Telent Technology Services Limited v The Commissioners for HMRC

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 In March 2016, the Assessment Appeal was withdrawn.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:

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:

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:

“I am writing on behalf of my above named client, telent, to lodge a claim for VAT under recovered in the VAT periods 08/12 to 08/16 in the sum of £1,312,309 plus interest.

The claim relates to VAT incurred on costs incurred by telent, relating to the operation of an escrow fund, which we consider to be a non-economic activity for VAT purposes.”

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:

“I would draw your attention to the fact that your client accepted in a previous appeal relating to this same subject (TC/2015/05402) that telent’s escrow activity was a business or ‘economic’ activity (this view was confirmed in a letter that was dated 28 May 2015). The appeal progressed on that basis until it was withdrawn prior to being heard…

There is one further point I should make about the claim: it includes periods 08/12 to 05/14 inclusive, the various amounts claimed for those periods totalling £855,754. These amounts are identical to the amounts previously assessed by HMRC, forming part of the tax in dispute in the previous appeal, from which, as I have mentioned, your client withdrew. In these circumstances, I can confirm now that, if any repayment were made in advance of the Court of Appeal’s decision in the University of Cambridge case, it would exclude the amount of £855,754. Moreover, in the event that he
final decision were in telent’s favour, repayment of the £855,754 would be a matter for HMRC’s discretion, given that the tax in question had been subject to an appeal process from which your client had formally withdrawn.”

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:

“In my letter of 3 November I suggested that any repayment HMRC may eventually be required to make in connection with this matter should be restricted to £456,556, the amount that had not been part of the tax at stake in the previous appeal. I have since considered the relevance of the High Court’s judgment in Matalan (as per PwC’s letter of 5 December) and now accept that, if it is ultimately determined that a repayment should be made, that repayment should be of the full claim in the sum of £1,312,309.”

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:

“​telent​ ​submitted​ ​a​ ​claim​ ​in​ ​the​ ​sum​ ​of​ ​£1,312,309​…Following​ ​submission​ ​of​ ​the​ ​Claim,​ ​telent​ ​and​ ​HMRC​ ​entered​ ​into​ ​correspondence​ ​regarding​ ​the​ ​basis of​ ​the​ ​Claim.”​

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 17 November 2014, an assessment was raised in respect of the input tax related to the escrow funds in question for VAT periods 11/10 to 05/14. You queried this assessment, but the decision was upheld on review. I understand that telent submitted but subsequently withdrew an appeal to the Tribunal.
The issue for this period is therefore considered by HMRC to be closed.

A review was offered at the time under VAT Act 1994 Section 83A, and this review was performed as requested. There is no allowance in law for a second review of a matter, and indeed VATA Section 83A (3) specifically states that the offer of a review does not apply to the notifications of the conclusions of a review. Furthermore, Section 83C(4) states that HMRC shall not review a decision if the matter has been appealed to the Tribunal.

I therefore regret that I am unable to review the part of the claim relating to VAT periods 08/12 to 05/14, on the grounds that these periods have already been subject to review. I agree that there is no impediment to you discussing the issue further with HMRC. However, if you wish to reinstate the claim for these earlier periods then, in the absence of the withdrawal of the assessment, your only option is to apply to the Tribunal for a reinstatement of the appeal submitted in 2015. Reinstating an appeal is at the discretion of the Tribunal,
and HMRC will be asked whether there is any objection to such action. This issue is outside of the scope of my review.

Although your claim dated 30 September 2016 covers all VAT periods from 08/12 to 08/16, I am, for the reasons given above, only able to review the claim as it relates to VAT periods 08/14 to 08/16.”

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:

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:

“After consulting the advisory committee on value added tax…each Member State may regard as a single taxable person any persons established in the territory of that Member State who, while legally independent, are closely bound to one another by financial, economic and organisational links.”

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:

“Where under sections 43A to 43D any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and—

(a)

any supply of goods or services by a member of the group to another member of the group shall be disregarded; and

(b)

any supply which is a supply to which paragraph (a) above does not apply and is a supply of goods or services by or to a member of the group shall be treated as a supply by or to the representative member; …

and all members of the group shall be liable jointly and severally for any VAT due from the representative member.”

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

“It is clear from the statutory words in s 43(1) of VATA that the UK chose to achieve the end which the Directive authorised not by deeming the group to be a quasi-person but by treating the representative member as the person which supplied or received the supply of goods or services.”

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:

“The representative member of s 43 must, in our view, be understood as a continuing entity (perhaps akin to a corporation sole whose role is fulfilled by whoever holds the relevant office at any time). Thus actions, liabilities and rights of an old representative member must be ascribed to the new representative member on a change of representative member.”

VATA s 80 provides:

“(1)

Where a person—

(a)

has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and

(b)

in doing so, has brought into account as output tax an amount that was not output tax due,

the Commissioners shall be liable to credit the person with that amount

(1A)  Where the Commissioners

(a)

have assessed a person to VAT for a prescribed accounting period (whenever ended), and

(b)

in doing so, have brought into account as output tax an amount that was not output tax due,

they shall be liable to credit the person with that amount.

(1B) …

(2)

The Commissioners shall only be liable to credit or repay an amount under this section on a claim being made for the purpose.

(3)-(3C) …

(4)

The Commissioners shall not be liable on a claim under this section—

(a)

to credit an amount to a person under subsection (1) or (1A) above, or

(b)

to repay an amount under subsection (1B) above,

if the claim is made more than four years after the relevant date.”

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]:

“It is clear from the words of s 80(1) that HMRC's liability to credit or repay the overpaid output tax is owed to the person who accounted to them for VAT in the relevant accounting period or periods…Subsection (4), which imposes a time limit on claims, also is drafted on the basis that the claim will result in the giving of a credit or repayment to the person who accounted for or paid the VAT in the first place. It therefore follows from the operation of s 43 of VATA that where there have been overpayments of VAT by the representative member of a VAT group, the person entitled to submit a claim during the currency of a VAT group, unless the claim has been assigned, is either the current representative member of the VAT group or a person acting as agent of that representative member.”

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:

“Mr Scorey on behalf of [Taylor Clark] submits that the only taxable person is the VAT group, which alone has fiscal personality, and that any company within the VAT group can claim repayment of unduly levied VAT on behalf of the group. For the reasons set out above, I do not accept that submission. Nor do I see any basis for the assertion by the Extra Division (para [27]) that a claim by an individual member of a VAT group must normally be construed as a claim made on behalf of the representative member, as otherwise the claim would have no meaning. An assignee of the representative member may make a valid claim in its own right (as Carlton purported to do in this case). Alternatively, a party may make a claim to which it is not entitled.”

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:

“The FTT held (para [55]) that TCL 'neither instructed nor authorised' Carlton to submit any of the claims and (para [57]) that TCL was unaware that it had a potential claim under s 80 of VATA and that HMRC's payment of £667,069 to it on 27 April 2009 'came out of the blue'. Similarly, there is no basis for an argument that TCL ratified Carlton's claims which had been made on its behalf, thereby conferring retrospective authority. First, Carlton's letters to HMRC did not purport to be written as agent of TCL. On the contrary, they were claims which Carlton pursued for its own benefit. That is fatal to the claim of ratification…Secondly, there are no findings of fact that TCL ratified Carlton's actions as its agent.”

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 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:

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:

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.

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:

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:

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):

“For the next 4½ years the proceedings brought by Mr Johnson followed the normal course. The parties served and amended their pleadings and exchanged witness statements. Mr Johnson served expert evidence. The firm made a payment into court. A trial date was obtained. But then came a sudden change of tack. The firm instructed fresh leading counsel. In December 1997 the firm's solicitors indicated, for the first time, that it intended to apply inter alia for an order to strike the action out as an abuse of the process of the court.”

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:

“When the parties to a transaction proceed on the basis of an underlying assumption—either of fact or of law—whether due to misrepresentation or mistake makes no difference—on which they have conducted the dealings between them—neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands."

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:

“The terms of the settlement agreement and the exchanges which preceded it in my view point strongly towards acceptance by both parties that it was open to Mr Johnson to issue proceedings to enforce a personal claim, which could then be tried or settled on its merits, and I consider that it would be unjust to permit GW to resile from that assumption.”

He went on to say:

“If, contrary to my view, GW is not estopped by convention from seeking to strike out Mr Johnson's action, its failure to take action to strike out over a long period of time is potent evidence not only that the action was not seen as abusive at the time but also that, on the facts, it was not abusive.”

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:

“It could, however, be appropriate subject matter for an estoppel by representation, whether in the form of promissory estoppel or of acquiescence, on account of which the firm is, by reason of its prior conduct, precluded from enforcing its strict legal rights against Mr Johnson (to claim that his personal proceedings against the firm constituted an abuse of the process of the court). Such an estoppel is not, as I understand it, based on a common underlying assumption so much as on a representation by the representor that he does not intend to rely upon his strict legal rights against the representee which is so acted on by the representee that it is inequitable for the representor thereafter to enforce those rights against him.”

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:

“If necessary, however, I should have regarded the delay [by GW in raising the issue] as fatal. Indeed, I should have regarded it as more than delay; I think it amounted to acquiescence…the premise [put by GW] in the present case is that Mr Johnson has a good cause of action which he should have brought earlier if at all. I do not consider that a defendant should be permitted to raise such an objection as late as this.”

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:

“If an estoppel can operate in circumstances where a party can realise that they've been under a mistake and point to the truth of the matter, then you would have thought it would a fortiori apply where a party thinks one thing about the law then decides that they'd like to think something else.”

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:

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:

“Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”

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:

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):

“it is noteworthy that, in Johnson v Gore Wood & Co [2002] 2 AC 1, estoppel by convention was applied by the House of Lords, albeit as obiter dicta, by Lord Bingham (with whom Lord Cooke and Lord Hutton expressed agreement on this aspect of the case).”

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:

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:

“These sources make clear that in determining what arguments the tribunal may permit to affect its decision the guiding principle must be fairness in the circumstances of the case. Fairness does not require formality, and Rule 2(2)(b) expressly requires formality to be avoided. Fairness does not require, for example, that to advance an argument not present in its statement of case or the notice of appeal a party must always formally apply to amend its earlier pleading. On the other hand it does require that the other party is given adequate opportunity in the circumstances to meet the point, whether by argument or with evidence.

38.

If a new argument is a pure point of law it might be addressed, as the case may be, after: a few minutes' thought; an evening's consideration; or one or more days' research. Provided that the other party has an appropriate opportunity to meet the point, it would generally not be unfair for the tribunal to take that argument into account.

39.

When the argument gives rise to the possibility that it may be rebutted by further evidence, the other party must have a fair opportunity to bring that evidence to the tribunal…We do not wish to be thought to be laying down any particular rules, as what fairness requires will depend on all the circumstances of the case, and cases in the FTT vary enormously from informal appeals that take a very short time to elaborately argued cases that last for many days.

40.

On the other hand, there will be circumstances where it is simply too late for a point to be raised. Where it is not reasonably possible in the circumstances of the case – having regard in particular to the resources of the parties and the need to avoid delay – for the other party to have a fair opportunity to rebut a new point, that is likely to mean that it would be unfair for a new point to be taken.”

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:

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:

“Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”

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:

Of these three options:

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:

“(1)

Subject to the provisions of this section, where a person gives notice of appeal under section 83 and, before the appeal is determined by a tribunal, HMRC and the appellant come to an agreement (whether in writing or otherwise) under the terms of which the decision under appeal is to be treated

(a)

as upheld without variation, or

(b)

as varied in a particular manner, or

(c)

as discharged or cancelled,

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

(2)-(3) …

(4)

Where

(a)

a person who has given a notice of appeal notifies HMRC, whether orally or in writing, that he desires not to proceed with the appeal; and

(b)

30 days have elapsed since the giving of the notification without HMRC giving to the appellant notice in writing indicating that they are unwilling that the appeal should be treated as withdrawn,

the preceding provisions of this section shall have effect as if, at the date of the appellant's notification, the appellant and HMRC had come to an agreement, orally or in writing, as the case may be, that the decision under appeal should be upheld without variation..”.

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:

“There are useful but not conclusive dicta in reported authorities about the way in which, in general, statutory deeming provisions ought to be interpreted and applied. They are not conclusive because they may fairly be said to point in different directions, even if not actually contradictory…They include the following guidance, which has remained consistent over many years:

(1)

The extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears.

(2)

For that purpose the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes.

(3)

But those purposes may be difficult to ascertain, and Parliament may not find it easy to prescribe with precision the intended limits of the artificial assumption which the deeming provision requires to be made.

(4)

A deeming provision should not be applied so far as to produce unjust, absurd or anomalous results, unless the court is compelled to do so by clear language.

(5)

But the court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real. As Lord Asquith memorably put it in East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109, at 133:

‘The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs’.”

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:

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 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):

“(1)

Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.

(2)

In any case where, for any prescribed accounting period, there has been paid or credited to any person

(a)   as being a repayment or refund of VAT, or

(b)   as being due to him as a VAT credit,

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, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.”

Mr Elliott submitted that:

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:

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), namely C&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):

“Where an amount has been assessed and notified to any person under subsection (1), (2)…above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.”

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:

“(1)

… an appeal shall lie to the tribunal with respect to any of the following matters…

(p)

an assessment

(i)

under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act;…

or the amount of such an assessment…”

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:

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:

“(1)

References in this section to an appeal are references to an appeal under section 83.

(2)-(3)…

(4)

… where

(a)

there is an appeal against a decision of HMRC with respect to, or to so much of any assessment as concerns, the amount of input tax that may be credited to any person or the proportion of input tax allowable under section 26, and

(b)

that appeal relates, in whole or in part, to any determination by HMRC

(i)

as to the purposes for which any goods or services were or were to be used by any person, or

(ii)

as to whether or to what extent the matters to which any input tax was attributable were or included matters other than the making of supplies within section 26(2), and

(c)

… ,

the tribunal shall not allow the appeal or, as the case may be, so much of it as relates to that determination unless it considers that the determination is one which it was unreasonable to make or which it would have been unreasonable to make 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.

(5)

Where, on an appeal against a decision with respect to any of the matters mentioned in section 83(1)(p)…

(a)

it is found that the amount specified in the assessment is less than it ought to have been, and

(b)

the tribunal gives a direction specifying the correct amount,

the assessment shall have effect as an assessment of the amount specified in the direction, and that amount shall be deemed to have been notified to the appellant.”

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:

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

“The tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer.”

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.

“Viewing the statutory scheme as a whole, it is clear to us that paragraph 37 is an express exception to the general duty imposed by paragraph 42. There is no need for the FTT to determine an assessment where the parties have reached an agreement. In any event, where paragraph 37 does apply to an agreement between the parties (i.e. there is an agreement between the parties to settle an appeal) the agreement is deemed by statute to have all the practical consequences of being a determination by the FTT. The FTT was well aware that the duty under paragraph 42 only arose in circumstances where paragraph 37 did not apply (i.e. where no in-time objection had been made by HMRC)..”

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:

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:

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

“The Commissioners hereby withdraw the disputed decision. The Appellant is hereby invited to withdraw its appeal and is reminded in that regard that such withdrawal would not prevent its making application to the tribunal in respect of costs (rule 16 of the tribunal Rules).”

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 letter of 20 April 2006 by which the Commissioners informed Matalan that the original BTI was rescinded and invited it to withdraw the appeal (and seek its costs), Matalan's acceptance of that proposal and the Commissioners' making good of the rescission of the original BTI by the issue of a replacement amounted, she said, to an agreement within section 85 of the Value Added Tax Act 1994, which relates to appeals to this tribunal, and which provides that such agreements have the same consequences as a determination of the tribunal. It was not open to the Commissioners to litigate the same issue again in these appeals since there was a deemed decision by the tribunal that classification within 10 was correct, and the matter was res judicata….”

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]:

“The withdrawal of the decision by the commissioners was not conditional on the withdrawal of the appeal by Matalan and had occurred before Matalan did so. The withdrawal of the appeal followed the withdrawal of the decision but was not made as the price of that withdrawal.”

He added at [97]:

“Matalan contends that, in the light of the withdrawal by HMRC of the review decision it is estopped from disputing that all of Matalan's imported swimwear throughout the period 2001–07 should attract the '10' classification; or, alternatively that it would be an abuse of process for it to be allowed to do so.”

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

“[100] 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. At the same time the only basis upon which HMRC can have withdrawn its decision, Matalan withdrawn its appeal and HMRC issued the second BTI was that swimwear with no rubber in the synthetic fibre content but with rubber amounting to 5% or more of the garment as a whole ('the qualifying swimwear') was properly to be given a '10' and not a '90' classification. Unless that proposition ('the essential proposition') was correct there could be no basis for withdrawing either the review decision (or the original decision) or for issuing the second BTI with a '10' classification.

[101] If the essential proposition was correct it would follow that Matalan was entitled to have the duty on all its qualifying swimwear treated as having a '10' classification for tariff purposes. This would not be because of any BTI but because that result would be a necessary consequence of the essential proposition. Matalan could then recover the duty that it had overpaid subject to the relevant time limits. Matalan would only be out of time in relation to imports which were made prior to three years before 23 August 2004.”

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:

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):

“whatever Matalan's expectations were, there was no agreement that the outcome of the first appeal would determine the classification for tariff purposes of Matalan's qualifying swimwear.”

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:

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:

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:

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:

“WHEREAS [HMRC] have rejected the Appellant's claim, pursuant to section 80 of the VAT Act 1994, for the recovery of output tax overpaid in the sum of £4,443,162.12, contained in a letter dated 5 February 2002 (“the Claim”)

NOW in consideration of the terms set out herein IT IS HEREBY AGREED between the parties as follows:

1.

[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.

2.

…”

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

“Following representations on behalf of Littlewoods, on 27 June 2008 HMRC accepted that the logic of their argument did not cover cases in which commission was taken in goods. They therefore agreed to repay the amounts of VAT attributable to commission so taken, and this agreement was recorded in a further s 85 agreement dated 23 September 2008.”

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

“the determinations by the Tribunal and the FTT respectively which are deemed to exist by virtue of the 2004 and 2008 s 85 Agreements have the necessary qualities of finality and jurisdictional competence.”

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:

“before the appeal is determined by a tribunal, HMRC and the appellant come to an agreement…the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, a tribunal had determined the appeal in accordance with the terms of the agreement”.

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.