The Appellant had appealed against HMRC’s refusal to repay VAT of £1,312,309. On 14 October 2021, HMRC conceded the substantive issue in dispute, but applied to strike out part of the appeal on the basis that the Appellant was estopped from recovering VAT of £855,754. The Appellant disagreed, and counter-argued that HMRC were themselves estopped from making the strike out application.

This decision therefore concerns cause of action estoppel, issue estoppel, abuse of process and estoppel by convention/representation. For the reasons summarised below, which I have set out in more detail in the main body of this decision, I allowed HMRC’s strike out application. As a result, the Appellant is unable to recover VAT of £855,754.

The telent group provides network, transport, telecommunications and infrastructure services. In 2006, it placed a sum in escrow (“the Escrow Account”) to provide comfort to the Pensions Regulator as to the future funding of its occupational pension scheme. In 2014, telent Ltd informed HMRC that it had been recovering input tax on fees paid to investment advisers for the Escrow Account. At that time, telent Ltd was the representative member of the telent group.

On 17 November 2014, HMRC issued telent Ltd with an assessment to recover VAT for the periods 11/10 through to 05/14, a sum of £1,146,598.93 (“the Assessment”). On 10 September 2015, following a statutory review, telent Ltd appealed the assessment to the Tribunal (“the Assessment Appeal”). In March 2016, the Assessment Appeal was withdrawn.

Later that year, telent Ltd changed its professional advisers to PriceWaterhouseCoopers LLP (“PwC”). On 30 September 2016, PwC made a claim in the name of telent Ltd to recover VAT on the investment management services relating to the Escrow Account of £1,312,309 for periods 08/12 to 08/16 (“the Claim”). The Claim thus included eight VAT periods (“the Overlap Period”) which had also come within the Assessment Appeal; the related VAT totalled £855,754.

HMRC refused the Claim by writing to Telent Technology Service Ltd (“TTSL”), the new representative member of the telent VAT group. TTSL appealed that refusal to the Tribunal. In their Statement of Case, HMRC made no reference to the Assessment Appeal or to estoppel.

In July 2021, HMRC informed PwC that they were minded to concede the substantive issue, but also said “Telent is procedurally barred” from recovering the VAT for the Overlap Period, and inviting settlement on that basis. The parties failed to agree, and HMRC applied for the Tribunal to strike out of the part of the appeal relating to the Overlap Period; they conceded the remaining part of the appeal.

HMRC’s strike out application rested on Value Added Taxes Act 1994 (“VATA”), s 85(1) and (4), which state that where a person has withdrawn its appeal, the parties are deemed to have agreed that “the decision under appeal should be upheld without variation” and the Tribunal is deemed to have determined accordingly. In Mr Elliott’s submission, the effect of those subsections was that, when telent Ltd withdrew the Assessment Appeal, the parties were deemed to have come to an agreement with HMRC that input tax on the investment management services for periods 08/12 to 05/14 was not allowable, and the Tribunal was deemed to have determined that this was the case. As a result, there had been a judicial determination that the VAT was irrecoverable, and the principles of cause of action estoppel, issue estoppel and/or abuse of process prevented relitigation.

The parties raised the following issues:

Mr Jones submitted that HMRC’s strike out application should be refused, because Mr Elliott’s skeleton argument had been headed “telent Ltd”, when the appellant in this appeal was TTSL. I decided that there was no unfairness in admitting Mr Elliott’s written and oral submissions, see Issue One.

Mr Jones also submitted that HMRC were estopped from refusing to repay the VAT relating to the Overlap Period, because of its delay in raising the point. I decided that HMRC were not so estopped, see Issue Two.

The parties put forward different statutory interpretations of VATA s 85(1) and (4). I agreed with Mr Elliott as to the effect of those subsections, see Issue Three.

In interpreting VATA s 85(1) and (4), Mr Jones relied in particular on Matalan Retail Ltd v HMRC [2009] EWHC 2046 (Ch) (“Matalan”), a decision of Clarke J. Mr Elliott placed particular reliance on Littlewoods Retail Ltd and others v HMRC [2014] EWHC 868 (Ch) (“Littlewoods”), a decision of Henderson J (as he then was). I considered both parties’ submissions carefully, but found neither case of assistance in construing the subsections, for the reasons explained under Issue Four.

Mr Elliott’s primary submission was that cause of action estoppel applied to block the VAT repayment for the Overlap Period. Cause of action is defined as “the fact or combination of facts which gives rise to a right of action”. An estoppel operates where a party brings a new appeal with an identical cause of action involving the same subject matter as has been determined in an earlier appeal. It was common ground that the subject matter of the Assessment Appeal was in all respects identical to that in the Overlap Period of the Claim. I agreed with Mr Elliott that cause of action estoppel applied, see Issue Five.

In the alternative, Mr Elliott submitted that repayment was blocked by issue estoppel. This operates where “a particular issue forming a necessary ingredient in a cause of action has been litigated and decided”. I again agreed with Mr Elliott, see Issue Six.

Finally, Mr Elliott submitted that repayment was barred by abuse of process. This applies where a party “is misusing or abusing the process of the court” by making a claim in relation to the same subject matter as has previously been decided. Where cause of action estoppel applies, there is also abuse of process unless there is a relevant exception. There was no basis for such an exception, and I therefore decided Issue Seven in favour of HMRC.

I add for completeness that Mr Jones, rightly, did not seek to argue that I should refuse the strike out because HMRC had conceded the substantive issue. As Lord Hoffman said in Watt v Ahsan [2007] UKHL 51 at [33] “the whole point of an issue estoppel on a question of law is that the parties remain bound by an erroneous decision”, and this must also be true of cause of action estoppel. Thus, even though HMRC now accepted the VAT was recoverable, that relating to the Overlap Period could not be repaid.

For the reasons summarised above, I therefore allowed HMRC’s application, and struck out the part of the Claim relating to the Overlap Period.

As is clear from the summary of Issue One above, and as set out in more detail in the main body of the decision, there was a change of VAT representative member during the relevant period, from telent Ltd to TTSL. The appellant in this appeal is TTSL, but the appellant in the Assessment Appeal was telent Ltd. Where the identity of the appellant makes no difference to the particular point being discussed, I have simply referred to “the Appellant” and where I have done so, that term should be taken to refer to the appellant in the particular proceedings.

I was provided with a Bundle prepared by PwC which included the following documents:

the Notice of Appeal, Statement of Case and Notice of Withdrawal in relation to the Assessment Appeal;

the Notice of Appeal in relation to the Claim;

HMRC’s application to strike out the part of the Claim relating to the Overlap Period, and a related Statement of Case;

correspondence between the parties, including two letters marked “without prejudice save as to costs”. The Appellant initially objected to their inclusion, but withdrew that objection on the first day of the hearing; and

correspondence between the parties and the Tribunal about the Assessment, the Claim, and the proceedings before this Tribunal.

I was also provided with three supplementary bundles, which from the indices contain witness statements on behalf of the Appellant and related exbibits prepared for the substantive hearing. Neither party referred to these bundles during the hearing and I understood it to be common ground that the witness evidence was relevant to the substantive issue only. Neither party relied on witness evidence during the hearing.

In this decision, all legislation and case law is cited so far as relevant to the issues before the Tribunal.

These findings of fact are made on the basis of the evidence before the Tribunal.

In 2006, telent Ltd (then named Marconi Corporation plc) transferred around 75% of its business as a going concern to Ericsson AB. As part of the terms of that sale, telent Ltd retained its obligations as the sponsoring employer of a pension scheme named the “GEC 1972 Plan”, an occupational pension scheme for the telent group of companies (“the Plan”).

As a pre-requisite to the Pension Regulator’s clearance of the Ericsson Sale, telent Ltd agreed to place money into the Escrow Account to provide comfort to the Pensions Regulator that, if the Plan went into deficit, the assets in that account would be available to cover the deficit. By an agreement dated 18 November 2009, telent Ltd and the Trustee of the Plan agreed that the assets of the Escrow Account should be released into the Plan by instalments until 31 March 2023.

The Plan had a charge over the assets of the Escrow Account, but until transferred into the Plan, those assets were legally owned by telent Ltd. They were managed by third party investment managers appointed by telent Ltd. VAT was incurred on the fees charged by the investment managers, and telent Ltd as the representative member recovered that VAT as input tax arising in relation to the group’s fully taxable business. In 2014, the group’s turnover was £320m.

On 24 July 2014, telent Ltd’s then adviser, KPMG LLP (“KPMG”) wrote to Mr Boobyer of HMRC’s Large Business Service; Mr Boobyer’s title was “VAT Tax Specialist”. KPMG explained why telent Ltd had claimed input tax relating to the Escrow Account, with the aim of reaching agreement with HMRC as to the VAT position for the past and the future. KPMG’s letter was copied to Mr Stephen Vey, director of tax compliance at telent Ltd, as were the subsequent exchanges between KPMG and HMRC.

On 7 November 2014, Mr Vey emailed Mr Boobyer a schedule setting out the input VAT claimed by telent Ltd on the investment management services provided in relation to the Escrow Account, in each of the periods 11/10 through to 05/14; this totalled £1,146,598.93.

On 17 November 2014, Mr Boobyer issued telent Ltd with the Assessment to recover the VAT set out in the schedule provided by Mr Vey; this had been raised under VATA s 73. A statutory review was requested, and on 12 August 2015 the HMRC Review Officer, Mr Bennett, issued his review decision: he addressed his letter to Mr Vey.

On 10 September 2015, KPMG sent the Assessment Appeal to the Tribunal on behalf of telent Ltd. HMRC filed and served their Statement of Case on 1 December 2015. On 9 March 2015, Mr Vey emailed Mr Boobyer and said “I wish to inform you that a decision has in fact been taken to withdraw this appeal”. On 14 March 2016, KPMG filed a document with the Tribunal on behalf of telent Ltd headed “Notice of Withdrawal”. The wording on the Notice said only “Take notice that the Appellant hereby withdraws this appeal”.

At some point before 30 September 2016, telent Ltd changed their professional advisers from KPMG to PwC. On 30 September 2016, PwC sent the Claim to Mr Boobyer on behalf of telent Ltd. The Claim is headed “telent Ltd (‘telent’)” and it begins:

It was common ground that the Claim had been made by telent Ltd; that it was for the recovery of input tax incurred on the investment management fees for the Escrow Account, and that it included the Overlap Period, namely the VAT periods 08/12 to 05/14 which had also formed part of the Assessment Appeal. The VAT claimed for the Overlap Period totalled £855,754, and the amounts claimed for each period were identical to the sums assessed for the same periods by the Assessment.

PwC’s letter referred to the Assessment, but submitted that “the direction of travel” of recent case law meant that “a person who has a fund should be able to recover input VAT on investment management costs in circumstances where the costs are a general overhead of the business”. One of the cases relied on was University of Cambridge v HMRC [2015] UKUT 305 (TCC) (“ University of Cambridge ”); this had been published on 15 June 2015, and at the time of PwC’s letter was under appeal to the Court of Appeal.

On 3 November 2016, Mr Boobyer responded to PwC, copying his letter to Mr Vey. His letter is headed “Telent Technology Services Ltd (‘telent’)”, because telent Ltd had been replaced as the representative member of the VAT group by TTSL. I return to the question as to when this change took place at §56.

Mr Boobyer first made some comments on the technical arguments put forward by PwC, and then added:

On 11 November 2016, Mr Boobyer met with Mr Vey and Ms Middleton of KPMG to discuss the Claim. On 5 December 2016, PwC replied to Mr Boobyer’s letter. That reply is headed “telent Technology Services Ltd (‘telent’)”. It refers to “telent withdrawing its appeal”; states that “telent” operates the Escrow Account and is obliged to hold the investments, and explains why in PwC’s view, there is no restriction on “telent” including the Overlap Period within the Claim. In making those submissions, PwC relied in particular on their understanding of the High Court’s judgment in Matalan.

On 12 April 2017, Mr Boobyer wrote to Mr Vey. His letter is headed “Telent Technology Services Ltd (‘telent’)”. He said HMRC had decided not to repay the Claim, and his letter included this paragraph:

On 27 April 2017, Mr Burn of PwC emailed Mr Boobyer. The subject line of the email is “telent” and the text says “telent and I wanted a very quick chat with you ahead of writing to request an extension to the 30 day time limit”. On 28 April 2017, Mr Burn emailed again, with the same subject line, asking Mr Boobyer to agree to “an extension of time within which telent can request a review of your decision”.

On 23 May 2017, PwC wrote to Mr Boobyer. This letter, like the previous one, was headed “telent Technology Services Ltd (‘telent’)”. It begins by saying that Mr Boobyer had “rejected telent’s claim for VAT under-recovered”, and adds that “telent is required to make contributions to the pension scheme and the liabilities of the pension scheme are legal liabilities of the current and continuing business activities of the company”.

On 31 October 2017, PwC requested a statutory review of Mr Boobyer’s decision not to pay the Claim. That letter too was headed “telent Technology Services Ltd (‘telent’); under the heading “Background” it says:

On 18 January 2019, Mr Bennett issued a statutory review of Mr Boobyer’s decision to refuse the Claim; this was the same Mr Bennett who had previously carried out the statutory review of the Assessment. Under the heading “Previous assessment action”, he said:

On 15 February 2018, PwC filed an appeal against HMRC’s refusal of the Claim. The Appellant was named on the headnote of the Grounds of Appeal as “Telent Technology Services Ltd” and the first paragraph reads:

The Grounds also referred to the correspondence about the Overlap Period, including Mr Boobyer’s change of position.

On 25 May 2018, in response to the appeal, HMRC filed a Statement of Case headed “telent Technology Services Limited”. The Statement of Case did not contain any submission that the Assessment Appeal prevented the Appellant from claiming the VAT for the Overlap Period; it was instead entirely silent on that issue.

Arrangements for the appeal to be heard before the Tribunal proceeded in the normal way. In January 2021, the parties agreed a hearing window. On 8 June 2021, the Tribunal informed the parties that a face-to-face hearing had been listed from 7-9 December 2021. The Tribunal’s letter advising the parties of the hearing was headed “Telent Limited”.

On 15 July 2021, HMRC wrote to PwC saying that having carried out a further review, they wished to “revisit” a “jurisdictional issue” and also to put forward “a possible basis upon which this matter could be resolved without the need for a First tier Tribunal hearing”.

HMRC went on to explain that the “jurisdictional issue” was whether “Telent” could make a claim for the Overlap Period. HMRC set out the background, and stated that although Mr Boobyer had previously agreed in reliance on Matalan that a claim could be made for the Overlap period, HMRC were no longer of that view. This part of the letter ended by saying that HMRC “now take the view that Telent is procedurally barred from revisiting the previous assessment periods as part of the Claim”, but they were “minded not to proceed with the substantive point”. HMRC offered to settle the dispute on the basis that the Appellant conceded the part of the Claim which fell within the Overlap Period.

On 8 September 2021, PwC replied. Their detailed letter runs to 33 numbered paragraphs, and was signed by David Anderson, a PwC partner and the Head of the Indirect Tax Disputes group. It is headed “telent Technology Services Limited”, but the text uses the name “telent” to refer both to telent Ltd and to TTSL. For example, in the sentence “HMRC relies on section 85 VATA to support its view that telent is unable to challenge its rejection of telent’s input tax claim for the Disputed Periods”, it was common ground that the first reference to “telent” was to TTSL, as the current representative member, and that the second referred to telent Ltd, the company which had made the Claim.

The substance of Mr Anderson’s letter was that PwC disagreed with HMRC’s view as to the Overlap Period and refused to concede that issue. On 14 October 2021, HMRC wrote to PwC, withdrawing their case on the substantive issue, but attaching a strike out application in relation to the Overlap Period, together with an application to amend their Statement of Case. On the same day, HMRC filed that application with the Tribunal, together with an application for the listed hearing to be cancelled and relisted for 2022. On 19 October 2021, PwC informed HMRC that they would oppose the strike out, and that they did not agree the hearing should be vacated and relisted.

On 26 October 2021, PwC wrote to the Tribunal objecting to the strike out, but stating that they did not object to HMRC’s application to amend their Statement of Case.

On 3 November 2021, having considered the principles set out by Carr J in Quah International v Goldman Sachs [2015] EWHC 759 (Comm), I directed that:

the strike out application and related submissions about the Overlap Period were to be heard and decided during the three day period previously listed for the hearing of the substantive appeal; and

in advance of that hearing date, HMRC were to file and serve their amended Statement of Case with related submissions, and the Appellant to respond.

Soon after receipt of these directions, HMRC made a late change of counsel, as the barrister they had originally instructed was unable to attend the listed hearing.

On 10 November 2021, HMRC filed and served their submissions on the strike out application. The heading of that document has the name “TELENT LIMITED” as the appellant. I return to this at §62. On 24 November 2021, the Appellant filed and served its response, and the hearing took place as listed.

There were two sub-issues under this heading. The first is the date on which TTSL replaced telent Ltd as the representative member, and the consequences of that change. The second concerns the submissions made for this hearing. I begin by setting out the legislation and case law on representative members.

EC Council Directive 2006/112/EC, also the Principal VAT Directive (“PVD”) provides:

This provision was described by Lord Hodge, giving the only judgment with which the other members of the Court agreed, in Taylor Clark Leisure v HMRC [2014] UKSC 35(“Taylor Clark”) at [19] as being “permissive” and “not prescriptive”. Lord Hodge added that “it does not lay down a template as to how a member state will treat a group of persons as a single taxable person”, and noted that it shared all those characteristics with its predecessor, Article 4(4) of the Sixth Council Directive (77/388/EEC).

Under UK law, the current implementing provision is at VATA s 43, which provides:

Lord Hodge said that at [21] of Taylor Clark that:

At [27] he endorsed the following description from HMRC v MG Rover; Standard Chartered v HMRC[2016] UKUT 434 (TCC) (“MG Rover”), a decision of Warren J and Judge Hellier:

VATA s 80 provides:

Essentially the same provisions were considered in Taylor Clark, other than that the time limit in s 80(4) was three years (Footnote: ¹ ) . Lord Hodge said at [29]:

At [30] Lord Hodge agreed with the Court of Session that “it is only the representative member who has any interest in making the claim”, and at [32] added:

Lord Hodge then applied that analysis of the law to the facts. In Taylor Clark the claim had been made by Carlton Clubs Ltd (“Carlton”), after it had left the Taylor Clark VAT group. As a result, the claim had plainly not been made by the representative member. Lord Hodge also held at [38] that Carlton had not acted as the agent of the representative member, because of findings of fact made by the FTT, namely:

It was common ground that (a) the Claim was made by telent Ltd on 30 September 2017, see §24, and (b) that Mr Boobyer’s reply dated 3 November 2016 had been headed “Telent Technology Services ‘telent’ because the representative member had changed from telent Ltd to TTSL before he sent that letter.

Mr Elliott said in submissions that this change had taken place between the making of the Claim and Mr Boobyer’s letter in reply. Mr Jones did not correct him on this point, and I am confident he would have done so had he known it to be factually incorrect.

However, after the hearing I re-read the Notice of Appeal to the Tribunal, which stated that TTSL had become the representative member on 14 April 2016, over five months before telent Ltd made the Claim. It is clear from Taylor Clark that claims can only be made by the representative member, its agent or its assignee. If the Notice of Appeal was correct, the Claim had therefore not been made by the representative member

Neither party raised this issue during the hearing, and I considered whether I should ask for clarification as to the date of change, and for further submissions. However, I decided not to do so, because:

the Claim was received on HMRC’s behalf by Mr Boobyer. He was the “VAT tax specialist” responsible for the telent group of companies. He clearly knew there had been a change of representative member, because he addressed his reply to TTSL. On the balance of probabilities, I find that he understood the role of representative members as set out earlier in this Decision, and that he also knew when that change occurred;

had Mr Boobyer considered the Claim was not properly made, it is inconceivable that he would not have raised that issue in his reply;

HMRC have not sought at any time to argue that the Claim was not properly made because it had not been submitted by the representative member; and

it follows from the above that either:

the date given in the Notice of Appeal is incorrect, or

at the time the Claim was made it was accepted by both parties that telent Ltd was acting as agent for TTSL.

The factual position in Taylor Clark was entirely different. In that case, the claim had been made by a company which had left the VAT group, without the knowledge of the representative member; the related VAT payment by HMRC came “out of the blue”, as Lord Hodge put it. In this case telent Ltd and TTSL have remained part of the same group; the same individual – Mr Vey – was responsible for both companies’ VAT affairs before and after the Claim, and the companies worked closely together throughout, as is clear from the correspondence summarised above.

For the above reasons, in the rest of this decision I have accepted that the Claim was properly made by telent Ltd either because it was at the time still the representative member, or because it was acting as agent for TTSL.

As noted at §45, the heading to Mr Elliott’s skeleton argument setting out HMRC’s reasons why the strike out application should succeed named the Appellant as “Telent Limited”. Mr Elliott freely admitted that this was a mistake, and the heading should have been “TTSL”, because that company had appealed to the Tribunal in its role as representative member, and was therefore the Appellant.

Mr Jones pointed out that HMRC’s submissions were not only headed incorrectly, but also referred throughout to “the Appellant”, a term which had been wrongly defined as telent Ltd. In his submission, this error vitiated the whole the submissions. He said that:

HMRC had failed to provide any submissions in relation to their strike out application;

had also failed to comply with the Tribunal’s directions;

the fact that HMRC had misdirected their submissions was an important point because the substance of the continuing dispute between the parties concerned estoppel, and the identity of the parties is key when considering questions of estoppel, because an estoppel does not bind a different party unless the two parties are “privies”; and

it was too late for Mr Elliott to make good that failure by directing his oral submissions at the correct company, as this would be a “fundamental change” which was “beyond the pale”.

By way of conclusion, he said that the Tribunal should not admit any of Mr Elliott’s arguments on the reasons why the strike out should be granted, but instead summarily dismiss the application.

The privity issue raised by Mr Jones at §63(3) was resolved in the course of the hearing. Mr Elliott took the Tribunal to the discussion of privies in Littlewoods at [214] to [228], which included the following points:

there must be “a sufficient degree of identity between the successful defendant and the third party…having due regard to the subject-matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party”, see Gleeson v Wippell [1977] 1 WLR 510 at 515 (“Gleeson”) per Megarry V-C;

where one company in a group brings a claim or conducts proceedings “for the benefit of others in the group”, the test in Gleeson “might well be met”, see Special Effects Ltd v L'Oréal SA [2007] EWCA Civ 1;

In Littlewoods, the claimants accepted, and Henderson J agreed, that six of the claimant companies were privies of Littlewoods Retail Ltd, as they were all wholly owned indirect subsidiaries of that company; their VAT affairs in general, and the claims in particular were centrally managed by the same person, Mr Mitchell; and they were all members of the Littlewoods VAT group and so had a concrete interest in the outcome of the appeal.

Mr Elliott submitted that telent Ltd and TTSL were clearly “privies” as they were members of the same corporate and VAT group; they both had an interest in the outcome of the proceedings, and Mr Vey (like Mr Marshall in Littlewoods) had centrally managed the group’s VAT affairs generally and the Assessment Appeal and the Claim in particular.

Having considered this issue overnight and taken instructions, Mr Jones accepted that telent Ltd and TTSL were “privies” and this point therefore fell away.

Mr Elliott apologised for the procedural mistake, but submitted that it would not be in the interests of justice for HMRC to be prevented from putting their case at the hearing. He made the following points.

He had taken on the case shortly before the hearing, and it had not been obvious to him from the paperwork that telent Ltd and TTSL were two different companies.

Both the Assessment Appeal and the Claim were made by telent Ltd.

The parties repeatedly used the term “telent” to refer to both companies. For example:

Mr Boobyer’s letter of 3 November 2016 is headed “Telent Technology Services Ltd (‘telent’)” but in the main body he refers to “telent’s escrow activity”, when that activity was carried on by telent Ltd, not by TTSL.

PwC’s reply of 5 December 2016 is similarly headed “telent Technology Services Ltd (‘telent’)”, but in the main body ‘telent’ means telent Ltd: it refers to “telent withdrawing its appeal”; says that “telent” operates the Escrow Account; telent is obliged to hold the investments; and explains why in PwC’s view, there is no restriction on “telent” including the Overlap Period within the Claim.

PwC’s letter of 23 May 2017 similarly defines “telent” as TTSL, but continues by saying that “telent is required to make contributions to the pension scheme and the liabilities of the pension scheme are legal liabilities of the current and continuing business activities of the company”, when it is telent Ltd (and not TTSL) which has to make those contributions and has those liabilities.

HMRC’s application to strike out the appeal, and their amended Statement of Case, were both correctly headed “TTSL”. Those were the key documents for the purposes of the strike out application.

Mr Jones and those instructing him on behalf of the Appellant were not in any doubt that the submissions were directed at the Appellant and were not therefore put at any disadvantage.

Viewed through the prism of Denton v TH White [2014] EWCA Civ 906 (“Denton”) and Martland v HMRC [2018] UKUT 0178 (TCC) (“Martland”), Mr Elliott accepted that there had been a failure to follow the Tribunal’s Directions because the skeleton argument had misidentified the Appellant, but that failure was neither serious nor significant for the reasons set out at above. HMRC should therefore not suffer the sanction of being unable to redirect the arguments in the skeleton and make supplementary oral submissions at the hearing. Instead, it was in the interests of justice for HMRC’s application to be decided on the basis of the substantive points made by both parties.

Mr Elliott referred to Denton at [41]where Dyson MR and Vos LJ said “We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage”. In Mr Elliott’s submission, that was the position here.

Having heard the parties’ submissions, I considered whether to adjourn and decide Issue One as a preliminary Issue, or to continue and hear both parties submissions on all Issues. I considered the guidance given by the UT in Wrottesley v HMRC [2015] UKUT 0637 (TCC) at [28], the UT (Judges Herrington and Falk). Although Issue One might prove to be “a succinct knockout point”, this would only be the case if the Appellant succeeded not only before me but also on appeal. If HMRC succeeded either before me or on appeal, dealing with Issue One as a preliminary issue would cause delay and increase costs. I decided that it was in the interests of justice to hear both parties’ arguments on all Issues.

In relation to Issue One, it is a matter of case management whether to (a) read Mr Elliott’s skeleton as relating to the Appellant despite the heading, and/or (b) allow him to make submissions at the hearing. The Tribunal’s case management discretion must be exercised in accordance with the overriding objective.

In my judgment, it is not in the interests of justice to refuse to admit Mr Elliott’s skeleton argument, or to refuse to consider his oral submissions. I come to that conclusion for the reasons set out by Mr Elliott, and for the following further reasons:

HMRC’s pleadings are the strike out application together with the amended Statement of Case. Both of these pleadings had the correct name on the heading and throughout the text, and they set out why in HMRC’s view the application should succeed.

A skeleton argument is supplementary to those pleadings: CPR 52.5(1) says (my emphasis) that “the purpose of a skeleton argument is to assist the court by setting out as concisely as practicable the arguments upon which a party intends to rely”. Mr Jones rightly did not seek to argue that the use of “Telent Limited” in the headnote had prevented the Tribunal from understanding HMRC’s submissions for this hearing.

A skeleton is of course also helpful to the other party in the proceedings, but Mr Jones did not seek to argue that there was any failure to understand HMRC’s case. I agree with Mr Elliott that Mr Jones and those instructing him knew all they needed to know about HMRC’s case, other than on the “privies” point, which had arisen only arose because of the Appellant’s stance on the headnote, and it was quickly conceded in HMRC’s favour.

The use of the name “telent” as an abbreviation for both telent Ltd and TTSL, often incorrectly, is part of the relevant background. I add, although this was not drawn to my attention at the hearing by either party and I do not rely on it in coming to this part of my decision, that it was not just the parties who used the names interchangeably. The Tribunal’s own letter advising the parties of this hearing was headed “Telent Limited” when the Appellant is in fact TTSL.

The next issue was whether, as Mr Jones submitted, HMRC were estopped from putting forward their submissions on the Overlap Period, because they had long ago acquiesced in the Appellant bringing the Claim for the full amount. This issue was set out at the very end of Mr Jones’s skeleton argument in four brief paragraphs, but it is logically prior to the other estoppel-related issues, and I deal with it next.

Mr Jones relied on the following facts, none of which were in dispute:

Although on 3 November 2016 Mr Boobyer had said that the withdrawal of the Assessment meant the Appellant had no right to claim back the VAT for the Overlap Period, Mr Boobyer then changed his mind, and on 12 April 2017 had written to Mr Vey (see §29) saying:

The Appellant referred to this change of position in its Grounds of Appeal to the Tribunal, and it was therefore clear from the outset of the Tribunal proceedings that the appeal was proceeding on the basis that that HMRC’s original objection was no longer in play.

The Statement of Case was issued on 25 May 2018. It did not include any submission that the Appellant’s withdrawal of the Assessment blocked the part of the Claim relating to the Overlap Period.

HMRC did not revive their submission about the Overlap Period until 15 July 2021, when they wrote to PwC saying they wished to revisit that “jurisdictional issue”. There was thus a delay of over three years between their abandonment of the point and its revival.

Mr Jones submitted that HMRC were estopped from reviving this issue because they had previously agreed the Appellant’s claim could proceed in full. He relied in particular on the House of Lords’ judgment in Johnson v Gore Wood & Co [2002] 2 AC 1 (“Gore Wood”).

The parties to this appeal were (a) Mr Johnson, a businessman who carried out his business in part through a company called Westway Homes Ltd (“WWH”) and (b) Gore Wood & Co (“GW”) a firm of solicitors. WWH had previously sued GW for negligence, but that claim had been settled. Before the settlement, GW had been notified that Mr Jones also had a personal claim against GW. At the time of the settlement it was the parties’ common understanding that Mr Johnson would separately pursue his personal claim, and he subsequently did so. Lord Millett describes what happened next (see page 57 of Gore Wood):

The basis of GW’s strike out application was that Mr Johnson should have brought his personal claim at the same time as that made by WWH, and his failure to do so had exposed GW “to the harassment of further proceedings canvassing many of the same issues as had been canvassed in the earlier action, with consequential waste of time and money and detriment to other court users”. At the High Court, Pumfrey J found that GW were estopped by convention from contending that Mr Johnson’s action was an abuse. The Court of Appeal overturned that judgment, and Mr Johnson appealed to the House of Lords.

Lord Bingham, giving the leading judgment with which Lords Cooke and Hutton agreed, held at page 31 that there was no abuse of process and that Mr Johnson succeeded for that reason. He then moved on to consider the parties’ submissions on estoppel by convention. He noted at page 33 that both parties had accepted the correctness in principle of Lord Denning MR's statement in Amalgamated Investment v Texas Commerce International Bank Ltd [1982] QB 84 (“Amalgamated Investment”) at page 122, where he had said:

Lord Bingham applied those principles to the facts of Mr Johnson’s case, and held that GW were estopped by convention, stating at page 34 that:

He went on to say:

Lord Goff came to a similar conclusion at pages 39-41. although he disagreed with Lord Bingham’s classification of the issue as one of “estoppel by convention”, saying:

Lord Millett held (at page 60) that “it would be unconscionable for the firm to raise the issue after the way in which it handled the negotiations for the settlement of the company's action”, but like Lord Goff, did not agree that it was estoppel by convention. He added:

Mr Jones submitted that the position in the Appellant’s case was essentially the same, and that as the result of the representation in Mr Boobyer’s letter of 3 November 2016 and the absence of any reference to estoppel or abuse of process in the Statement of Case, HMRC should be taken to have acquiesced in, if not expressly consented to, the Appellant bringing its appeal against HMRC’s refusal of the Claim, and that it was “now too late for them to object to that appeal on the grounds of cause of action/issue estoppel or abuse of process”. In his submission, it was unconscionable and unfair of HMRC to have allowed the Appellant “to have proceeded on the footing that there would be no such objection, and then to raise it at the last minute”.

Mr Jones also referred to Amalgamated Investment as cited in Gore Wood, and said the parties in that case were mutually mistaken as to the effect of a contractual provision, adding:

Mr Elliott pointed out that the Appellant had agreed on 26 October 2021 (see §42) that HMRC could amend their Statement of Case to reintroduce the jurisdictional issue arising from the Overlap Period; if the Appellant considered HMRC were estopped from doing so, it should have objected to the amendment of the Statement of Case, but had not done so. It was thus too late for the Appellant to raise this issue by the inclusion of four paragraphs at the end of Mr Jones’s skeleton argument. Mr Elliott went on to say that he was nevertheless able to deal with this Issue and would do so. He set out his submissions under two headings: those related to the Supreme Court’s recent judgment in Tinkler v HMRC [2021] UKSC 39 (“Tinkler”), and what I have called the “case management” ground.

The key facts in Tinkler were that:

HMRC had failed to serve a notice under Taxes Management Act 1970 (“TMA”) s 9A enquiring into Mr Tinkler’s self-assessment tax return, but had instead sent that notice to an incorrect address;

Mr Tinkler’s agent, BDO Stoy Hayward (“BDO”) received a copy of that notice;

BDO and HMRC proceeded on the basis that a valid enquiry had been opened;

it was not until two months before the FTT hearing that Mr Tinkler amended his grounds of appeal to include a submission that the enquiry had not been validly opened because of the failure to serve the notice; and

HMRC were by that date out of time to reissue the notice.

The issue before the Supreme Court was whether Mr Tinkler was estopped from relying on the fact that a notice of enquiry had not been served, because the parties had proceeded on the basis that there had been a valid enquiry. Lord Burrows gave the majority judgment, with which Lord Hodge, Lady Rose and Lady Arden all agreed. The fifth member of the Court was Lord Briggs, who issued a concurring judgment.

Lord Burrows cited at [45] the “very important statement of principle” established in Benchdollar v HMRC [2009] EWHC 1310 (Ch) (“Benchdollar”) by Lord Briggs when sitting as a judge of that court some twelve years earlier. The principles in Benchdollar had subsequently been approved by the Court of Appeal in Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023 (“Blindley Heath”), subject to one qualification which was not relevant to the Appellant’s case. Lord Briggs added some further points to his earlier judgment in Benchdollar, and then confirmed at [92] that “the principles for the application of estoppel by convention as set out in Benchdollar and amended in Blindley Heath…accurately summarise the relevant law”.

The Benchdollar statement of principles contains five points, all of which must be satisfied for estoppel by convention to operate. The first four points relate to reliance, and the fifth reads:

Lord Burrows explained at [63] that this test was satisfied on the facts of Mr Tinkler’s case, because HMRC’s reliance on the “affirmed common assumption that a valid enquiry had been opened” caused a significant detriment to HMRC because (a) they were out of time to send another enquiry notice within the statutory time limit, and (b) would therefore now be unable to enforce and collect the £635,000 which would otherwise be payable by Mr Tinkler.

At [64], Lord Burrows considered the reference to “unconscionable” at the end of the citation set out above, and said this was unlikely to add anything where (as in Tinkler) there has been detrimental reliance, but that there might be rare or exceptional cases “where unconscionability may have a useful additional role to play”.

Mr Elliott submitted that the Appellant could not show the detrimental reliance necessary for estoppel by convention to operate, because the Appellant would still have pursued the Claim for the whole of the period even had HMRC raised the Overlap Issue in their original Statement of Case.

Mr Jones replied to that submission by saying that:

the Appellant was relying on estoppel by representation and not on estoppel by convention, so the principles in Tinkler did not apply; and

even if this were wrong, it was both a detriment to the Appellant and also unconscionable for HMRC to move the goalposts at such a late stage: the Appellant had appealed to the Tribunal on the basis that it would recover £1.3m if it won the case, and it might have acted differently had it considered it might only get back the VAT for the later periods of £456,555.

In response to the first of those points, Mr Elliott said that the Appellant’s case on this Issue relied on Gore Wood, which concerned estoppel by convention, as was clear not only from Lord Bingham’s judgment in Gore Wood, but had also been confirmed in Tinkler, where Lord Burrows had said at [40] (Mr Elliott’s emphasis):

In Mr Elliott’s submission, it was thus not possible for Mr Jones (a) to rely on Gore Wood and (b) also argue that the Appellant was not relying on estoppel by convention.

In relation to the second of Mr Jones’s points, Mr Elliott said:

there was no evidence to support the assertion that the Appellant might have acted differently had HMRC stated throughout the course of the appeal that the Overlap Period VAT was not recoverable;

there was no evidence as to the costs incurred; and

had the Appellant decided not to pursue its appeal, it would have recovered nothing. Instead, far from suffering a detriment, HMRC had already agreed that the Appellant would receive £456,555, namely the amount of the Claim less that VAT for the Overlap Period.

Mr Elliott also submitted that estoppel by convention does not in any event apply to legal arguments put forward by either party. Instead, parties may change their legal arguments subject to proper case management. He said that there are many case law examples where the parties “raise arguments in their pleadings that haven't been raised before even when they've been expressly agreed in the enquiry”, and drew attention to closure notice cases by way of exemplars.

I find that HMRC are not estopped from raising the jurisdiction issue, for the three reasons set out below.

There is a significant difference between the facts of Gore Wood and this case. In Gore Wood, the respondent had come to an agreement before the proceedings commenced that the appellant would bring his appeal. In this case, HMRC changed their view of the law. Mr Jones did not cite any authority in which a court had decided that a party was estopped from changing its legal arguments.

In my judgment, a party can change its view of the law at any time subject to the other party having a fair opportunity to respond. In other words, as Mr Elliott said, it is a matter of case management. In Tower M’Cashback v HMRC [2011] SC19 (“Tower”) at [15], Lord Hope endorsed the following passage from Henderson J’s judgment when that case was decided by the High Court:

Although the subject matter of Tower was closure notices and the context was the Tribunal’s jurisdiction to decide appeals under TMA s 50, it is clear that there is a wider application for the principle that a party may introduce new legal arguments subject to the requirements of proper case management. For example, in Ritchie v HMRC [2019] UKUT 71 (TCC) at [36] the UT (Nugee J and Judge Hellier) considered the citation above from Tower together with the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Tribunal Rules”), and then said:

Paragraph [38] of Ritchie confirms that whether or not to allow a party to change its legal submissions is a case management decision. Mr Jones did not submit that there was any case management related reason why HMRC should not be allowed to change their legal arguments, and in my judgment he was right not to do so, for the following reasons:

The Appellant had been aware since 15 July 2021 that HMRC had revised their position in relation to the jurisdiction issue. This was almost five months before the hearing was listed to begin.

PwC took some seven weeks to reply to HMRC’s letter of 15 July 2021; their response of 8 September 2021 runs to 33 numbered paragraphs and was signed by the Head of the Indirect Tax Disputes group. It is clear that PwC carefully considered the implications of HMRC’s letter before they replied.

On 26 October 2021, PwC wrote to the Tribunal in response to HMRC’s Application. They disagreed with HMRC that the listed hearing be postponed, saying that the Appellant “considers that the jurisdictional issue should be heard in full. This will prevent the allocated hearing dates from being wasted”. They then said:

In relation to the parties’ submissions about detriment, I begin by rejecting Mr Jones’s argument that the Appellant was not relying on estoppel by convention, but instead on estoppel by representation. As Mr Elliott said, the Appellant’s case on Issue Two rested on Gore Wood, in which the leading judgment was given by Lord Bingham. As set out later in this decision, see §226, Lord Bingham held that estoppel by convention applied, and in Tinkler,the Supreme Court referred only to Lord Bingham’s judgment. Mr Jones relied on dicta from the minority judgments of Lord Goff and Lord Millett, which are plainly of less authority.

As a result, to succeed on Issue Two, the Appellant has to meet all the requirements in Benchdollar, including that:

In considering whether there had been detriment, I asked myself what would have happened if HMRC had always maintained that the VAT for the Overlap Period was not recoverable. It seemed to me that there were the following possible outcomes:

the Appellant would have made the same appeal, on the same basis, because they had been advised they would succeed;

the Appellant would have reduced the Claim so as to exclude the Overlap Period; or

the Appellant would not have made the Claim at all, because the cost to risk ratio made it unattractive.

Of these three options:

The most probable is the first: the Appellant would have continued with the appeal on the same basis. I come to this conclusion because of PwC’s clear view that HMRC was wrong to think that the Claim could not include the Overlap Period: see their letter of 5 December 2016 which relied on Matalan, and their repetition of this reliance in their Grounds of Appeal to the Tribunal.

However, even if the Appellant had instead taken the second option, its legal costs were unlikely to have been any less: the dispute was unrelated to quantum or to the number of VAT periods; moreover there was also no related evidence to support such a submission.

Had Appellant not have appealed at all, as Mr Elliott said, it would have lost the £456,555 it will now receive for the later periods.

It follows from the above that the Appellant has not shown it has suffered detriment by way of costs or otherwise. I also considered Mr Jones’s submission that HMRC had acted unconscionably. However, as Lord Burrows said in Tinkler, this is the position only in “rare or exceptional cases”, and Mr Jones did not explain why this was such a case, and I could think of no basis on which it satisfied those requirements.

For the reasons set out above, I decide Issue Two in favour or HMRC, who are therefore not estopped from raising the jurisdiction issue at this hearing.

The central issue in this case was the statutory interpretation of VATA s 85(4) read with subsection (1). HMRC’s position was that, as a result of those provisions, the Tribunal had made a prior judicial determination that the VAT for the Overlap Period was not recoverable. The Appellant’s position was that VATA s 85 did not have that effect. As the existence (or otherwise) of a prior judicial determination formed a key ingredient of the parties’ submissions on estoppel, it was necessary first to decide the meaning and effect of VATA s 85(1) and (4) in the context of the Appellant’s withdrawal.

VATA s 85 is headed “Settling appeals by agreement” and reads:

Section 85(4) and (1) thus both include deeming provisions. When an appeal is withdrawn, the parties are deemed to have “come to an agreement…that the decision under appeal should be upheld without variation”, and a tribunal is then deemed to have “determined the appeal in accordance with the terms of the agreement”.

In Fowler v HMRC [2020] UKSC 22 (“Fowler”), Lord Briggs, giving the only judgment with which the other members of the Court agreed, said at [27] that:

I did not understand either party to take issue with this well-established approach to the construction of deeming provisions.

The following points were common ground:

VATA s 83(1)(p) gives appellants the right to appeal the assessment to the Tribunal and the Appellant had done so; it had not appealed HMRC’s review decision, so the content of that decision was not relevant to Issue Three.

The Appellant had therefore appealed against HMRC’s assessment dated 17 November 2014 refusing to repay the input VAT claimed by telent Ltd on the investment management services provided in relation to the Escrow Account for periods 11/10 through to 05/14; of £1,146,598.93.

By Mr Vey’s email to Mr Boobyer on 9 March 2015 stating “I wish to inform you that a decision has in fact been taken to withdraw this appeal”, the Appellant had notified HMRC that it desired not to proceed with the Assessment Appeal, and had therefore made a withdrawal within the meaning of VATA s 85(4).

The effect of that notification was that the parties were deemed to have agreed that:

“the decision under appeal should be upheld without variation”; and

“the like consequences shall ensue for all purposes as would have ensued if, at the time when the [deemed] agreement was come to, a tribunal had determined the appeal in accordance with the terms of the agreement”.

In non-withdrawal cases, where the parties come to an agreement, VATA s 85(1) provides that the terms of that agreement form part of the deemed Tribunal determination.

In this case, the Appellant had simply notified HMRC that the appeal was withdrawn and had not come to an agreement. The parties disagreed on (a) the content of the deemed agreement and (b) the content of the Tribunal’s deemed determination. In other words, what had the parties agreed, and what had the Tribunal decided.

In Mr Elliott’s submission, when the Assessment Appeal was withdrawn:

the Appellant was deemed to have come to an agreement with HMRC that input tax on investment management services provided in relation to the Escrow Account for the periods 11/10 through to 05/14 was not allowable;

the Tribunal was deemed to have determined this was the case;

there had thus been a (deemed) prior judicial determination that the input tax for the Overlap Period was not recoverable.

In Mr Jones’s submission, the effect of the deeming provisions was that the particular assessment which had been appealed was upheld without variation, but that was all. There had been no prior judicial determination that the input tax for the Overlap Period was not recoverable, and it was therefore possible for the Appellant to make a claim to recover the same input VAT for the same periods of account, for the same reason.

In support of their submissions the parties considered the statutory context of s 85 together with its purpose. Mr Elliott relied on Littlewoods and Mr Jones relied on Matalan. However, in Littlewoods there had been no withdrawal of an appeal, and in Matalan the appeal was withdrawn only after HMRC had withdrawn the decision which was under appeal. I therefore did not find it helpful or necessary to consider those two judgments in order to decide the statutory interpretation of the provisions in issue. In this part of my Decision, I therefore consider and decide the meaning of VATA s 85(4) read with subsection (1) in the light of their statutory context and purpose, without reference to either Littlewoods or Matalan. Nevertheless, given the weight placed by both parties on those two judgments, I have set out their positions and my analysis as Issue Four.

The Assessment was made under VATA s 73. This section is headed “Failure to make returns etc”, and subsections (1) and (2) read as follows (emphases added):

Mr Elliott submitted that:

the Assessment had been issued under VATA s 73(1), and must therefore have been made in accordance with HMRC’s best judgement;

HMRC’s “best judgement” was that tax on investment management services provided in relation to the Escrow Account for the periods 11/10 through to 05/14 was not allowable;

when the Appellant withdrew the Assessment Appeal, the parties were deemed by s 85(1) to have agreed that “the decision under appeal” had been “upheld without variation”; and

therefore the parties must also have agreed that the decision had been made to best judgement, and thus to have accepted that the input tax for those periods was not allowable.

Mr Jones challenged this submission in two ways. First, he said that his understanding was that the Assessment had not been made under s 73(1) but under s 73(2), and there was no “best judgement” element in s 73(2). Secondly, he submitted that it would be “unprincipled” to import the best judgement element into the deemed agreement between the parties, for the reasons explained below. I consider each of those submission in turn.

Although Mr Elliott and Mr Jones disagreed as to whether the Assessment had been made under s 73(1) or s 73(2), neither referred me to any evidence in the Bundle or to any authorities. I identified after the hearing that the Assessment had simply been headed “Assessment made under section 73 of the Value Added Taxes Act 1994”. I reviewed the related correspondence and could find no further information.

However, my understanding of the two subsections is that:

s 73(1) applies where a fully taxable business has overclaimed input tax in a VAT period or periods; and

s 73(2) only applies where a person’s input tax has exceeded its output tax, in other words, where HMRC have paid VAT to that person, and subsequently seek to recover it.

That understanding is consistent with the commentary in the De Voil Indirect Tax Service, at Chapter V5.132B and the guidance in HMRC’s VAT Assessments and Error Correction Manual at VAEC2940. I also considered the case law and identified a small number of cases which related to assessments under VATA s 73(2), namelyC&E Commrs v Laura Ashley [2003] EWHC 2832(Ch); Milton Keynes Hospitals v HMRC [2020] UKUT 231 (TCC); and LSE v HMRC [2015] UKFTT 291(TC) (“LSE”). In all of those judgments, the assessments had been made following a repayment of VAT to the trader. In LSE Judge Mosedale said at [46] that VATA s 73(2) applies where “HMRC seek to recoup by assessment a repayment made to a taxpayer which they consider should not have been made”. I agree.

The telent group was a fully taxable business, with a turnover of £320m in 2014 (see §18). The VAT at issue in the Assessment Appeal totalled £1,146,590, spread over the 15 quarters to May 2014, and so was far below the threshold for triggering a repayment. I therefore find as a fact that the Assessment was raised under VATA s 73(1), and as such, it was a necessary condition of its validity that it was made to HMRC’s best judgement.

Mr Jones submitted that it would be “an unprincipled distinction” if the Tribunal’s deemed determination following the withdrawal of an assessment under s 73(1) included the reasons for HMRC’s decision because of the reference in that subsection to “best judgement”, given that there was no similar consequence for withdrawals of s 73(2) assessments. This was in terms a submission that it would be unjust to construe the deeming provision by reference to the “best judgement” element of VATA s 73(1), see Fowler at [27(4)].

However, an assessment is only validly made under s 73(2) if “an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be”. If HMRC issue an assessment under s 73(2), they must first have decided that the repayment “ought not” to have been made, and the decision will state their reasons. When a trader appeals against that decision, and then withdraws his appeal, the parties are thus deemed to have agreed that the “decision under appeal” is upheld without variation, and must therefore have agreed that HMRC were right to decide that the repayment should not have been made. The Tribunal is then deemed to have determined the appeal on the same terms. In other words, HMRC’s rationale for making the decision is an essential part of a s 73(2) assessment, and the Tribunal must have upheld that rationale. To borrow the words of Lord Briggs in Fowler, this was one of “the consequences which would inevitably flow from the fiction being real”.

I therefore do not agree that there is any relevant distinction between the application of the deeming provisions where an assessment made under s 73(1) is withdrawn, and their application where an assessment made under s 73(2) is withdrawn. It follows that there is nothing unjust in construing the deeming provision by reference to the subsection under which HMRC’s decision was made.

Mr Jones also relied on s 73(9, which reads (his emphases):

Mr Jones summarised this subsection as saying that all that is determined by an assessment is that that the VAT shown is “an amount of VAT due” which “may be recovered accordingly”, and that the subsection says nothing about the reasons which lie behind the assessment. HMRC may have had more than one reason for making an assessment, and issued reasons in the alternative, but s 73(9) is silent as to the reasons: it simply provides that the quantum, and only the quantum, stands good.

He submitted that the position is the same when a person withdraws an appeal: by s 85(4), the parties are deemed to have agreed that the Assessment was payable, and by s 85(1) that the Tribunal had upheld the parties’ agreement as to quantum, but that was all. There had been no agreement and no Tribunal determination that the input tax on the investment management services for periods 08/12 to 05/14 was irrecoverable; only that the sum was payable..

Mr Elliott responded by saying that s 73(9) was expressly “subject to the provisions of this Act as to appeals”, and it was therefore not correct to rely on it where, as here, an assessment has been appealed to the Tribunal. That is plainly correct, and I next consider the relevant appeal provisions.

In Mr Elliott’s submission, the relevant appeal provision was s 84(4). I consider that subsection below (see §144), but I instead find that the key provision is s 83(1)(p), which reads:

An assessment under s 73(1) or (2) can therefore be appealed on either or both of two bases. One is that the “amount” is wrong, which relates to matters of quantum; the other is that HMRC have wrongly assessed something which is not subject to VAT.

Where a trader appeals only the amount of the assessment, and then withdraws the appeal, the decision under appeal must have related only to quantum. Section 85(4) provides that on a withdrawal, the parties are deemed to have agreed that the decision under appeal should be upheld without variation, in other words, that the quantum of that assessment was correct. By s 85(1), the Tribunal is therefore deemed to have determined that the quantum was correct.

However, where a person has appealed only against something other than quantum, the appeal is not about “the amount of such an assessment”, but about the reasons for making the assessment. When such an appeal is withdrawn, the decision upheld without variation is HMRC’s decision to assess the trader to VAT, and that must import the reasons for that decision.

In this case the Assessment was made on the basis of figures provided to Mr Boobyer by Mr Vey, see §21, so its quantum was not in dispute. The Appellant instead appealed against HMRC’s decision that input tax on the investment management services for the periods 08/12 to 05/14 was not allowable. When the appeal was withdrawn, it was that decision which was deemed to have been agreed without variation and was then deemed to have been determined by the Tribunal.

I therefore find that the wording of s 83(1)(p) read together with s 85 supports HMRC’s reading of the legislation, and that the Appellant’s view (that the decision which has been determined relates only to quantum) is incorrect. My conclusion is consistent with the purpose of the deeming provisions, to which I now turn.

There are two deeming provisions in s 85. Subsection (1) applies where the parties settle an appeal before the Tribunal had determined the dispute; the position is deemed to be the same as if the Tribunal had actually determined the dispute in accordance with the terms in the agreement. The parties agreed that the purpose of that provision was to prevent relitigation of the same issues.

Subsection (4) then provides that where a person has withdrawn its appeal, the parties are treated as having come to an agreement that the decision under appeal has been upheld without variation; the deeming provision in subsection (1) then applies, so that the Tribunal is treated as having decided the appeal on that basis.

Mr Jones submitted that the purpose of subsection (4) is to determine the particular appeal in favour of HMRC, but that the deeming does not extend any further, to deem HMRC to have been right as to the reasons for the decision which is under appeal. Thus, in the Appellant’s case, the Assessment was upheld without variation, but there was no deemed determination by the Tribunal that this was because the VAT was not recoverable.

Mr Elliott submitted that where a trader had withdrawn an appeal, the statutory purpose was the same as it was in cases where the parties had come to an agreement on the issue in dispute, in other words, to prevent relitigation. He submitted that if Mr Jones was right, an appellant could withdraw his appeal if he looked likely to lose, and then “go round again”, making a new claim on the self-same basis, even during or after the hearing, provided the withdrawal took place before the Tribunal made its decision.

Mr Jones countered by saying that if a party sought to “game the system” in the way described by Mr Elliott, relitigation could be prevented by (a) HMRC objecting to the withdrawal, or (b) the Tribunal striking out the new case as an abuse of process.

I agree with Mr Elliott. There is no good reason why Parliament would have intended to prevent relitigation where the parties have come to an agreement on a matter which is under appeal, but opened the gates to relitigation where the appellant had simply withdrawn the appeal without reasons.

In coming to that conclusion, I have not overlooked Mr Jones’s submissions that relitigation could be prevented by other means. I find as follows:

An HMRC objection to the withdrawal is unlikely to be of any practical use, because HMRC would not know, at the time of the withdrawal, that the appellant would make a new claim, so would have no reason for objecting within the 30 day period allowed by the s 85(4)(b).

Although HMRC could apply for the new appeal to be struck out for abuse of process, strike out applications require time and resources. In my judgment the existence of this further route for preventing relitigation does not assist in construing the purpose of s 85.

In the context of construing the meaning of s 85 deeming provisions, the parties also made submissions on VATA s 84. This is headed “further provisions about appeals” and includes the following subsections:

Section 84(4) therefore provides that the Tribunal shall uphold HMRC’s disallowance of input tax unless the decision was unreasonable, or would have been unreasonable if “information brought to the attention of the tribunal that could not have been brought to the attention of HMRC had been available to be taken into account when the determination was made”. In other words, the Tribunal has the duty:

to vary the decision in the appellant’s favour if information subsequently provided shows that the decision was unreasonable; and

to vary the decision in HMRC’s favour if the appellant was under-assessed by the decision.

Carnwath LJ summarised that duty the context of best judgement assessments in Pegasus Birds v C&E Commrs [2004] EWCA Civ 1015 as follows:

Mr Elliott submitted that when the Tribunal was deemed to determine an appeal under s 85(1), it must also be deemed to have carried out the duties set out in s 84 and thus to have determined that the assessment was correct. He relied on Albert House v HMRC [2020] UKUT 373 (“Albert House”), an SDLT case in which HMRC had objected to the appellants’ withdrawal. The statutory provisions at issue in that case essentially mirror those for VAT, with FA 2003, Sch 10 para 37 being the equivalent of VATA s 85 and para 42 being the equivalent of s 84. Mr Elliott relied in particular on the underlined part of the following passage at [112] of the UT’s judgment.

Mr Jones countered by emphasising the phrase highlighted in italics, and said that in Albert House, the UT had concluded that the SDLT equivalent of s 84 did not apply at all where (as here) the appeal had been withdrawn, and thus Albert House provided no support for HMRC’s submissions on s 84.

I agree with Mr Jones that s 84 is of no relevance to the issue before the Tribunal. That section requires the Tribunal, when hearing an appeal, to take into account the information provided, to vary HMRC’s decision so that it is correct. Where, as here, an appeal has been withdrawn before the hearing, HMRC’s decision is deemed to have been upheld “without variation”. As the UT said in Albert House, the provisions relating to the consequences of withdrawal are an express statutory exception to the Tribunal’s general duty to consider whether the assessment is too high or too low. It is, instead, the decision itself which is deemed to have been agreed as between the parties.

For the reasons set out above, I find that:

the Assessment was issued under s 73(1) and in accordance with HMRC’s best judgement, it was made on the basis that input tax on the investment management services for the periods 11/10 to 05/14 was not allowable.

the Appellant appealed against the Assessment under s 83(1)(p) on the grounds that the input tax was allowable, there was no dispute about quantum;

the Appellant withdrew the appeal under s 85, the purpose of which is to prevent relitigation; and

the Appellant was deemed by s 85 to have come to an agreement with HMRC that input tax on the investment management services for the periods 11/10 to 05/14 was not allowable and the Tribunal was deemed to have determined that this was the case.

Although I have decided this key issue without reference to the case law authorities on which the parties relied, I set out their positions and my analysis as Issue Four.

The parties disagreed as to the meaning and effect of the two judgments on which they focused their submissions, namely Matalan and Littlewoods. Both have something to say about VATA s 85, but neither are binding authorities in relation to the issue I have to decide.

The issue in Matalan concerned customs classification, and the underlying legislation was therefore not identical to that which applies to the Appellant. Customs duties were levied in accordance with the Convention on the Harmonized Commodity Description and Coding System (“the Customs Code”, the “HS Code” or simply the “HS”). Changes to the HS were agreed by the Nomenclature Committee of the European Union. Rates of duty were set by the TARIC (the TARif Intégré Communautaire or Integrated Tariff of the European Union). Traders could ask HMRC to provide a Binding Tariff Information (“BTI”) ruling as to the correct duty rate.

If a trader had applied a duty rate which HMRC considered to be wrong, HMRC could issue a decision; the trader could ask for a review of that decision, and the trader had a right of appeal against that review decision (not against the original decision, in contrast to the position of the Appellant, see §114(1)). If the trader appealed the review decision and subsequently withdrew its appeal, VATA s 85 applied.

On 23 August 2004, Matalan sent HMRC a claim for repayment of duty in relation to certain items of swimwear which included rubber thread. Matalan considered the swimwear was classified under code 6112 41 1000 of the TARIC (“Code 10”).

On 17 September 2004, Matalan sent HMRC an application for a BTI that Code 10 was correct, and attached a single example of a ladies black swimsuit with pink trim. HMRC issued a BTI dated 20 September 2004, classifying that swimsuit under Code 6112 41 9000 (“Code 90”). Matalan applied for a review decision, and the HMRC review officer upheld the original decision.

Matalan appealed to the Tribunal against the review decision. On 26 May 2005, HMRC lodged their Statement of Case with the Tribunal; their submissions relied on the following two points:

the rubber was not contained in the fibres of the garment; and

the rubber strip was not “thread” as defined in the relevant part of the TARIC.

On 26 April 2006, six days before the hearing was due to start, HMRC wrote to Matalan saying:

On 21 April 2006, PwC gave notice on behalf of Matalan that it withdrew its appeal, and HMRC paid Matalan’s costs. On 5 July 2006, Matalan made further claims totalling £522,537.43 for swimwear which in Matalan’s view was similar to the sample attached to the BTI request. HMRC delayed repayment because the question as to the classification of swimwear including rubber was under consideration by the Nomenclature Committee.

On 8 September 2006, HMRC wrote to Matalan agreeing to repay the duty on the single costume which had been sent by Matalan, but stating that the claims for other swimwear were being treated as “protected claims” pending the outcome of the Committee meeting.

On 3 October 2006, PwC requested a statutory review of HMRC’s decision, and this was issued on 12 October 2006. In summary, it stated that Matalan was required to establish its claim on a garment-by-garment basis and had not yet done so to HMRC’s satisfaction.

Matalan appealed the review decision to the Tribunal, on a number of grounds, one of which was explained by Matalan’s counsel Ms Whipple as follows, see [37] of the FTT judgment under reference C200262, [2008] Lexis citation 5216:

The Tribunal (Colin Bishopp) decided that there was no “agreement within section 85” because there had been no meeting of minds; instead, HMRC had unconditionally withdrawn the BTI and Matalan had subsequently withdrawn the appeal (see [40] of the FTT judgment).

When the case went to the High Court, Clarke J agreed, saying at [94]:

He added at [97]:

That passage is followed by citations from case law, and then by these two paragraphs:

These passages were relied on by Mr Jones as forming part of Clarke J’s judgment, but Mr Elliott disagreed, saying that they were instead Matalan’s submissions. I agree with Mr Elliott: it is clear from the context and from what follows that [100] and [101] are part of the case being put by Matalan, namely that:

although there had been no deemed judicial determination of the first appeal under VATA s 85;

HMRC had withdrawn the BTI because it had accepted Matalan was correct as to the classification of the product – this “the essential proposition”; and

Matalan was therefore entitled to have the duty repaid.

Clarke J’s judgment is instead set out at [121]. He first said under (a) that “there had been no judicial determination of the validity or otherwise of the essential proposition”, a point which had already been accepted by Matalan. He went on to dismiss Matalan’s submission that HMRC had nevertheless accepted that Matalan were correct on classification, saying at (b):

Clarke J went on to find that as a result, HMRC were not estopped from refusing to pay Matalan the customs duty it had claimed.

Mr Jones relied on the following facts from Matalan:

the first appeal concerned the same two issues as the second appeal;

Matalan had withdrawn its first appeal before the hearing;

the withdrawal did not create a deemed agreement between the parties under s 85, and neither was their any deemed judicial determination;

HMRC were not estopped by what happened in relation to the first appeal, and could therefore refuse to pay Matalan’s claim.

In his submission, it must follow that the Appellant’s withdrawal of the Assessment Appeal had not brought about a deemed judicial determination of the “essential proposition”, namely the underlying issue which was in dispute, and the Appellant was not estopped from making the Claim for the Overlap Period.

Mr Jones’s main submission therefore relied on [100]-[101] set out above, and in particular the passage which read “The withdrawal of the first appeal did not constitute a determination (explicit or implicit) of any issue between Matalan and HMRC. The tribunal made no order and the parties made no compromise”.

However, Mr Jones said in closing that even were he to be wrong in that reliance, because those passages did not form part of Clarke J’s judgment, the Appellant’s position was unaffected. He submitted that the key point was that in Matalan there had been a withdrawal, but that withdrawal had not brought the deeming provisions into effect; it therefore followed that a withdrawal (in contrast to an agreement on terms) did not deem the parties to have come to any agreement that the reasons for the original decision had been upheld. In consequence, there was no estoppel.

Mr Elliott emphasised that the issue in Matalan was whether the parties had come to an agreement under which HMRC withdrew the BTI and Matalan withdrew its appeal. Had there been such an agreement, there would have been a binding judicial determination by virtue of VATA s 85(1). However, on the facts found by the Tribunal there was no agreement, and in consequence s 85(1) did not operate.

Neither the Tribunal nor the High Court had considered whether Matalan’s withdrawal from the appeal meant that there was a deemed agreement under VATA s 85(4) and in consequence a binding judicial determination under VATA s 85(1). In his submission Matalan was not an authority for anything relating to s 85(4), as that subsection was simply not considered.

It is clear that the FTT in Matalan had decided s 85(1) did not apply, because the parties had not come to an agreement under which HMRC would withdraw the BTI and Matalan would withdraw its appeal. Instead, HMRC withdrew the BTI unconditionally, and this withdrawal was followed by Matalan’s withdrawal of the appeal. That finding of was confirmed by Clarke J. As Mr Elliott said, neither the Tribunal nor the High Court considered s 85(4), and I therefore agree with him that Matalan is not an authority as to the meaning or effect of that provision.

However, it is instructive to consider why s 85(4) was not considered by either party, by the FTT, or by the High Court, given that (a) s 85(1) was plainly in issue and (b) Matalan had withdrawn its appeal. My view is as follows:

Section 85(4) provides that, on a withdrawal, the parties are deemed to have come to an agreement that “that the decision under appeal should be upheld without variation”.

It is a necessary element of that deeming provision that at the time of the withdrawal there is a “decision under appeal”.

Matalan did not withdraw its appeal until after HMRC had “withdrawn the disputed decision”. There was thus no “decision under appeal” on which the deeming provision could operate.

Thus, although Matalan withdrew its appeal, s 85(4) could not operate to deem the parties to have come to an agreement confirming a decision which was no longer extant. Such an outcome would, to borrow the language of Lord Briggs in Fowler, be an unjust, absurd and anomalous result.

The complicated background to the High Court judgment of Henderson J in Littlewoods was helpfully summarised in HMRC’s skeleton. With minor textual amendments, it was as follows:

Littlewoods had been assessed in relation to the VAT on commission paid for certain supplies for certain periods, and the Court of Appeal had determined those appeals in Littlewoods’s favour in HMRC v Littlewoods [2001] EWCA Civ 1542 (“Littlewoods CA”)

Littlewoods had also made a claim under VATA s 80 in relation to VAT on different commission, and had appealed the refusal of the claim (“the 10% Commission Appeal”). The appeal was settled by an agreement in 2004 under VATA s 85 (“the 2004 s 85 Agreement”);

Littlewoods made a further claim covering different periods (1973-1998); this was settled in 2008 under s 85 (“the 2008 s 85 Agreement”);

Littlewoods made a restitution claim seeking compound interest in relation to periods between 1973 and 2004: this was the subject of the proceedings before Henderson J; and

by way of defence in those proceedings, HMRC submitted that the earlier VAT payments they had made to Littlewoods had not been due; and

Littlewoods responded by submitting that HMRC were estopped from raising that argument, and/or that it was an abuse of process for HMRC to do so.

In relation to this Issue, I consider only what Littlewoods has to say about s 85. I consider other aspects of the case later in this Decision.

The 2004 s 85 Agreement was set out “so far as material” to the issues in that case at [52] of the judgment as follows:

[HMRC] will repay the Appellant's Claim, subject to the receipt of satisfactory evidence to support the quantum and method of calculation of the Claim.

…”

The 2008 s 85 Agreement was referred to at [56]:

The judgment records at [155] that the parties agreed that:

Thus, in Littlewoods,both parties agreed they had “come to an agreement” within the meaning of VATA s 85(1), and had also agreed that a “a tribunal had determined the appeal in accordance with the terms of the agreement”, as provided by that subsection. However, the judgment does not set out the whole of the 2004 s 85 Agreement, and also does not include any part of 2008 s 85 Agreement, but instead only notes that HMRC accepted they had been wrong.

Both parties made submissions as to the guidance given by Littlewoods in relation to their dispute. However, in my judgment the case provides no real assistance. That is because the two s 85 agreements in Littlewoods both came into existence by virtue of VATA s 85(1), namely that:

The parties to this appeal had already agreed that in non-withdrawal cases, where the parties had come to an agreement, the terms of that agreement formed part of the deemed Tribunal determination by virtue of VATA s 85(1), see §114(5). The dispute was instead about what happened when a party withdrew its appeal under s 85(4), and Littlewoods provides no assistance on that point.

For the reasons set out above, I find that neither Matalan nor Littlewoods is of assistance in deciding the meaning or effect of a deemed agreement under s 85(4). I move on to considering whether cause of action estoppel operates to prevent the Appellant from bringing the Claim for the Overlap Period.