Rolldeen Estates Limited v The Commissioners for HMRC

As is well known, the letting of property is an exempt supply under VAT law, but the owner can “opt” to tax the property and charge VAT on that supply. If the option to tax (“OTT”) is exercised, the owner reclaims input VAT on costs such as repairs and maintenance, but charges output VAT on its supplies. The OTT provisions are set out at VATA, Sch 10.

A person does not need HMRC’s permission before exercising an OTT, unless that person has already made exempt supplies in relation to that property – in particular, if the property has already been let without VAT having been charged. In that scenario, the person must apply to HMRC for permission to exercise the OTT, and permission will only be given if HMRC are satisfied that the input tax is fairly attributed as between the exempt period and the taxable period.

On 7 February 2008, Rolldeen Estates Ltd (“Rolldeen”) sent HMRC copies of Form VAT1614A dated 28 January 2008, by which it applied to opt two recently purchased properties, the Jubilee Business Centre in Gate Street, Blackburn (“the Jubilee Centre”) and a piece of land on the east side of Broughton Lane in Sheffield (“the Sheffield Land”).

Rolldeen’s Forms VAT1614A included confirmation that it had made no exempt supplies in relation to either property. Rolldeen repeated that confirmation in writing to HMRC on 25 February 2008. On 6 March 2008, HMRC issued a letter acknowledging that the properties had been opted to tax with an effective date of 10 January 2008. Rolldeen reclaimed VAT on repairs and other related property costs from that date, and its invoices to tenants included VAT.

The Jubilee Centre was sold on 2 March 2015 and the Sheffield Land on 20 January 2017, but in neither case was VAT added to the sale price. On 3 August 2017, HMRC issued Rolldeen with VAT assessments which included £50,000 relating to the failure to charge VAT on the sale of the Jubilee Centre and £4,710 relating to the failure to charge VAT on the sale of the Sheffield Land. The assessments were not appealed and applications for late appeals were not made.

On 12 November 2018, Mr Ali of Abram & Co, Rolldeen’s new representative, provided HMRC with leases relating to the Jubilee Centre which were dated before 10 January 2008. He said these showed Rolldeen had made exempt supplies in relation to the Jubilee Centre before the date of the OTT, and that HMRC’s permission had therefore been required before it could be opted, and no permission had been given. In other words, there was no valid OTT in place, even though Rolldeen had purported to exercise that option. On 4 February 2019, Mr Ali said that the position was the same in relation to the Sheffield land.

VATA, Sch 10, para 30 is a rarely used provision which allows HMRC retrospectively to dispense with the requirement for prior permission, and to treat a “purported option as if it had instead been validly exercised”. On 6 March 2019, Officer Lorna McQuillan issued a decision stating that HMRC were exercising their discretion under Sch 10, para 30 to treat the Jubilee Centre and the Sheffield Land as opted with effect from 10 January 2008 (“the OTT Decision”). On 22 June 2019, Rolldeen appealed to the Tribunal against the OTT Decision.

At the hearing of the appeal on 16 March 2022, Rolldeen conceded the part of its case relating to the Sheffield Land, because Mr Ali accepted that no exempt supplies had been made in relation to that property before the effective date of the OTT. As a result, this decision deals only with the Jubilee Centre.

There were a number of issues:

I decided it was in the interests of justice to allow the parties to provide further submissions on the issues set out above. Both provided an initial response, followed by a further response. In September 2022, having considered those submissions, I issued directions which included permission for both parties to provide witness evidence. There were then difficulties finding a date to relist the further hearing, which finally took place in March 2023.

Having heard and considered the parties oral and written submissions, I decided as follows:

The practical consequence of this decision, on either basis, is that the VAT of £50,000 which HMRC assessed on 3 August 2017 is due and payable.

For the first hearing of Rolldeen’s appeal, HMRC provided two document bundles totalling 657 pages; these were supplemented with a further bundle of 183 pages for the second hearing. The bundles included:

Officer Aidan Young, the compliance officer with responsibility for Rolldeen from February 2016, provided a witness statement. This summarised the history of the dispute and related correspondence. None of that evidence was challenged, and Officer Young did not attend to give evidence.

It was clear from the parties’ submissions during and after the first hearing that the parties disagreed as to:

On 22 September 2022 I issued further directions, which included permission for both parties to provide witness evidence. However, HMRC did not tender Officer House as a witness, and Rolldeen did not tender Mr Mufid or Mr Shaheen. Neither Mr Simpson nor Mr Ali put forward any explanation for the non-attendance of these witnesses.

In Barnes v Blackburn with Darwen BC [2022] EWHC 2598, Davies J considered the approach to take when a party does not call a witness who might be reasonably expected to be able to provide relevant evidence. He set out his view on one of the “commonly encountered situations” at [33]:

I respectfully agree. I have therefore decided this appeal on the evidence provided to me, and have made no adverse inference as the result of the non-attendance of Officer House, Mr Mufid or Mr Shaheen.

The findings of fact cover the period from the acquisition of the Jubilee Centre until Rolldeen’s appeal against the OTT Decision.

Rolldeen acquired the Jubilee Centre on 16 May 2006. As can be seen from the purchase invoice, the seller did not charge VAT.

Rolldeen’s VAT return for period 12/07 was a repayment claim for £37,576,93. Officer House carried out a compliance visit on 29 January 2008; she met Mr Mufid at his office. There was a dispute as to what happened during that visit. I first set out the evidence, followed by the parties’ submissions and my findings of fact.

Officer House’s notes dated 30 January 2008 say (capitalisation in original):

Mr Mufid’s notes of the same meeting, which HMRC accepted were contemporaneous and genuine, say:

Mr Ali said that it was clear from the above evidence that Officer House knew at the time of this meeting that exempt supplies had already been made in relation to the Jubilee Centre, and he relied on the following:

Mr Simpson did not accept that this evidence was sufficient to prove that Officer House knew Rolldeen had made exempt supplies in relation to the Jubilee Centre. He said that Rolldeen had a number of leased properties and Mr Mufid could have been referring to any of them; Officer House’s note did not mention having reviewed leases, but only the invoices supporting the input tax claim, and there was nothing to tie the purchases shown on the invoices to the Jubilee Centre rather than to any other property.

Having considered the evidence and submissions, I find as a fact that on 29 January 2008, Officer House established that Rolldeen had already made exempt supplies of let property to tenants of the Jubilee Centre. I make that finding for the following reasons:

In coming to that conclusion I did not rely on the invoices included in the Bundle; I agreed with Mr Simpson that it was not possible to link any particular invoice to the Jubilee Centre.

On 7 February 2008, Mr Mufid faxed HMRC a copy of Form VAT1614A in relation to the Jubilee Centre. The Form asks this question:

The answer given by Rolldeen was “NO”. The Form was signed by Mr Shaheen and was dated 28 January 2008 (the day before the meeting with Officer House). That date is inconsistent with Officer House’s meeting note, which says that Mr Mufid agreed to do an OTT form for the Jubilee Centre “ASAP”. Had the Form already been completed, it is highly improbable that Mr Mufid would not have said so. I find as a fact that the OTT form was completed after that meeting, and that the date given on its face is incorrect.

When the Form was received by HMRC it was not considered by Officer House, but by a different HMRC officer, Officer Bounds. On 12 February 2008, she wrote to Rolldeen saying that the Form did not give a date from which Rolldeen was applying to opt the Jubilee Centre, and asking Rolldeen to provide that date. Her letter then said:

She continued by saying that if such supplies had been made, “prior written confirmation from HM Revenue & Customs will be required before you can opt to Tax unless you meet the conditions for automatic permission contained in the VAT notice 742A”. She then said “It appears that you/your client may require permission from HM Revenue and Customs before being allowed to elect to waive exemption (opt to tax) on the property named above”, and if that was the case, detailed information was required by way of response to a series of questions, which included:

On 25 February 2008, Mr Mufid faxed HMRC an annotated copy of Officer Bound’s letter. This included 10 January 2008 as the effective date of the OTT; the question at §30 was again answered “NO”. The faxed document was signed by Rolldeen’s authorised signatory, and by comparing that signature with the one on the OTT form, I find as a fact that this document was also signed by Mr Shaheen.

On 6 March 2008, Officer Bounds wrote to Rolldeen saying “I acknowledge your notification regarding your election to waive exemption” and confirming that the Jubilee Centre had been opted to tax with an effective date of 10 January 2008. On 21 April 2008, HMRC paid Rolldeen £37,576.93, being the full amount of its 12/07 repayment claim.

Rolldeen began to charge output VAT to tenants of the Jubilee Centre. During periods 03/08 to 03/15 Rolldeen claimed input VAT of £122,797.94, some of which related to the Jubilee Centre.

The Jubilee Centre was sold on 2 March 2015, and VAT was not charged or paid. On 3 August 2017, HMRC issued Rolldeen with a VAT assessment for period 03/15; this included £50,000 of VAT due on the sale of the Jubilee Centre.

On 12 November 2018, Mr Ali sent HMRC pro-forma template documents published by the Law Society which were stated to be leases between Rolldeen and other parties in relation to their use of the Jubilee Centre during 2006 and 2007.

None of the pro-forma clauses of the template agreement have been modified or deleted and none of the documents are witnessed. In each case, above “Landlord” is written “M Shaheen” but the signature is entirely different to that on the other documents in the bundle which he signed. Above “tenant” is an indecipherable signature, no name is given. Other parts of the documents include the following:

Mr Ali said these documents showed Rolldeen had made exempt supplies before the effective date of the OTT; that HMRC’s permission had therefore been required before the Jubilee Centre could be opted, and as no permission had been given, the OTT was invalid.

HMRC did not challenge the authenticity of the template documents. Instead, on 17 December 2018, Officer Young wrote to Mr Ali, saying:

HMRC therefore accepted that the new documents showed that Rolldeen had made exempt supplies before 10 January 2008, the effective date of the OTT.

I do not need to make a finding as to the authenticity of the documents, because I have already found as a fact based on the contemporaneous meeting notes, see §26, that Rolldeen made exempt supplies to tenants of the Jubilee Centre before 10 January 2008. Moreover, as HMRC did not challenge the authenticity of the documents at any point, this was not in issue and it would have been unfair for the Tribunal to make a finding.

On 6 March 2019, Officer McQuillan wrote to Rolldeen saying that having taken all the information provided into account, and having consulted with technical experts:

Mr Ali asked for a statutory review of the OTT Decision. This was carried out on 22 May 2019 and the Review Officer upheld the OTT Decision. The review letter ended by saying “if you do not agree with my decision, you can ask an independent tribunal to decide the matter”. On 22 June 2019, Rolldeen appealed the OTT Decision to the Tribunal.

I first set out the requirements for making OTT elections, and then the deeming provisions relating to purported options.

Officer Bounds acknowledged Rolldeen’s OTT on 6 March 2008 and accepted that it was effective from 10 January 2008. On both those dates, the relevant provisions were set out in the version of Sch 10 which had formed part of VATA as originally introduced in 1994, albeit with some specific later amendments.

Sch 10, para 2 was headed “Election to waive exemption”, and subpara (9) read:

Where a business such as Rolldeen had already made exempt supplies at the date it applied to OTT a property, HMRC were therefore required to consider the factors at (a) to (c) above before, deciding whether or not to grant the OTT application.

Sch 10 was entirely replaced with effect from 1 June 2008 by provisions set out in the Value Added Tax (Buildings and Land) Order 2008 (SI 2008/1146). Para 28 of the new Sch 10 essentially repeated the requirements for prior permission which were previously at para 9. Para 30 introduced a new power; it is headed “Purported exercise where prior permission not obtained” and reads:

It was on the basis of this provision that Officer McQuillan issued the OTT Decision on 6 March 2019.

Article 1(1) of SI 2008/1146 provides that the new provisions came into force on 1 June 2008, and (apart from one exception which is not relevant to this case) had effect in relation to “supplies made after 1 June 2008”. That start date was subject to the transitional provisions in Sch 2 to that Order.

Because Rolldeen’s OTT was stated to be effective from 10 January 2008, before the deeming provisions in para 30 had come into force, I asked the parties for submissions on whether HMRC had the power to issue the OTT Decision.

Having considered HMRC’s submissions, with which Mr Ali agreed, I find that the OTT Decision was validly made, for the following reasons:

The appeal rights for VAT decisions are to be found at VATA s 83. Section 83(wb) provides that a person can appeal (my emphasis):

Para 30 falls within Part 1 of Sch 10, and before the first hearing, both parties had proceeded on the basis that s 83(1)(wb) gave Rolldeen a right to appeal the OTT Decision. However, that appeal right is against a “refusal” by HMRC to exercise a discretion under Part 1 of Schedule 10. I therefore asked the parties for submissions on whether the OTT Decision came within s 83(1)(wb).

HMRC’s written submissions said that Rolldeen did have an appeal right, and Mr Ali agreed. HMRC said that:

I disagree. The phrase “or otherwise” only expands the right so as to encompass not only refusals of “permission”, but also other decisions not to exercise a power in a person’s favour. It does not expand the meaning so as to encompass decisions made by HMRC on their own initiative, under the discretionary power given by the statute, which are neither a refusal to grant a permission nor a refusal to exercise a power in a person’s favour.

The appeal right therefore exists where HMRC have refused to do something which a person has asked HMRC to do. Here, HMRC have not refused to do anything, they have instead deemed the purported OTT to have effect.

I do not accept that an appeal right should be implied simply because the alternative analysis would mean that a decision could only be challenged by judicial review. The Upper Tribunal (Warren J and Judge Bishopp) considered a similar submission in relation to fixed penalties in Bosher v HMRC [2013] UKUT 579 (TCC), and said at [39]:

Mr Simpson put forward an additional submission in the second hearing, saying that Rolldeen’s appeal should be regarded as being against HMRC’s refusal to reverse its OTT Decision, and this would bring the case within s 83(1)(wb). However, that is not what happened. Instead Rolldeen appealed the exercise of the para 30 powers, it did not appeal HMRC’s refusal to reverse its decision.

For the reasons set out above, I concluded that Rolldeen has no right of appeal against the OTT Decision. However, I also took into account the following:

I have therefore gone on to consider, in the alternative, what the position would be were I to be wrong, so that Rolldeen does have an appeal right.

If Rolldeen does have an appeal right, VATA s 84(7ZA) comes into play. This reads:

Thus, the Tribunal can only allow the appeal if HMRC acted “unreasonably”. It was common ground that this was to be understood in line with the principles established in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (CA), in which Lord Greene MR said at p 229:

Mr Ali submitted that it was unreasonable of HMRC to have exercised the discretion to deem the OTT to have effect, because they had failed to take into account the fact that Officer House had always known that Rolldeen had made exempt supplies before 10 January 2008. Mr Simpson submitted that Rolldeen were prevented (“estopped”) from relying on this point.

In ordinary language, the principle of “estoppel” means that a person may be prevented from relying on a particular fact or argument in certain circumstances. In Tinkler, Lord Burrows gave the leading judgment with which Lord Hodge, Lady Arden and Lady Rose agreed. At [31] he accepted the following definition of “estoppel by convention”:

He said that it was no bar to the estoppel by convention that the mistake of the party raising the estoppel had not been instigated by the other party, or in other words, it did not matter that the party raising the estoppel “came to hold its mistaken belief in the first place as a result of its own error alone”, see [32]. He went on to apply that principle in Tinkler, saying at [56]:

In Benchdollar v HMRC [2009] EWHC 1310 (“Benchdollar”), Briggs J (as he then was) set out the following principles at [52]:

Those principles were confirmed in Tinkler, where Lord Burrows expanded the first Benchdollar point by saying that for there to be a “common assumption”, it was necessary that “something must be shown to have ‘crossed the line’ sufficient to manifest an assent to the assumption”, see [50].

He then gave a further explanation at [51], in which he called the two parties “C” and “D”. I first set out his text and then rephrase it so that C is HMRC (the party raising the estoppel) and D is Rolldeen:

Rephrased in the context of this appeal, the key parts of that passage would read:

Lord Burrows continued at [52]:

Rephrased in the context of this appeal, the passage would read:

Mr Ali relied on the fact that Officer House knew about the exempt supplies before the OTT application was made, and thus HMRC were aware at all times that the statutory requirements to grant an OTT had not been satisfied. Despite that knowledge, HMRC did not consider the factors at (a) to (c) of Sch 10, para 2(9) (see §46) and did not give the necessary prior written permission. In terms, this was a submission that Rolldeen had not “crossed the line”.

Mr Ali also said that point (v) of Benchdollar was not satisfied because HMRC had suffered no “detriment”. He relied on the fact that VAT had not been charged when the Jubilee Centre was purchased, saying that this was therefore not a case where a company had reclaimed input tax on the purchase under an invalid OTT, which HMRC were now out of time to recover.

Mr Simpson submitted that the principle of estoppel by convention was plainly engaged, because all the requirements in the list set out by Briggs J were satisfied:

I agree with Mr Simpson that all the principles set out in Benchdollar are satisfied for the reasons he gives. I also agree that by signing and submitting the form VAT1614A, and subsequently confirming the position in the letter to Officer Bounds, Rolldeen’s conduct “crossed the line”, because it must have objectively intended that HMRC would accept that no previous exempt supplies had been made.

Although I have found as a fact that Officer House knew there had been exempt supplies, that does not prevent the estoppel from operating. For whatever reason, Officer House’s knowledge was not taken into account when Officer Bounds issued the OTT letter. Failing to consider all relevant material was a mistake by HMRC, but as Lord Briggs said, “it is not a bar to estoppel that HMRC initiated the mistake or…HMRC was careless in relation to that mistake...”

Rolldeen is therefore estopped from putting forward the submission that HMRC acted unreasonably in failing to take into account that Officer House had known that Rolldeen had been exempt supplies before Mr Mufid sent the Form VAT1614A to HMRC.

Both parties made a number of other submissions about the reasonableness or otherwise of the OTT Decision.

Mr Ali said that it is clear from publicly available information that HMRC open thousands of compliance checks every year, but they had not carried out such a check when they received Rolldeen’s Form VAT1614A. He submitted that HMRC had acted unreasonably because they had not taken into account their own failure to carry out a compliance check.

Mr Simpson responded by saying that VAT is a self-assessed tax, so the onus is on taxpayers to ensure that the correct information is provided to HMRC. It is then a matter for HMRC to decide when and upon whom they carry out compliance checks. In Rolldeen’s case, Officer Bounds relied on the signed Form VAT1614A and the subsequent written confirmation, and accepted they were correct. That was not unreasonable.

I agree with HMRC. The obligation is on taxpayers to complete forms correctly, and where, as here, a taxpayer has twice provided HMRC with incorrect information, that taxpayer cannot then blame HMRC for not having carried out a compliance check. To borrow the words used by Lord Greene MR, this is plainly not a factor which HMRC was “bound to consider”.

Mr Ali also relied on an anti-avoidance test at Sch 10, para 15(4). That provision, together with a related public notice which has the force of law, provides that if the grantor of a lease is in occupation of more than 2% of the leased property, the supply is exempt; it therefore follows that it cannot be opted.

Rolldeen’s grounds of appeal, drafted by Mr Ali, said that “due to repair” Rolldeen had occupied 2% of the Jubilee Centre; as a result it failed that anti-avoidance test and also failed to satisfy the OTT requirements. Mr Ali said it was unreasonable of HMRC to exercise their discretion retrospectively to validate the OTT, given that it was in any event invalid for this further reason. In oral submissions, he said that throughout its ownership, Rolldeen had occupied a room in the Jubilee Centre for the purposes of rehabilitation and management and the room was more than 2% of that property.

Mr Simpson said that there was no evidence whatsoever to support this submission. I agree. Whether or not the anti-avoidance provisions are met is primarily a question of fact, and there were no documents, plans, leases, letters, agreements or witness statements relating to any occupation of the Jubilee Centre by Rolldeen, let alone sufficient evidence to show that it occupied more than 2%. It was plainly reasonable of HMRC not to take this point into account.

For his part, Mr Simpson submitted that Rolldeen’s situation was “exactly what para 30 was designed to address” because both Rolldeen and HMRC had operated on the basis that the OTT had been valid, and if HMRC were now prevented from retrospectively deeming the OTT to be effective, there would be a significant loss of tax.

Mr Ali’s response was the same as that set out above, namely that as Rolldeen had not reclaimed VAT on the purchase, there was no real detriment to HMRC

I agree with Mr Simpson. This is exactly the sort of situation for which para 30 was designed. Both parties had proceeded on the basis that the OTT was valid, with Rolldeen reclaiming input VAT and HMRC allowing those claims, and Rolldeen charging output VAT to its tenants; that VAT would in turn constitute allowable input tax for those businesses.

As the statute puts it, notification of the option had “purportedly been given” to HMRC by Rolldeen, and throughout the period from receiving Officer Bounds’ letter until it sold the Jubilee Centre, Rolldeen had “purportedly exercised” the OTT. It was thus entirely reasonable and appropriate of HMRC to deem the purported option to have been validly exercised.

On the basis that Rolldeen had no right of appeal, I strike out its appeal under Rule 8(1) of the Tribunal Rules because the Tribunal does not have jurisdiction to decide the case. In the alternative, if it does have a right of appeal, I find that HMRC acted entirely reasonably in issuing the OTT Decision, and I refuse that appeal. The practical consequence of my decision is that the £50,000 assessment, against which no appeal has been made, is payable by Rolldeen.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.