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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Southern Cross Employment Agency Ltd v Revenue & Customs [2014] UKFTT 88 (TC) (17 January 2014) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03228.html Cite as: [2014] UKFTT 88 (TC) |
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[2014] UKFTT 88 (TC)
TC03228
Appeal number: TC/2010/08435
VAT – assessments under s 80(4A) and s 78A(1) VATA to recover VAT and interest said to have been overpaid by HMRC to appellant – whether payments were made to appellant under a compromise agreement – whether the compromise agreement was void as being outside the powers of HMRC – whether, if there was a valid compromise agreement, HMRC nonetheless had power to assess under s 80(4A) and s 78A(1)- whether HMRC acted unlawfully in exercising a discretion to make the assessments
FIRST-TIER TRIBUNAL
TAX CHAMBER
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SOUTHERN CROSS EMPLOYMENT AGENCY LIMITED |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY’S |
Respondents |
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REVENUE & CUSTOMS |
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TRIBUNAL: |
JUDGE ROGER BERNER |
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CHRISTOPHER JENKINS |
Sitting in public at 45 Bedford Square, London WC1 on 17 – 18 December 2013
Peter Mantle, instructed by Crowe Clarke Whitehill LLP, for the Appellant
Jessica Simor QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2014
DECISION
(1) Did Southern Cross and HMRC enter into a binding compromise agreement?
(2) If the parties did enter into a compromise agreement, was that agreement ultra vires because HMRC had no power to enter into such an agreement with Southern Cross?
(3) If there was a valid compromise agreement, was HMRC entitled under s 80(4A) and s 78(1) VATA to make the assessments under appeal to recover the sums paid?
Leaving aside the alternative argument, Southern Cross has to succeed on all three of these issues if it is to be successful in this appeal
6. On 18 July 2001 Horwath Clark Whitehill (“HCW”) wrote to HMRC[1] on 18 July 2001 setting out the background to the supplies by Southern Cross of dental nurses to dental practices, along with an analysis of the law, and seeking HMRC’s confirmation that the supply of dental nurses by Southern Cross as principal was exempt from VAT under Item (2) and Note (2) of Group 7 of Schedule 9 VATA.
7. HMRC replied on 2 August 2001 confirming that those supplies by Southern Cross were exempt.
“I am still of the opinion that your clients [sic] comments do indicate that not all VAT was absorbed otherwise prices would have exactly matched those of Temp Dent and other competitors and turnover would not have been affected. However I do not doubt that prices were set with the company’s competitors in mind. The difference is therefore perhaps insignificant in the context of the overall amount of VAT incorrectly charged.”
“It seems that there is doubt whether your client would benefit by being wholly or partly unjustly enriched if the repayment of the claim of 30th March 2009 was made in full. In view of this doubt, and in the light of my comments above, perhaps you could demonstrate how your client suffered a loss as result of passing the VAT on for the period of this claim. I would be happy to meet to discuss this further.”
In relation to the argument based on the illegality of the three-year cap, Mr Knight wrote separately on 21 January 2010 to say that the March 2009 claim would be treated as a new claim, and thus outside the scope of the Business Brief.
“On the basis of the preceding points I suggest, on a ‘without prejudice’ basis, that we come to a compromise solution. Without sufficient information and given the date of the period of the claim it is difficult to suggest quite what this would amount to. I would, however, propose that 50% of the claim is due.”
“In order for our client to make a decision in respect of the offer in your letter of 26 March can you please provide me with the total payment (VAT plus interest) that would be made to [Southern Cross], as if the claim was paid on the date of your response.”
On 6 April 2010 Mr Knight replied with the relevant figures.
“However, in order to attempt to bring this to a conclusion speedily our client is willing to negotiate.”
Mr Smith continued by saying that HMRC had “agreed” to pay 50% of the VAT plus interest but had offered no rationale for the 50% restriction that had been applied. He then made a different proposal:
“Given that the evidence obtained by The Commissioners in the course of this exercise indicated that competitors were applying VAT to their margin (commissions), we propose that in order to reach settlement we treat the claim as if all competition was applying VAT to the margin throughout the period of the claim.
If we treat the industry margin as being that obtained by [Southern Cross] for the period of the original claim … which was 26%, our client would be willing to restrict its original claim by this amount.
In conclusion, [Southern Cross] would accept a proposal from HMRC to repay 74% of the VAT plus interest but does not accept that payment of the claim in full would result in [Southern Cross] being unjustly enriched.”
In this respect, at this stage, we would only comment that we consider that the first reference in the second paragraph of this passage must mean the 2001 claim, but that the second reference was clearly intended to refer to the claim at issue, namely the 2009 claim.
20. Mr Knight replied on 29 April 2010 as follows:
“I can confirm that the Commissioners will accept that 74% of the claim of £861,212 will be repaid. The VAT repayment will amount to £637,296.60 and together with the appropriate interest … I will arrange for authorisation of this sum next week.”
Following this payment was arranged to be made, and Mr Knight confirmed this in a letter to Mr Smith on 5 May 2010. Neither the letter of 29 April 2010 nor that of 5 May 2010 contained any offer of a review or any notice of a right to appeal to the Tribunal.
21. It was shortly afterwards, on 23 July 2010, that Mr Knight wrote again to Southern Cross, through HCW, to explain that he had been advised by colleagues in VAT policy that the claim should not have been paid. As Mr Knight explained the position, as part of a wider review HMRC had received legal advice to confirm that supplies of staff are not care or medical care, and that HMRC’s published guidance at that time amounted to an “informal concession” that had been in place since 1973. However, because Southern Cross had charged VAT on its supplies in the relevant period they had been correct to do so and so could not avail themselves retrospectively of the “concession”. The letter notified Southern Cross of the assessments to recover the incorrect payment of VAT and statutory interest made on the same date. Both the decision letter and the notification of assessments contained notice of Southern Cross’s right to a review and its right to appeal.
22. A request for a review was made by HCW on 19 August 2010. The conclusion of the review was contained in a letter to Southern Cross dated 28 September 2010, which referred to the 2009 claim as having been considered by Mr Knight and “following lengthy correspondence was finally settled” in the sums paid. The review made the following points:
(1) The “ruling” given in August 2001 reflected HMRC’s view at that time.
(2) On conducting a later review of concessions, HMRC received legal advice that supplies of staff were not “care” or “medical care”. The published guidance at that time therefore amounted to an “informal concession”.
(3) Southern Cross had been right to charge VAT on its relevant supplies in the relevant period. The returns were correct in law and adjustment was not appropriate.
(4) Mr Knight had made an error in processing Southern Cross’s claim as he had not been aware of the detailed legal advice received by HMRC’s policy unit.
(5) No retrospective application of the “concession” was allowable as there was no error of law in charging VAT on the supplies.
(6) There had been no overpayment of output tax in law, and a claim under s 80 VATA was not appropriate. The amounts paid to Southern Cross had therefore been paid in error.
(7) The assessments would be upheld in full.
The review letter included notice of the right of Southern Cross to appeal to this Tribunal.
25. To determine this question, we must apply ordinary principles of contract law. Mr Mantle referred us in this connection to the judgment of the Court of Appeal in R (on the application of DFS Furniture Co plc) v Customs and Excise Commissioners [2003] STC 1. In that case, after HMRC had decided to defer accepting a voluntary disclosure made by DFS, and following an appeal to the VAT tribunal, DFS had written to the commissioners on 11 November 1996, following a tribunal decision to this effect, to state that there was no basis in law for further delay. After the High Court had reached a similar decision, DFS had on 20 November 1996 written further to the commissioners. On 22 November 1996 HMRC had issued a business brief stating that agreed claims that had been deferred would be paid, but reserving the right of recovery if Parliament approved the three-year cap. The payment to DFS was authorised, and this was confirmed by HMRC to DFS in a telephone conversation of 25 November 1996 and in writing on 26 November 1996.
26. Subsequently, the three-year cap was approved, and HMRC assessed DFS, which paid the amount assessed. On a judicial review of the decision of HMRC not to repay that amount to DFS, Moses J (as he then was) in the High Court ([2002] STC 760) concluded that there had been an agreement between HMRC and DFS to settle the appeal by DFS to the tribunal, and that since the settlement had the effect, under s 85 VATA, of a judicial determination, HMRC were not entitled to claw back the repayment under the equivalent statutory provisions to what is now s 80(4A).
“The situation must be viewed objectively, from the point of view of whether the inspector’s agreement to the relevant computation, having regard to the surrounding circumstances including all the material known to be in his possession, was such as to lead a reasonable man to the conclusion that he had decided to admit the claim which had been made.”
“… the notion of parties having ‘come to’ an agreement plainly implies not merely that they are of the same mind in relation to a particular matter, but also that their minds have met so as to form a mutual consensus, and that that meeting of minds, that mutual consensus, has resulted from a process in which each party has to some extent participated. On that footing it is, in my judgment, both legitimate and helpful (as both sides have accepted) to approach the question whether the Revenue and the taxpayer have made a s 54 agreement in the instant case by applying common law principles of offer and acceptance.”
(1) HMRC’s letter of 26 March 2010 referred to the parties coming to a “compromise position” and stated that discussions should be “without prejudice”, a term appropriate to negotiations with a view to settlement. It did not suggest a limited compromise on any technical or specific point, but an overall compromise on the basis that 50% of the claim was due from HMRC.
(2) In Mr Smith’s email of 1 April 2010, he referred to “the offer in [HMRC’s] letter of 26 March”. The reply, by email from Mr Knight, did not dissent from the use of that description.
(3) HCW’s letter of 14 April 2010 expressly referred to Southern Cross being “willing to negotiate”, and being prepared, despite maintaining that Southern Cross would not be unjustly enriched by full payment of the claim, to negotiate “in order to attempt to bring this to a conclusion speedily”. Southern Cross, by that letter, plainly offered to accept payment of 74% of the principal amount clamed plus statutory interest to bring about a mutually agreed settlement of its claim.
(4) HMRC’s response in their letter dated 29 April 2010 is clear and expressly made in the language of offer and acceptance: “[HMRC] will accept that 74% of the claim of £861,212 will be repaid … together with the appropriate interest …”
36. Mr Mantle also emphasised the absence, in the relevant correspondence, of notification to Southern Cross of any right of statutory review under s 83A VATA, or any right of appeal under s 83G. This, he argued, was consistent only with there having been a binding compromise agreement in respect of the claim; the offer of a statutory review would have been required if the failure on the part of HMRC to pay the claim in full had been a unilateral decision of HMRC.
(1) The proposal made by Mr Knight in his letter of 26 March 2010 was neither an offer nor an invitation to treat. That letter was concerned with what was due to Southern Cross, having regard to the available defence (in s 80(3) VATA) of unjust enrichment. The proposal for a compromise position was itself expressed as a proposal that 50% of the claim “is due”.
(2) The letter from HCW dated 14 April 2010 was neither a counter-offer, nor an offer. It described both the proposal made by HMRC, and Southern Cross’s own proposal as an agreement or proposal by HMRC to “repay”, and not to settle. In suggesting that the amount due could be calculated by reference to the industry margin to which competitors could be treated as having applied VAT, HCW, in saying “our client would be willing to restrict its original claim by [the relevant industry margin of 26%]”, was using the language of claim, rather than of settlement.
(3) HMRC’s letter of 29 April 2010 was not an acceptance of a compromise, but an acceptance that 74% of the claim would be repaid. This again significantly used the language of claim rather than of compromise.
(4) None of the correspondence uses language of full and final settlement, and there is nothing to prevent a further claim by Southern Cross. The absence of such language is strongly indicative, if not determinative, of a conclusion that this was not a compromise agreement but an agreement to pay what was properly due.
40. As regards the matter of the absence of the offer of a review or the notification of rights of appeal, Ms Simor argued that this was consistent with the restriction of Southern Cross’s claim to the amounts that were paid. As HMRC had paid those modified claims in full, there would have been no need to offer a review or refer to any appeal rights. In any event, submitted Ms Simor, the failure on the part of HMRC to include such language would be nothing more than a breach of its statutory duties, and would not indicate that a compromise agreement had been entered into.
45. We accept that the absence of notification of an offer of review or a right of appeal is equally consistent with the payment in full of an amended, and reduced, claim as it is with the making of a compromise agreement. However, we do not consider that the references to the claim, particularly that by HWC in its letter of 14 April 2010 which referred to a willingness to restrict the original claim, negate the presence of a compromise agreement. In our view, the restriction of the claim to 74% of its original amount was not a recognition of the correct amount of the claim, but was a mechanism to give effect to the compromise put forward by Southern Cross were it to be (as it was) accepted by HMRC. It was the means to effect the agreement that was reached, and does not detract from the existence of that agreement.
48. The extent of such powers has been described, by Lord Diplock in IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] STC 260, at p 269b-c, as conferring a “wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection.” Any exercise by HMRC of their powers, or refraining from exercising those powers, other than for reasons of good management would be ultra vires.
“If there is a power to enforce there must also necessarily be a power for good consideration to accept some lesser sum. The Revenue of course have no power to refrain from collecting tax which is due, but these agreements are all made in a situation where the actual tax recoverable has not been quantified.”
52. The case of Al Fayed and others v Advocate General for Scotland (representing the Inland Revenue Commissioners) [2004] STC 1703, in the Court of Session, concerned the validity of forward tax agreements. It was held that there was no power for the Revenue to contract with a taxpayer as to his future liability. In his judgment, the Lord President (Lord Cullen of Whitekirk) summarised the position as regards the Revenue’s powers generally, in the following terms (at [69]):
“The authorities clearly show that the respondents have a managerial discretion, and that there are circumstances in which they have power to enter into an agreement with the taxpayer for the payment of a sum of money in respect of the taxpayer's tax liability, even where it may be said that they have foregone the collection of some part of the total amount of tax which was due. They can properly take into account the extent of the information which is likely to be obtainable, and the difficulty involved in identifying the extent of the exact sum which is due.”
“A back tax agreement relates to a situation in which the taxpayer has already incurred the tax liability, but its amount has not been determined. Fundamental to the legality of such an agreement is that the respondents have the power to require the taxpayer to pay what is due. As an alternative means to the same end they are regarded as having the power, in the exercise of their managerial discretion, to enter into a contract with the taxpayer for a payment in satisfaction of that liability. In that context they have power to arrange a compromise with the taxpayer, taking into account such factors as may be relevant.”
55. The case of R (on the application of Wilkinson) v IRC [2006] STC 270, in the House of Lords, was concerned with the extent to which the care and management powers of the Revenue under s 1 TMA enabled the Revenue to grant an extra-statutory concession. It was held that the discretion given to the Revenue by the TMA enabled them to formulate policy in the interstices of tax legislation, dealing pragmatically with minor or transitory anomalies, cases of hardship at the margins or cases in which a statutory rule was difficult to formulate or its enactment would take up a disproportionate amount of parliamentary time. The powers could not be construed so widely as to enable the commissioners to concede, by extra-statutory concession, an allowance (in that case it was the widow’s bereavement allowance that did not extend to widowers) which Parliament could have granted but had not granted, and on grounds not of pragmatism in the collection of tax but of general equity between men and women (see, per Lord Hoffmann, at [21]).
56. The discretion inherent in HMRC’s duty of management was also alluded to by Lord Wilson in R (on the application of Davies and another v Revenue and Customs commissioners; R (on the application of Gaines-Cooper) v Revenue and Customs Commissioners [2011] STC 2249, in the Supreme Court, cases which concerned published Revenue guidance on the meaning of “residence” and “ordinary residence”. At [26] Lord Wilson said:
“The primary duty of the Revenue is to collect taxes which are properly payable in accordance with current legislation but it is also responsible for managing the tax system: see s 1 of the Taxes Management Act 1970. Inherent in the duty of management is a wide discretion. Although the discretion is bounded by the primary duty (see R (on the application of Wilkinson) v IRC [2005] UKHL 30 at [21], [2006] STC 270 at [21], [2005] 1 WLR 1718 per Lord Hoffmann), it is lawful for the Revenue to make concessions in relation to individual cases or types of case which will, or may, result in the non-collection of tax lawfully due provided that they are made with a view to obtaining overall for the national exchequer the highest net practicable return: see IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] STC 260 at 268, [1982] AC 617 at 636 per Lord Diplock. In particular the Revenue is entitled to apply a cost-benefit analysis to its duty of management and in particular, against the return thereby likely to be foregone, to weigh the costs which it would be likely to save as a result of a concession which cuts away an area of complexity or likely dispute.”
57. More recently, in R (on the application of UK Uncut Legal Action Ltd) v Revenue and Customs Commissioners [2013] STC 2357, the claimant, a campaign group, challenged a decision of HMRC to enter into a settlement agreement, and a subsequent decision to ratify that agreement, under which HMRC agreed to forgo any interest on unpaid NICs. The agreement had been made under the mistaken impression that there was a barrier or potential barrier to HMRC recovering interest. At a subsequent meeting to approve the settlement, HMRC’s High Risk Corporates Programme Board retrospectively approved all the elements of the agreement, except the concession to forgo interest. The taxpayer took the view that there had been a concluded deal, and that HMRC could not resile from the agreement. The agreement was then approved and endorsed by two commissioners.
70. So far as is material, 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.
…
(4A) Where—
(a) an amount has been credited under subsection (1) or (1A) above to any person at any time on or after 26th May 2005, and
(b) the amount so credited exceeded the amount which the Commissioners were liable at that time to credit to that person,
the Commissioners may, to the best of their judgement, assess the excess credited to that person and notify it to him.
71. Section 78A(1) makes analogous provision with respect to interest:
(1) Where—
(a) any amount has been paid to any person by way of interest under section 78, but
(b) that person was not entitled to that amount under that section,
the Commissioners may, to the best of their judgement, assess the amount so paid to which that person was not entitled and notify it to him.
72. Section 78, so far as is material, provides:
(1) Where, due to an error on the part of the Commissioners, a person has—
(a) accounted to them for an amount by way of output tax which was not output tax due from him and, as a result, they are liable under section 80(2A) to pay (or repay) an amount to him,
…
then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period, but subject to the following provisions of this section.
76. The first case is R v Customs and Excise Commissioners, ex parte Building Societies Ombudsman Co Ltd [2000] 892 (“BSOC”). That case was another which arose out of the introduction of the three-year cap on claims, and the unlawful deferral of repayments and consequent payments made pending the introduction of the cap. One issue was whether there had been a determination of the taxpayer’s appeal by the VAT tribunal, by means of a consent order. The Court of Appeal held that there had, and that this had determined HMRC’s liability to repay. The question then was whether the amended s 80, and the introduction of the clawback provisions now found in s 80(4A), could apply where there had already been a judicial decision as to the amount of HMRC’s repayment liability.
77. As well as finding that s 80 did not contemplate that the retrospectivity of the three-year cap extended so far as to permit HMRC to use the new clawback powers to override a prior judicial decision (see [107]), Rix LJ, giving the leading judgment in the Court of Appeal, also considered an alternative argument for HMRC, one not dependent on retrospective effect, based on similar wording to that in s 80(4A), which raised the question as to what was the amount HMRC were liable to repay to the taxpayer at the date of payment. Rix LJ held, at [119], that the judicial decision had established the amount of HMRC’s liability at that time.
79. In the High Court it was accepted by HMRC that if an appeal had been brought by a taxable person and has been settled by an agreement within s 85 VATA and the conditions of s 85 are satisfied, then by virtue of s 85(1) the like consequences would ensue as if a tribunal had determined the appeal. Those consequences were that, as determined by BSOC, HMRC could not rely on s 80(4A). Moses J held that there was an agreement, and that it fell within s 85. Accordingly, there was a settlement of the appeal which had the effect of a judicial determination, and s 80(4A) did not permit HMRC to claw back sums paid as part of that settlement.
80. At [61] Moses J explained why his findings would not deprive s 80(4A) of all effect:
“Section 80(4A) operates whenever there has been a voluntary payment in response to a claim under 80(2), but sub–s (4A) does not operate where a payment has been made in settlement of a dispute which has given rise to an appeal settled within the meaning of s 85. The distinction finds support at para 106 in BSOC (see [2000] STC 892 at 921–922). It is true that there was no intervention of a judicial determination as in BSOC, but s 85 has the same effect as the intervention of a judicial determination.”
“The purpose of a compromise is to put an end to the disputation in which the parties had hitherto been engaged. Such cause or causes of action as each had, or may have had, prior to the conclusion of the agreement are discharged and if the compromise is embodied in a consent judgment those causes of action become merged in the judgment. New causes of action arise from the existence of the compromises …”
84. Ms Simor submitted that there was every difference between, on the one hand, the effect of a judicial determination, and the like effect of a statutory provision such as s 85, and on the other, a common law agreement. Both BSOC and DFS had drawn a clear distinction between payments made pursuant to actual and deemed judicial determinations and other payments. The context of s 80(4A) and the clear intention of Parliament was that the question of liability was settled only by judicial decision and not by agreement.
“104. The question remains whether it has done so. I cannot agree that the revisiting of a payment by the commissioners is the same thing as the administrative overthrowing of a prior judicial determination. Against the background of the announcement of 18 July 1996, it is one thing for the commissioners to say to a taxpayer: 'I agree that as the law now stands I must repay you six years' overpayment, but when the law has been changed so as to introduce the new cap retrospectively, I will exercise my rights to recoup the difference.' But it seems to me that it is quite another thing for the commissioners to litigate with the taxpayer as to the extent of their liability, to find that judgment goes against them or to concede that it must, and then seek to say by administrative fiat that their 'repayment liability' was something else than it has been judicially determined to be. If Parliament wishes to legislate that prior judicial determinations can be overthrown in this way, especially in a statutory context which is all about the making of claims, then in my judgment it must say so expressly, as it could easily have done.
105. Suppose that, contrary to the facts of this case, there had been a real possibility of a defence of unjust enrichment being run. Could it be said that the statute contemplates that a tribunal decision might be given against the commissioners prior to 4 December 1996 for a repayment liability of £x, and that the commissioners could thereafter seek to say that under the terms of amended s 80(3A)–(3C) they were now in a position to prove that their repayment liability was some different and lesser sum? I think not.
106. Not only is the whole context of ss 80 and 47 that of claims made rather than judicial determinations delivered, but the retrospective aspects of s 80(4A) and (4B) are written in terms of the commissioners' repayment liability at the time of the commissioners' payment. That makes sense where the commissioners are merely paying a claim without the intervention of a judicial determination. Where, therefore, the commissioners have paid a claim after 18 July 1996, they are given the power to recoup that part of the payment which exceeds their liability under the three-year cap. Where, however, the amount of the repayment liability has been determined judicially, it does not follow that the commissioners should be able to recoup administratively what they have been adjudged liable to pay, nor is there any logic in focusing on the time of payment as distinct from the time of the judicial decision.”
86. Ms Simor described Mr Mantle’s arguments based on BSOC and DFS as “classic bootstraps” in seeking to extend principles applicable to actual and deemed judicial determinations to compromise agreements. She argued that this was a paradigm case where s 80(4A) was intended by Parliament to apply. HMRC had made a mistake in making the repayment to Southern Cross and had realised its mistake within a very short period. There was no procedural prejudice to Southern Cross, as it could have lodged an appeal and sought an agreement under s 85. It would not be right in the circumstances for Southern Cross to be allowed to retain a windfall to which it had never been entitled.
87. In our view, the significance of BSOC and DFS is in demonstrating, first, that the question of liability to repay is to be examined at the time of the payment, and not at some later stage when it may be established that there was in fact a different liability, or no liability at all, and secondly that “liability” is not confined to what might be discovered to be the right answer as a matter of law, but can extend to judicial determinations, or agreements having the like effect under s 85, even though those might subsequently be shown not to have corresponded to the actual liability in law.
88. We consider that the authorities draw a distinction, not between judicial determinations (or agreements treated by s 85 as having the same effect) and common law agreements outside s 85, but between actual and deemed judicial determinations and voluntary payments made by HMRC; as we have described, that was the scope of s 80(4A) referred to by Moses J in DFS, at [61]. We have found that the payment made by HMRC in this case was not simply a voluntary payment in response to a claim under s 80. The claim was the starting-point, but the payment was made because liability to make that payment had been established under a valid and enforceable compromise agreement. That agreement was, like the judicial determination described by Rix LJ in BSOC, at [106], an intervening event which itself created a liability, in a way that the mere payment of a claim, or payment of part of a claim, would not. That is the relevant distinction, not as between judicial determinations and everything else, but between cases where HMRC is liable, whether under the statute, by judicial determination, deemed judicial determination under s 85 or a valid and enforceable agreement, to repay an amount at the date of payment and cases, such a voluntary payment of a claim, where they are not so liable, because the liability has not arisen as a matter of law.
92. The circumstances are that, as well as instituting the present appeal, Southern Cross has commenced a judicial review claim in the Administrative Court of the High Court, on a protective basis. That claim asserts that the decision by HMRC to exercise their discretion to assess and uphold the assessments was Wednesbury unreasonable, unfair and an abuse of power. It is claimed that in the circumstances of the “ruling” of 2 August 2001 and/or the compromise agreement it was unfair and/or an abuse of power by HMRC to make and uphold the assessments.
93. Permission to apply for judicial review was refused on 16 March 2011 by HH Judge Sycamore (sitting as a Deputy High Court Judge), on the ground that the appeal to this tribunal afforded an adequate alternative remedy. An application on the part of Southern Cross to renew its application has since been stayed pending the release of this decision.
95. That, in our view, demonstrates the limitations of this Tribunal’s jurisdiction in the circumstances of this case. As Noor has confirmed, the Tribunal is a creature of statute, and its jurisdiction is defined by statute. In this case, the relevant statutory provisions are s 83(1)(t) and (sa) VATA. Whilst there can be no doubt that the jurisdiction under these provisions extends to the question of construction of s 80(4A) and s 78A(1), and to findings as to the making and validity of a compromise agreement in order to apply those sections as so construed to the facts of a particular case, we do not consider that the VATA provides a jurisdictional base for examining the lawfulness of the administrative exercise of any power to assess under those sections. It seems to us that there is a jurisdictional dividing-line, and that arguments that look to the policy of HMRC and the factors which HMRC should, or should not, have taken into account in deciding to assess fall, along with arguments whether HMRC should not have refused to withdraw the assessments, on the judicial review side of that line.
96. We should add that, although it was not referred to before us, we have considered the recent decision of the First-tier Tribunal in Hollinger Print Ltd v Revenue and Customs Commissioners [2013] UKFTT 739 (TC), where the Tribunal decided that the wording of s 83(1)(p) VATA in relation to an assessment under s 73 did give the Tribunal jurisdiction on arguments of unfairness.
98. Unlike the position in Hollinger, there is authority, in the High Court in Customs and Excise Commissioners v National Westminster Bank plc [2003] STC 1072, in the context of one of the particular provisions with which we are concerned in this case, s 83(1)(t), that this Tribunal has no jurisdiction in relation to the supervision of HMRC’s conduct. Although the focus in National Westminster Bank was not on an assessment, but on the refusal of the commissioners to pay a claim under s 80, and the court did not expressly consider the jurisdiction in s 83(1)(t) over both “an assessment” and “the amount” of an assessment (similar wording to that in s 83(1)(p) which the Tribunal in Hollinger regarded as decisive), we regard the tenor of the judgment in National Westminster Bank as pointing clearly against this Tribunal having jurisdiction over the exercise of discretion by HMRC in the making of an assessment under s 80(4A).
101. In view of our conclusion in this respect, our findings on the other issues before us and the fact of the stayed judicial review proceedings, we do not consider it would be appropriate for us to comment further on the arguments addressed to us in this respect.
[1] At that time the relevant department was HM Customs and Excise, but for ease of reference we shall refer throughout to HMRC.