ms Sloane submitted, they had delayed in issuing the Assessment until after the end of that one year period.

As set out in s 73(6), assessments under s 73 had to be within the time limits set by VATA s 77. At the relevant time, s 77(1)(a) provided for a four year time limit, having been increased from three years by FA 2009, and read:

Section 77(4) provided that:

Subsection (4A) provided:

Thus, by s 77(4A)(c), a 20 year time limit applies to “a case involving a loss of VAT attributable to a failure by P to comply with a notification obligation”, and it also applies where the person acted “deliberately”. In years before 2009, the equivalent provisions imposed a 20 year time limit where the person’s conduct “involved dishonesty”. In Tooth v HMRC [2021] UKSC 17 (“Tooth”) the Supreme Court considered the meaning of “deliberately” in Taxes Management Act 1970, s 29, and found that such a person had acted intentionally, knowing that the action was wrong. I have taken it that the same meaning applies for the purposes of s 77(4A).

Like the time limit in s 73(6), those in s 77(1) and (4) run from “the end of the prescribed accounting period”. This term is explained at VATA s 25, which is headed “Payment by reference to accounting periods and credit for input tax against output tax” and subsection (1) reads:

Regulation 25 of the VAT Regulations 1995 is headed “Making of returns”, and reads, again so far as relevant, and with emphases added:

As I have already found at §34, on 19 December 2016, Ms Forsyth sent the Appellant a manual VAT return for an accounting period which ran from 1 January 2009 to 31 March 2015 (“the Accounting Period”). Her letter said “please send the completed VAT return to me by 16 January 2017…if we do not receive a return for this date, we will raise an assessment for this period”.

No return was received, and on 26 January 2017 Ms Forsyth issued the Assessment. It ran from 1 January 2009 and ended on 31 March 2015, the day before the Appellant registered for VAT because of a change of circumstances, see §32. .

Ms Forsyth was asked in cross-examination why she had issued the Assessment for a single long period rather than for 25 separate periods, each of three months. She said that in cases where HMRC establish that a trader should have registered for VAT, HMRC’s normal practice was that the first period ran from the date the trader should have registered to the date of actual registration. She added that she had previously worked in HMRC’s VAT registration section, and she had never seen a case where HMRC had acted differently.

Ms Sloane accepted that Ms Forsyth had not issued Staysure with this single global assessment in order to avoid the consequences of falling outside the time limit provided by s 73(6). I agree, and find as a fact that Ms Forsyth issued the Assessment for a single long accounting period because this was HMRC’s normal practice in the circumstances.

I first set out the overall position, and then the parties’ submissions on each of the case law authorities on which they relied, together with my view. My conclusions on the case law are summarised at §225, followed by view as to the meaning of the statutory phrase “the prescribed accounting period” in s 73(6).

The Assessment issued on 26 January 2017 ran from the registration date of 1 January 2009 to 31 March 2015. Had Ms Forsyth instead issued assessments for each of the 25 periods which fell between the registration date and 31 March 2015, all but the last of those assessments would have been out of time, being issued more than two years after the end of the relevant accounting period, see s 73(6)(a).

Ms Sloane accepted that Reg 25(1)(c) empowered HMRC to vary the length of any period or the date on which any period begins or ends, where they considered it necessary in any particular case. However, she submitted that this power could not be used so as to circumvent the statutory time limits in VATA s 73(6), and the Assessment was therefore invalid.

Mr Mantle submitted that HMRC were acting within the powers given to them by the regulations, and the Tribunal could only find the Assessment invalid if HMRC had acted improperly or had abused their power, which was not the position.

Both parties made submissions on the case law. I have first summarised the domestic case law on which they relied, in chronological order, followed by the single CJEU authority.

In Grange v C&E Commrs [1979] 1 WLR 239 (“Grange”), the Court of Appeal reversed the decision of Neil J (as he then was), see Grange v C&E Commrs [1979] STC 183. The background was as follows:

Lord Denning gave the leading judgment. He considered the wording of s 31(2) that an assessment can be made no later than “(a) two years after the end of the prescribed accounting period; or (b ) one year after evidence of facts, sufficient in the opinion of the commissioners to justify the making of the assessment, comes to their knowledge”. He said that to avoid the “impractical result” of HMRC being unable to make an assessment on a global basis, it was necessary to add, after the words “for any prescribed accounting period”, the words “which is included in the notice of assessment”. He held at p 242:

Bridge and Templeman LJJ delivered concurring judgments, with Templeman LJ adding at p 245 that the effect of reading in the additional words was as follows (emphasis added):

Ms Sloane submitted that it was clear from Lord Templeman’s judgment in Grange that HMRC could not circumvent the time limits provided by s 73(6) by issuing a global assessment. Given that the two year time limit must run from “the very earliest prescribed accounting period of three months which is covered by the assessment”, the whole of the Assessment was invalid because it had not been made within two years of the end of the first period contained within it. HMRC were relying on the regulations to bypass the statute, and it was clear from Grange that this was not permitted.

Mr Mantle submitted that Grange was not a case where the appellant had failed to register for VAT, but instead one where returns had already been made. It was therefore not a relevant decision for the purposes of this appeal.

I agree with Mr Mantle that the facts of Grange were significantly different to those of Staysure. In Grange, the appellant had already filed returns for three month periods, and there would have been no basis on which HMRC could have directed, in reliance on the regulations, that it file a single return.

In this case, the position was different. The Appellant had never filed VAT returns, and HMRC issued a direction that it file a return for a single period. When it failed to do so, HMRC raised the Assessment for that same single period.

Grange is therefore not an authority for a finding that, where a person is directed to file a single return for a long period, the time limit runs from the dates of three month periods within that period. I thus agree with Mr Mantle and find that the case does not assist the Appellant.

In C&E Commrs v Le Refifi [1995[ STC 103 (“Le Refifi”), Balcombe LJ gave the leading judgment, with Millett LJ and Sir Ralph Gibson delivering concurring judgments. Balcombe LJ first considered Grange, and then said at p 107:

It was common ground that Le Refifi was authority for HMRC to issue global assessments not only where (as in Grange), it was “impossible or impracticable” for HMRC to issue assessments for the normal three month periods.

The appellant in Bjellica v C&E Commrs [1995] STC 329 (“Bjellica”) had not registered for VAT and so had not filed a return. HMRC issued a single global assessment for a period of twelve years and six months. The appellant submitted that this was a breach of Article 22(4) of the Sixth Directive, which required that a return period should not exceed one year; it also argued that the VAT Regulations were ultra vires in permitting a long period.

Ms Sloane submitted that Bjellica was not relevant to Staysure, because in Bjellica the assessment had been made within “one year of evidence of facts” etc. The Court of Appeal therefore did not consider whether HMRC could issue a single global assessment if (a) they were relying on the alternative two year time limit, and (b) one or more of the three month periods within that assessment was out of time.

I agree that time limits were not in issue in Bjellica; it is clear from the facts as set out in more detail by Leonard J in the High Court judgment under reference [1993] STC 730, that the one year time limit was satisfied.

In Pegasus Birds v C&E Commrs [2000] STC 91 (“Pegasus Birds”), Aldous LJ gave the only judgment, with which Scott-Baker J and Henry LJJ both agreed. He said at [7] that:

Under the heading “The first issue” he said at [10] that “the first issue turns upon construction of s 73(6)(b) of the 1994 Act”, and he then set out the submissions made on behalf of the appellant. He continued at [11] (emphasis added):

Ms Sloane relied on the highlighted phrase, on the basis that it encompassed s 73(6) in its entirety, and not only s 73(6)(b). She said that it followed that the purpose of the time limit in s 73(6)(a) was similarly to protect the taxpayer from tardy assessment. If HMRC could issue a global assessment for a single long accounting period on the basis that the two year time limit in s 73(6)(a) ran from the end of that long period, this would be entirely contrary to the purpose of the provision as stated by Dyson LJ.

Mr Mantle submitted that Pegasus Birds was binding only in relation to s 73(6)(b), and read in context, it was clear that the phrase relied on by Ms Sloane referred only to that subsection. Pegasus Birds did not prevent HMRC from issuing a direction under Reg 25 that a taxpayer who had failed to register should have a single long accounting period, with the result that the two year time limit ran from the end of that period

I agree with Mr Mantle that the only issue being considered in Pegasus Birds was the meaning and effect of s 73(6)(b), and the reference to protecting the taxpayer from tardy assessment was made in that context, as is clear from the rest of that sentence. The judgment is not an authority where (as here) HMRC issue a direction under Reg 25 that a person who has not registered for VAT has a single long first accounting period.

The appellants in Hindle and another v C&E Commrs [2004] STC 412 (“Hindle”) had failed to register for VAT. On 27 September 1999, HMRC issued a global assessment for the 10 month period from 1 December 1995 to 30 September 1996, on the basis that it was made “within one year of evidence of facts” etc, see the VAT Tribunal judgment at VATTR 17868 at [74]. At that time, s 77 provided for a three year time limit rather than the current four years, see §166.

Neuberger J (as he then was) held that the assessment was validly made because:

That was sufficient to decide the case against the appellant. However, HMRC had also argued that they could have relied on the 20 year limitation period for an assessment, because the appellant had been dishonest, albeit that no penalty for dishonesty had been levied, see [24] of the judgment; the related statutory provision is referenced to at §169.

Neuberger J said at [47]:

Mr Mantle relied on the paragraph set out above, saying Neuberger J had found that the time limit for s 77 purposes ran from the end of the long accounting period, and that as a result there was no need for HMRC to rely on the longer time limits in s 77(4). Ms Sloane invited me to disregard that passage because it was obiter. Mr Mantle did not disagree, but submitted that it was nevertheless persuasive.

In An NHS Trust v X [2021] EWHC 65 Sir James Mundy said in at [59] that “there are obiter dicta and obiter dicta”, adding that Megarry J in Brunner v Greenslade [1971] Ch (“Brunner”) had said at pp 1002-3:

I considered whether Mr Mantle was right, that this was the sort of obiter dicta which has some persuasive force. However, the third issue before the Court was not about whether the time limit ran from the end of the long accounting period. Instead, it was whether, in a case where there had been no penalty for dishonesty, HMRC could nevertheless rely on the 20 year time limit. There is no mention in the judgment about any submissions as to the time limit running from the end of the long accounting period. Thus, although Neuberger J says the point was “argued”, it was a different point form the one with which we are concerned. I thus agree with Ms Sloane that the dictum should not be regarded as persuasive.

In Raj Restaurant v HMRC [2008] CSIH 68, [2009] STC 729 (“Raj”) the judgment included this passage at [16]:

However, having considered the facts and the submissions, the Court also held at [20]:

Thus, the Court explicitly stated at [16] that in cases of failure to register, HMRC can avoid the time limits at s 73(6) and s 77 by directing a single long accounting period. It was common ground that this passage was obiter, as no such direction had been given to the appellant. Mr Mantle submitted that it was nevertheless relevant to note that the Court had concurred with the third finding made by Neuberger J in Hindle.

Ms Sloane asked me to place no weight on the passage as there had been no discussion or argument about the time limit issue, and adding that as a Scottish case, it was not a binding precedent. In making that submission, she relied on Premier Foods v HMRC [2015] EWHC 1483, which in turn relied on Clarke and Frank Staddon Ltd v Marshalls Clay Products Ltd [2004] EWCA 422 (“Clarke”).

I agree that with Ms Sloane that, taken alone, the passage carries little weight. Like Neuberger J’s third finding, it was “a mere passing remark or a statement or assumption on a matter that has not been argued”, see Brunner cited above.

For completeness, I disagree with Ms Sloane as to the status of a Scottish judgment. Although the Court of Appeal held in Clarke at [32] that decisions of the Scottish Court are not binding “in the strict sense”, they also held at [31] that they should be followed “as a matter of pragmatic good sense” where they were deciding the same issue. The UT came to the same conclusion in HMRC v NEC [2015] UKUT 0053 at [30]-[34], saying that “whilst not formally bound by the decision of the Inner House of the Court of Session…in the absence of conflicting authority we should follow it”.

The issue in Cozens v HMRC [2015] UKFTT 582 (“Cozens”) was whether a “global” excise duty assessment had been issued out of time under FA 1994 s 12(4), which provided as follows:

Thus, the time limit in Cozens did not run from the end of a “accounting period”, as that concept was not relevant to excise duty. However, the FTT considered the VAT case law on global assessments, and then said:

These passages encapsulated the Appellant’s case on this Issue. Mr Mantle pointed out that Cozens was an excise duty case, and did not involve a failure to register.

The FTT’s judgment in Cozens relies essentially on Grange and Pegasus Birds, both of which I have considered above.

I therefore respectfully disagree with the FTT’s findings in Cozens. The earlier case law in Grange and Pegasus Birds has not “clearly established” the principle that “if part of a global assessment is out of time then the whole assessment fails”; or that “for the assessment to be valid it must be in time for all of the prescribed accounting periods that it covers”.

The only CJEU case to which I was referred was Test Claimants in the Franked Investment Income Group Litigation v HMRC (C-362/12) [2014] STC 638 ( (“FII Test Claimants”). This case arose from the change in the law introduced by FA 2004, s 320. Previously, the time limit for making a claim for recovery of tax levied under mistake of law ran from the later of six years and the date the mistake was discovered. Section 320 removed the right to make the latter type of claim, and the provision was retroactive to 8 September 2003, the date on which the change was announced.

The CJEU held that by introducing this change retroactively and without any transitional arrangements, the UK had breached the EU principles of effectiveness, legal certainty and the protection of legitimate expectations. In the course of the judgment, the CJEU held at [33]:

In relation to the principles of legal certainty and the protection of legitimate expectations, the CJEU held at [44] (Ms Sloane’s emphasis):

Ms Sloane submitted as follows:

Mr Mantle confirmed that HMRC were not alleging that the Appellant had engaged in any abusive practice within the meaning of Halifax v C&E Commrs (Case C-255/02) and subsequent case law. However, he said that the principles relied on by the CJEU in FII Test Claimants were “welded to” the protection of the taxpayer’s rights, and the position was different where, as here:

In his submission, the taxpayer could not rely on EU law principles of effectiveness, legal certainty and legitimate expectations, because it had breached its obligation to register. However, he did not refer to any EU case law in support of that submission.

The key question here is whether a taxable person who is required to register for VAT but has not done so, can rely on EU principles of legal certainty and the protection of legitimate expectations so as to prevent HMRC from issuing a direction under Reg 25(1)(c) for an initial long accounting period, and/or to prevent the limitation provisions in VATA ss 73(6)(a) and s 77 from running from the end of that accounting period.

I found this a difficult question. On the one hand, it is clear from the CJEU’s judgment at [44] that that rules involving negative consequences for individuals should be clear and precise and their application should be predictable for those subject to them, and it is also clear that this applies to limitation periods. On the other hand, I agree with Mr Mantle that a person who has failed to register is not in the same position as the appellants in FII Test Claimants, who had not breached any legal requirement and plainly had a right to rely on the principles of EU law.

I summarise my findings on the case law as follows:

As the case law is inconclusive, I went on to consider for myself the statutory interpretation of the relevant provisions.

Section 73(6)(a) sets the time limit of “2 years after the end of the prescribed accounting period”, and the key phrase is “prescribed accounting period”. I first summarise key principles of statutory interpretation, then consider the relevant legislation.

In R (Quintavalle) v SoS for Health [2003] UKHL 13, Lord Bingham held at [8] that in construing a statutory provision “the court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose”. In Lambeth LBC v SoS for HCLG [2019] UKSC 33, Lord Carnwarth said that:

In Test Claimants in the Franked Investment Income Group Litigation v HMRC [2020] UKSC 47 at [155] Lord Reed and Lord Hodge held that “it is the court’s duty “to favour an interpretation of legislation which gives effect to its purpose rather than defeating it”.

The authoritative text, Bennion, Bailey and Norbury on Statutory Interpretation, says at Section 21.3:

Section 25(1) provides that “in this Act” the term “prescribed accounting period” means the periods by reference to which a person shall “account for and pay VAT”, and those periods may be determined “by or under regulations and regulations may make different provision for different circumstances”. Reg 25(1) provides that this is “every period of 3 months”; “that the first return will begin on the date that a person “was or should have been registered”, and by subparagraph (c), that:

Section 77 provides that HMRC may not make an assessment under s 73 “more than 20 years after the end of the prescribed accounting period” where there is “a loss of VAT attributable to a failure by [the person] to comply with a notification obligation”.

I considered whether the term “prescribed accounting period” in s 77 can be read as a reference to single long accounting period. I found it helpful to use a hypothetical example, in which HMRC identify in 2022 that a person should have registered in 2000, so 22 years previously, and then apply their normal practice (see §175) of directing a long first accounting period.

If the hypothetical trader had instead been operating since 1973, and HMRC realised in 2022 that he should have always have been registered, option (2) above would allow HMRC to assess as far back as the introduction of VAT, because the 20 year time period would run forwards from 2022.

Thus, the effect of reading “prescribed accounting period” in s 77 as meaning a long accounting period means that in failure to notify cases where HMRC direct a long first period, there would be no time limit at all. Once HMRC issue the direction, they have 20 years from that date to assess the trader, and the assessment can go back in time as far as 1973.

In my judgment, this reading of the statutory provision cannot be correct, because:

Those conclusions are consistent with Tooth, where the Supreme Court held at [45]-[46] that Parliament would not have intended to impose harsher penalties on a person who had acted in ignorance than on one who had acted deliberately.

I therefore find that the term “prescribed accounting period” in s 77 cannot mean a long accounting period. The only alternative reading suggested by the parties (or by the case law) is that the term means each period of three months which falls within a single long period, and I so find.

Section 73(1)-(3) empowers HMRC to make assessments. As set out earlier in this judgment, Section 73(6) reads, so far as relevant to this Issue (my emphasis):

The time limits in s 73(6) are therefore explicitly linked to those in s 77. It would be inconsistent with the normal canons of parliamentary drafting if “prescribed accounting period” in s 73(6) had a different meaning from precisely the same term used in s 77. It would also undermine the purpose of the provision, which plainly is meant to operate within the time limits set by 77.

Although Reg 25(1)(c) gives HMRC the discretion to “vary the length of any period or the date on which any period begins or ends”, Parliament has set out clear time limits in s 77 and s 73, and cannot have intended to give HMRC the power to remove those time limits by the exercise of their discretion.

The term “prescribed accounting period” in s 77 and s 73(6) cannot therefore refer to a period of longer than three months. If follows that HMRC can make an assessment under s 73 providing that assessment:

Where HMRC wish to assess a period which is more than two years after the end of the three month accounting period, they must therefore do so within one year of receiving evidence of facts sufficient to make the assessment.

That conclusion is echoed in HMRC’s published guidance. Chapter VAEC1160 of their VAT Assessments and Error Correction Manual is headed “Time limits for assessments involving long first period returns” and, so far as relevant to this issue, reads as follows (my emphases):

Thus, HMRC’s own published guidance (contrary to the position taken in this case) is that where a long accounting period has been directed under Reg 25, HMRC “are required to” assess within the one year evidence of facts rule. The clear implication is that HMRC cannot issue an assessment on the basis that the two year rule runs from the end of the single long accounting period.

The Assessment was issued on 26 January 2017 for a long period which began on 1 January 2009 and ended on 31 March 2015. It follows from the analysis above that the Assessment is invalid at least in relation to the period up to 31 December 2014, because those periods ended more than two years before the Assessment was issued.

Ms Sloane submitted, in reliance on the judgment of Templeman LJ in Grange, that “the limitation period starts with the very earliest prescribed accounting period of three months which is covered by the assessment”, and that if any one of the three month periods were out of time, the whole assessment falls. In other words, global assessments are either all valid, or all invalid.

However, as I have already found, Grange was not a case where a single long accounting period had been directed and so the judgment had no direct relevance to the situation of the Appellant.

On the basis of the statutory interpretation set out above, the phrase “prescribed accounting period” in s 77 and s 73(6) cannot be a reference to a long accounting period, and the only alternative meaning is the normal three month period. It follows that the part of the Assessment which relates to the period from 1 January 2015 to 31 March 2015 would be in time, as that three month period ends less than two years before 26 January 2017, when the Assessment was issued. The rest of the Assessment is invalid.

For the reasons set out above, I agree with Staysure on Issue Three in relation to all but the last three months of the Assessment. Were I to be wrong on Issue Two, so that Staysure was making taxable supplies, all but that part of the Assessment would have been invalid.

On 6 February 2017, Ms Forsyth issued Staysure with the Penalty which was levied under VATA s 67 for failure to notify liability to VAT. In the course of the hearing, HMRC informed Staysure and the Tribunal that they had reconsidered the Penalty and asked the Tribunal to mitigate it from £1,187,290 to £216,821.

Since I have found that Staysure was not liable to be registered for VAT (Issue Two), its appeal against the Penalty also succeeds. However, as Issue Four was fully argued, and in case the appeal goes further, I set out below:

VATA s 8 provides that a person receiving supplies of services from outside the UK must account for VAT under the reverse charge procedure. VATA, Sch 1, para 1(b) provides that a person who makes taxable supplies is liable to be registered, if the value of his taxable supplies is expected over the next 30 days to exceed, the VAT threshold. VATA Sch 1, para 6 provides that such a person must notify HMRC of its liability to be registered “before the end of the period by reference to which the liability arises”.

None of these provisions were in dispute: both parties accepted that if Staysure were liable to register for VAT because of the operation of the reverse charge provisions, it should have done so before the end of its first quarter in 2009.

. VATA s 67 was headed “Failure to notify and unauthorised issue of invoices” and reads:

Section 67 therefore provided that Staysure would be liable to a 15% penalty under subsection (4)(c), subject to Staysure having a reasonable excuse, that the 15% would be charged “for the period beginning on the date with effect from which he is, in accordance with that paragraph, required to be registered and ending on the date on which the Commissioners received notification of, or otherwise became fully aware of, his liability to be registered”. The parties disputed when that end date had arisen, see further §279 and §303 below,

Section 70 was also relevant. This was headed “Mitigation of penalties under sections 60, 63, 64, 67, 69A and 69C” and read:

On 17 December 2013, Mr Wicker of HMRC wrote to Staysure seeking information about the services being supplied by Intervest. On 17 January 2014, Staysure replied, saying it received no “taxable supplies which would constitute reveres charge supplies” but instead only “exempt intermediary services from abroad”.

On 10 May 2014 (Footnote: ¹), Mr Wicker held a meeting with Mr Savelli, Staysure’s interim Finance Director, and Mr White of Brian White Ltd, Staysure’s adviser. Mr Wicker said that the purpose of the meeting was for HMRC to obtain all relevant facts, and that he would visit the business at a later date “to look at the processes involved…and Intervest’s involvement in that process”. At the end of the meeting, it was agreed that Staysure would take 6-8 weeks to provide further information, and this was provided on 22 May 2014.

On 28 May 2014, Mr Wicker wrote to Mr Savelli with a list of further questions and asked for a response within 15 working days. On 11 June Mr Savelli responded, saying that Staysure could not meet that deadline, and suggesting a new date of 22 August 2014. Meanwhile, Mr Wicker was taking internal advice from within HMRC “from a tax avoidance angle”.

On 27 August 2014, Mr Savelli replied to Mr Wicker’s questions and agreed to a meeting on 10 September 2014. At that meeting, Ms Forsyth was introduced as taking over from Mr Wicker. At the end of the meeting, Staysure agreed to provide further information under ten “action points”.

On 30 October 2014, Ms Forsyth wrote to Intervest asking three questions to which she asked for a reply by 21 November 2014; on the same day, she wrote to Mr Savelli asking that he provide the information requested at the meeting by 21 November 2014. Both Intervest and Staysure replied by that date. Yet more information was requested by Ms Forsyth in a letter dated 2 December 2014; this was provided on 12 December 2014.

On 20 January 2015, Mr Wicker and Ms Forsyth agreed that the case be referred to HMRC’s Policy team. The referral submission said that “no arguments have been put forward by HMRC to date” but that “there may be tax at stake of £2m p/a therefore need to be sure of the correct liability of the supplies received from Intervest”. On 18 February 2015, Ms Forsyth informed Mr Savelli that she had made the referral to Policy, and their response “may take a little while”.

Those internal HMRC discussions lasted until 16 October 2015, when Ms Forsyth was told that the case should be considered as a liability issue, not as an avoidance issue. Ms Forsyth wrote to Mr Savelli on 30 November 2015, and began her letter by apologising for the delays. She asked for a response by 6 January 2016.

On 7 December 2015 Mr Julian Kearney wrote to Ms Forsyth saying he had taken over from Mr Savelli and was now Staysure’s Finance Director. He noted that the Christmas and New Year holidays were imminent, and that “it has been nearly 15 months since you met with Richard [Savelli] and 10 months since your last correspondence. It will take me some time to digest and analyse all of the points you have raised”. He suggested a new deadline of 29 February 2016. Ms Forsyth said that she would allow further time, but only to 29 January 2016.

Mr Kearney replied on 12 February 2016 saying he had been surprised by Ms Forsyth’s preliminary views as to the VAT position and that, prior to being able to respond to her questions, he was making a “subject access request” (“SAR”) under the Data Protection Act to be provided with internal HMRC correspondence to see how HMRC had come to their erroneous view. On 17 February 2016, Ms Forsyth refused the SAR because Staysure was not an individual, and also refused to exercise her discretion to release the internal HMRC correspondence, but she extended the deadline for a substantive response to 7 March 2016.

On 25 February 2016, Mr Kearney made a formal complaint about the length of time taken by HMRC, and about Ms Forsyth’s refusal to release the internal correspondence. On 2 March 2016, Ms Forsyth replied, apologising for “the regrettable length of time between my visit and my letter dated 30 November 2015” and offering to meet with Mr Kearney so both sides could set out their position. On 11 March 2016, Mr Kearney provided a detailed response to Ms Forsyth’s earlier letter, including informing her that Staysure had consulted Ms Sloane, who had confirmed that HMRC’s position was inconsistent with the principles in InsuranceWide; he also agreed to a further meeting.

On 11 May 2016, an HMRC complaints officer rejected Staysure’s complaint on the basis that the time taken was not “exceptionally unusual where arrangements are complex” and that Ms Forsyth’s refusal to release the documents on a discretionary basis was “reasonable”.

On 2 June 2016 Ms Forsyth and another HMRC Officer, Mr Sibley, met with Mr Kearney and Mr White. Mr Sibley was the “VAT Lead” for Scotland and the North-East of England, and the meeting ended with Ms Forsyth asking for further information. On 29 June 2016, Ms Forsyth submitted another internal technical advice request, countersigned by Mr Sibley. Under the heading “Countersigning officer’s comments” he said that Staysure had indicated they would appeal an adverse decision to the Tribunal, and added that “case law suggests to me that the decision could go either way”. On the same day, Ms Forsyth notified Staysure that she had made a further internal referral.

On 11 August 2016, on the basis of that referral, HMRC’s Enforcement and Compliance Disputes Resolution Board decided that Staysure’s position should be rejected and a liability decision issued. However, on 17 August 2016 a tax avoidance team within HMRC contacted Ms Forsyth and said they wanted to have another look at the arrangements. On 24 August 2016, Ms Forsyth sent a holding letter to Mr Kearney.

Finally, on 28 October 2016, Ms Forsyth issued her decision letter. Under the heading “Next steps” she set out the value of Intervest’s services supplied to Staysure for each year from 2009 to 2015, and calculated the related VAT. She had taken all but the last of those figures from Staysure’s annual accounts as filed at Companies House. As the 2015 accounts had not yet been filed, Ms Forsyth based the figure for that year on those for 2014 s. She did not ask Staysure for a copy of the 2015 accounts, but agreed under cross-examination that she could have done so.

Under the heading “belated notification penalty”, Ms Forsyth said that HMRC would charge Staysure a penalty under VATA s 67 of 15% of the VAT for the period from 1 April 2009 to 31 March 2015, unless Staysure had a reasonable excuse, and that the 15% was charged “based on the fact that you will be more than 18 months late in notifying your liability to be registered”. This was a reference to s 67(4)(c) set out above.

On 22 November 2016, Staysure appealed to HMRC. In relation to the penalty, the appeal letter said that Staysure had “co-operated fully with any enquiries and taken appropriate advice to support its position”.

On 6 February 2017, HMRC issued Staysure with a penalty of £1,187,291, being 15% of £7,915,276, the VAT charged by the Assessment, with no mitigation. Ms Forsyth said under cross-examination that she had been unaware of HMRC’s guidance on mitigation (see further below). In relation to reasonable excuse, she said that it was up to Staysure to put forward such an excuse on receipt of the decision letter, and it had not done so. When asked whether, in her opinion, the Penalty was “fair and proportionate” she gave an honest and straightforward reply, saying that in the light of the guidance to which she had been taken by Ms Sloane, it was “probably excessive”.

HMRC’s guidance on penalties is contained in their VAT Civil Penalties Manual (“VCP”). At VCP10440 the text says:

The VCP also included the following guidance:

Ms Forsyth gave her oral evidence on Thursday 18 November 2021. The hearing resumed on Wednesday 24 November 2021, and on the Tuesday afternoon HMRC informed the Tribunal and the Appellant that they had reconsidered the penalty in the light of Ms Forsyth’s evidence, and invited the Tribunal to mitigate it.

The first of HMRC’s suggested reductions was to remove the part of the penalty which related to the period of the enquiry, in line with the guidance at VCP10440. HMRC considered that this period ran from the date of Staysure’s first meeting with HMRC on 10 April 2014 to 31 March 2015 (the day before Staysure registered for VAT following the restructuring). The result of this mitigation would be that the Penalty reduced from £1,187,290 to £865,125.

A second consequence of mitigating the Penalty in this way would be that the parties’ dispute about the period for which the Penalty was due under s 67(3)(a), namely when, during this long enquiry, HMRC had “received notification of, or otherwise became fully aware of, [Staysure’s] liability to be registered”, would fall away, because no part of the remaining Penalty would relate to the period after commencement of the enquiry.

HMRC also proposed two further reductions:

As a result of taking those mitigating factors into account, the Penalty would further reduce to £216,821.

However, VATA s 67(8) provides that if the person has a reasonable excuse, and no penalty arises. Mitigation is therefore only relevant if there is no reasonable excuse. I therefore next consider reasonable excuse, and I return to mitigation at §303.

Both parties accepted that in deciding whether Staysure had a reasonable excuse, the Tribunal should follow the approach in Perrin v HMRC [2018] UKUT 0156 (TCC), where the UT (Judges Herrington and Poole) gave the following guidance:

The evidential position was as follows:

Ms Sloane submitted that Mr Howsam was an honest witness, as Mr Mantle had accepted. It must therefore follow that the Tribunal should accept his evidence that Staysure had taken professional advice before deciding that the supplies from Intervest were exempt.

She added that there was clearly a sound legal basis for Staysure to have been advised that the supplies were exempt: she had confirmed this when consulted in 2015, and it was accepted even within HMRC: Mr Sibley had said that if the case went to the Tribunal “the decision could go either way”. It was therefore objectively reasonable for an adviser to have concluded that the supplies were exempt.

In Ms Sloane’s submission, Staysure was not required to disclose its advice in these proceedings. At the time the issue of reasonable excuse was raised, it was clear to both parties that the case would be proceeding to the Tribunal. Ms Sloane said that “it can’t be right that Staysure should have to disclose its legal advice…to its adversary” when it was on the brink of litigating the issue, and she noted that HMRC had redacted their own internal legal advice when providing documents to Staysure.

She also relied on HMRC v Greenisland [2018] UKUT 440 (TCC). In that case, the FTT had found that the taxpayer’s Development Officer, Mr Munn, had sought professional guidance on the VAT position. HMRC appealed on the basis that the FTT had acted irrationally in coming to that conclusion.

Horner J accepted at [67] that it was “legitimate for HMRC to draw attention to the fact that there was no corroborating evidence from the accountants, for example, who provided the advice…which confirmed the opinion that Mr Munn had already reached”, but upheld the FTT’s judgment, saying:

In Ms Sloane’s submission, the position was the same in this case. Mr Howsam was an entirely credible witness and the Tribunal should accept that evidence; it should then go on to find that his belief was objectively reasonable.

Mr Mantle said that while Mr Howsam was an honest witness, he had provided no evidence, whether in his witness statement or in evidence-in-chief as to:

In relation to the final point, Mr Mantle pointed out that there was no written agreement between Staysure and Intervest until the Contract was drawn up at some point in 2012, and it was difficult therefore to know what had been provided in order for professional advice to be given in early 2009 or before.

There was in his submission no good reason why Staysure had not provided the advice, even with redactions. He rejected Ms Sloane’s parallel with HMRC’s position, pointing out that, unlike Staysure, HMRC did not have to prove the basis for a reasonable excuse defence.

In summary, Mr Mantle accepted that Mr Howsam genuinely believed the supplies were exempt, but did not accept that Staysure had proved the belief to be objectively reasonable, because almost no information had been provided as to its nature or extent, the burden being on Staysure.

It was common ground that, having taken advice, Mr Howsam genuinely believed that the supplies were exempt, and I agree. On the basis of Mr Howsam’s honest evidence I find as a fact that he (and thus Staysure) had that genuine belief.

However, as Mr Mantle said, that is not enough to provide a reasonable excuse: the belief must also be objectively reasonable. I agree with Mr Mantle that there are significant gaps in the information provided to the Tribunal: Staysure has not given any evidence as to who provided the advice, what their qualifications were; when it was provided; what instructions and documents were given to the adviser to enable the advice to be given (noting that the Contract which describes the supplies was first drawn up three years after their commencement).

It is true, as Ms Sloane says, that her own advice in 2016 was that HMRC’s position was inconsistent with the principles in InsuranceWide; that Mr Sibley had subsequently said that “case law suggests…that the decision could go either way”, and thus that an adviser, properly informed as to the facts and the case law could have come to an objectively reasonable view that the supplies were exempt. But that is insufficient where, as here, there is no information as to the facts given to the adviser, or as to the law on which that adviser was relying.

Although Ms Sloane said Staysure should not have to disclose its legal advice, there was no evidence before the Tribunal that the advice had been given by a law firm. That is relevant because only advice given by lawyers (and not, for example, accountants) is covered by legal advice privilege, see R (oao Prudential Plc) v HMRC [2013] UKSC 1. Advice given by accountants can be covered by litigation privilege, but the dominant legal purpose of the communication must then relate to litigation which is pending, reasonably contemplated or existing at the date the advice was given, see Serious Fraud Office v ENRC [2018] EWCA Civ 2006. Staysure received the advice before 2009, so it could not have been covered by litigation privilege.

Of course, even if the advice was not privileged, Staysure could decide not to provide the advice, even in redacted form. However, as Mr Mantle said, the burden is on Staysure to show that its reliance was objectively reasonable. In my judgment, the lack of any relevant supporting detail or information, even by way of oral evidence from Mr Howsam, means that Staysure has not satisfied its burden.

In coming to that conclusion I did not overlook Greenisland. However, reasonable excuse cases requires consideration of a specific matrix of facts, which are never exactly replicated in another case. I note too, that Mr Munn gave evidence that he had consulted HMRC’s guidance and checked the position with the company’s accountant and its consultant. Although those advisers did not give evidence, there is no suggestion that their identities were not disclosed.

I therefore agree with Mr Mantle, and find that Staysure does not have a reasonable excuse. Of course, this finding does not change the outcome of the appeal, as Issue Two has already been decided in Staysure’s favour.

In her skeleton argument Ms Sloane said that, if there was no reasonable excuse, the penalty should in any event have been reduced for disclosure. It is true that FA 2008, Sch 41 provides for penalties to be reduced depending on the extent to which the person has given assistance to HMRC by “telling, helping and giving”, but those provisions do not apply to the Penalty. Sch 41 came into effect for VAT from 1 April 2010, and the Penalty was levied under VATA s 70 for failing to notify liability in 2009. VAT s 70 was repealed when Sch 41 came into effect.

As there is no reasonable excuse, I return to mitigation. I agree with HMRC’s proposed mitigation of the Penalty for the reasons they gave, so begin from the reduced amount of £216,821. As noted above, one consequence of this mitigation is that the parties’ submissions on the date HMRC “received notification of, or otherwise became fully aware of, [Staysure’s] liability to be registered” were no longer in issue. It is not necessary to summarise those arguments in this Decision.

Ms Sloane submitted that HMRC should have further mitigated the penalty to reflect Staysure’s degree of co-operation with the enquiry. She relied on VCP11748, which is headed “Why And When We Should Mitigate A Penalty: Degree Of Co-Operation In Identifying and Quantifying Errors and Other Factors (Misdeclarations)”, which states that HMRC should mitigate a penalty by up to 50% where there is “full co-operation and quantification” of the error, and that there should be mitigation of up to 40% where “published guidance is unclear or not up to date”.

Mr Mantle’s position was that HMRC had taken all relevant factors into account and the Penalty (as reduced) was proportionate.

I first observe that VCP11748, on which Ms Sloane placed reliance, relates to cases where the taxpayer had misdeclared the VAT payable. This was not Staysure’s position. In contrast, the passages relied on by HMRC relate to Staysure’s particular circumstance: VCP10440 deals with formal enquiries in complex circumstances; VCP11746 considers the reasons for the failure and VCP11747 relate to belated notification. No guidance in the VCP supports further mitigation in a case of late registration, other than the general advice that “it is essential to establish a fair and appropriate penalty to fit the circumstances of each individual case” and that all the facts of the case should be considered.

However, VATA s 70 gives the Tribunal the power to “reduce the penalty to such amount (including nil) as they think proper”, so I am not bound to follow HMRC’s published guidance as to the appropriate mitigation. I note in particular that the mitigation given so far only encompasses the reasons why the failure occurred, and Staysure’s assistance in quantifying the Penalty.

Although there is no specific guidance to this effect, I agree with Ms Sloane that some mitigation should be given for the extent of Staysure’s co-operation during the very long enquiry period, as described at §258ff. I have decided that the penalty should be further reduced by 10% (£576,500 x10%). Thus, were I to be wrong on Issue Two, Staysure would be liable for a penalty of £159,171 (216,821-57,650).

I add for completeness that if the Assessment was invalid not because of the nature of the supplies (Issue Two) but because of the failure to meet the relevant time limits (Issue Three), the Penalty (as mitigated) would remain in place. That is because penalties charged under VATA s 70 are not linked to the issuance of an assessment, but to the existence of a liability, see Whitney v IRC [1926] AC 37 at 52, and the conclusion of the Court of Appeal in Ali (t/a Vakas Balti) v HMRC [2006] EWCA Civ 1572 that HMRC could issue a penalty even though they had by “incompetent error” failed to raise a valid assessment. Although that case concerned evasion, the underlying analysis is equally applicable where there has been a failure to notify.

For the reasons set out above, this appeal is decided as follows:

My thanks to both Counsel, whose comprehensive and careful submissions were of great assistance in clarifying the Issues I had to decide, and my thanks also to those instructing them.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Rules. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.