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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> The Boots Company Plc v HM Revenue & Customs [2009] EWCA Civ 1396 (17 December 2009) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/1396.html Cite as: [2009] EWCA Civ 1396, [2010] STI 87, [2010] BVC 147, [2010] STC 637 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PATTEN
ON APPEAL FROM THE VALUE ADDED TAX AND DUTIES TRIBUNAL
[2008] UKVAT V20644
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LLOYD
and
LORD JUSTICE HUGHES
____________________
THE BOOTS COMPANY PLC |
Appellant |
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- and - |
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COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS |
Respondent |
____________________
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Owain Thomas and Andrea Lindsay Strugo (instructed by the Solicitor for
HM Revenue and Customs) for the Respondent
Hearing dates: 25-26 November 2009
____________________
Crown Copyright ©
Lord Justice Lloyd:
Introduction
VAT on retail operations
"make special provision for such taxable supplies by retailers of any goods or of any description of goods or of services or any description of services as may be determined by or under the regulations and, in particular
(a) for permitting the value which is to be taken as the value of the supplies in any prescribed accounting period or part thereof to be determined, subject to any limitations or restrictions, by such method or one of such methods as may have been described in any notice published by the Commissioners in pursuance of the regulations and not withdrawn by a further notice or as may be agreed with the Commissioners;"
"67(1) The Commissioners may permit the value which is to be taken as the value, in any prescribed accounting period or part thereof, of supplies by a retailer which are taxable at other than the zero rate to be determined by a method agreed with that retailer or by any method described in a notice published by the Commissioners for that purpose; and they may publish any notice accordingly.
(2) The Commissioners may vary the terms of any method by—
(a) publishing a fresh notice,(b) publishing a notice which amends an existing notice, or(c) adapting any method by agreement with any retailer.
68 The Commissioners may refuse to permit the value of taxable supplies to be determined in accordance with a scheme if it appears to them—
(a) that the use of any particular scheme does not produce a fair and reasonable valuation during any period,(b) that it is necessary to do so for the protection of the revenue, or(c) that the retailer could reasonably be expected to account for VAT in accordance with regulations made under paragraph 2(1) of Schedule 11 to the Act."
If you | then |
… | … |
include gift vouchers with other products for a single charge | the supply of the goods and voucher is treated as a multiple supply. This means VAT is only due on the portion of the payment which relates to the goods. You should omit from your DGT [Daily Gross Takings] that part of the payment which relates to the gift voucher, usually the face value. But you must include in your DGT the face value of the voucher when redeemed by the customer. |
issue gift vouchers free of charge | no VAT is due on the issue. When the voucher is redeemed for goods no VAT is due unless the cost of the goods exceeds £50. If the cost exceeds £50 VAT is due on the full amount. … |
"Where a right to receive goods or services for an amount stated on any token, stamp or voucher is granted for a consideration, the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount."
"Where
(a) a face-value voucher (other than a postage stamp) and other goods or services are supplied to the same person in a composite transaction, and
(b) the total consideration for the supplies is no different, or not significantly different, from what it would be if the voucher were not supplied,
the supply of the voucher shall be treated as being made for no consideration."
Repayment of VAT overpaid and recovery of sums wrongly repaid
"80(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
…
(4A) Where—
(a) any amount has been paid, at any time on or after 18th July 1996, to any person by way of a repayment under this section, and
(b) the amount paid exceeded the Commissioners' repayment liability to that person at that time,
the Commissioners may, to the best of their judgement, assess the excess paid to that person and notify it to him."
"Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that amount was calculated."
Boots' Bespoke Retail Scheme
"These three examples indicate that there was a continuing full and frank exchange of views between the Appellant and Customs whenever it appeared that the Appellant's bespoke retail scheme did not deal with some new development."
Boots' voupon promotional scheme: the relevant facts
"In my view we have incorrectly accounted for VAT on these promotions because the payment received on the issue of the voucher should have been apportioned between the goods and the voucher and the voucher should then have acted as a payment on redemption. Customs Retail Scheme notice 727/4 section 7.18 (which has the force of law) states "if you include vouchers with other products for a single charge the supply of goods and voucher is treated as a multiple supply. You should omit from your DGT that part of the payment which relates to the gift voucher, usually the face value. But you must include in your DGT the face value of the voucher when redeemed by the customer"."
That is a quotation from the fourth box in section 7.18. Later references to section 7.18 were, implicitly, to that part of it. He then referred to a spreadsheet showing the relevant figures, and concluded:
"Should you require any further information regarding this claim, please do not hesitate to contact me, otherwise I look forward to receiving payment in respect of this voluntary disclosure at your earliest convenience."
"I cannot agree with this analysis. In my view this remains a simple case of whether Boots' Voupons promotions fall within section 7.18 of the Notice. If they do, then Boots is entitled to deduct the value of the vouchers from its DGT when they are issued, and instead account for VAT on redemption."
"It remains our firm view that Boots are entitled to rely on section 7.18 of the Notice up to 9 April 2003 and reduce DGT by the value of the face value vouchers provided in our Voupons promotions. This treatment accords not only with the wording of the legislation, but also with Customs' intention when drafting the tertiary legislation and further with the industry practice.
In the event that you are still unable to agree our voluntary disclosure in the light of the additional information provided, I would be grateful if you would issue a full decision in order that we can consider lodging the relevant appeal forms to the VAT Tribunal."
"I refer to your letter dated 7 October 2003.
I have consulted with my colleagues in headquarters and it appears that you are right. The recent budget provision was made to correct the treatment to that which I applied in my earlier responses to you.
We will process the Voluntary Disclosure as soon as possible …"
The appeal to the Tribunal
i) whether the repayment was made on the correct view of the law; if not
ii) whether the repayment was in accordance with paragraph 7.18 of Notice 727/4 and whether the Appellant was entitled to rely on that paragraph; if not
iii) whether HMRC had agreed a binding amendment to the Appellant's retail scheme; and if not
iv) whether the assessment was validly made.
"Factors which support the conclusion that an agreement was reached include: the fact that Mr Hall's first letter of 25 June 2003 spoke of an accounting treatment and referred to box 4 of paragraph 7.18 of Notice 727/4 which itself referred to the way in which daily gross takings should be calculated; the fact that Mr Pernavas's letter of 28 November 2003 said that Mr Hall was "right"; the fact that the repayment was made; and the fact that other amendments to the bespoke retail scheme (dealing with meal deals, pre-till thefts of cash and advantage card purchases costing more than £50) were made in an informal way."
"Next, we agree that the request in Mr Hall's letter of 7 October 2003 was based on a perceived entitlement rather than being a request for a simplified treatment. However, although Mr Hall thought he was entitled to the treatment he claimed, he was in fact seeking the agreement of Customs to it and he received that agreement."
"97. … That does not alter the fact that they reached an agreement which was, in the terms of paragraph 2(6) of Schedule 11, an agreement permitting the value of the supplies of qualifying goods and redemption goods accompanied by a voupon to be determined by an agreed method. The agreement was not to apply paragraph 7.18 in its correct interpretation; the agreement was that the Appellant could account for value added tax on the reduced value of the qualifying goods, and the full value of redemption goods purchased with a voupon, for the accounting periods ending in April 2003. The agreement was only for the period up to 9 April 2003, the date specifically mentioned in Mr Hall's letter of 7 October 2003 and impliedly accepted by Mr Pernavas in his letter of 28 November 2003 when he said that the recent Budget had changed the treatment."
"99. From all these factors we conclude that there was a meeting of minds in November 2003 and that the parties agreed a binding amendment to the bespoke retail scheme for a period which started in 2002 and ended with the Budget of 2003."
The appeal to the High Court
The issues on the appeal to this court
Discussion
"(1) Subject to paragraph (4) and (5) of rule 21 and to rule 21A a tribunal may direct or allow evidence of any fact to be given in any manner it may think fit and shall not refuse evidence tendered to it on the grounds only that such evidence would be inadmissible in a court of law."
"Nowhere in this [i.e. the 25 June letter] or his other letters did Mr Hall suggest that the accounting treatment prescribed by Notice 727/4 should be adopted for the voupon promotions regardless of whether he was right in his interpretation of paragraph 7.18. If that had been his position then Mr Pernavas would have been faced with a quite different request: i.e. to extend to Boots retrospectively a more favourable accounting treatment than the law currently permitted. There is no obvious reason why HMRC should have acceded to such a request. As Mr Thomas pointed out, a purely retrospective agreement of the kind alleged would not simplify the accounting position of Boots and it was certainly not what Mr Pernavas was asked to consider. The only issue raised by the letter of 25th June was whether paragraph 7.18 applied to the voupon promotions and Mr Pernavas replied on 3rd July setting out his reasons why he considered that it did not. It is impossible to read this letter as anything other than his response to the issue of law raised by Mr Hall."
"54. … In the same paragraph [paragraph 94] they accept that Mr Hall's letter of 7th October was based on a perceived entitlement rather than a request for simplified treatment but they then proceed to treat this as somehow neutered by the fact that what Mr Hall was in fact seeking the agreement of HMRC to, was what he obtained. The conclusion is considered without regard to the process which led up to it. As mentioned earlier, this entirely ignores the fact that a request for simplified treatment would have involved HMRC agreeing to refund tax which had been paid on a correct legal basis and to which Boots had no entitlement.
55. This approach to the evidence leads, of course, to the position that Boots and HMRC are to be taken to have agreed a method of accounting for VAT on the voupons which paragraph 7.18 did not in fact permit. Faced with this difficulty, the Tribunal (in paragraph 97) decided that the agreement was not in fact one to apply paragraph 7.18 in its correct interpretation but rather to account for VAT on the voupon promotions in a way which corresponded to paragraph 7.18 had it in fact applied. In their Respondents' Notice, Boots seek to finesse this conclusion by contending that the Tribunal's decision can be treated as a finding that the parties had agreed to apply a particular accounting method to the voupons independent of (and presumably regardless of the meaning and effect of) paragraph 7.18. There is no evidence to support this view of the agreement. The parties were throughout concentrated on the meaning of paragraph 7.18 but the treatment of their correspondence as reaching a conclusion that is somehow divorced from the proper application of paragraph 7.18 was the only way of avoiding a finding that the parties had agreed to adopt a formula which did not in fact apply."
"56. This difficulty is the direct consequence in my judgment of the Tribunal's failure to base their conclusions on the evidence. Indeed, it is not an exaggeration in this case to say that the decision was reached almost despite it. It is obvious that the only issue between Mr Hall and Mr Pernavas was whether paragraph 7.18 applied. Mr Hall (as he admitted in evidence) was not asking in terms to amend the BRS because he did not believe it was necessary to do so. Throughout the correspondence he continued to believe that Boots was entitled to rely on paragraph 7.18 and that was the only point he was seeking to establish. The Tribunal's treatment of the correspondence completely mischaracterises the matter in issue and transforms it into a process of negotiation which it never was. The correct explanation for the letter of 28th November which the Tribunal established by its earlier rulings on the correct tax treatment of voupons both under Schedule 6 and Notice 727/4 was that by then both Mr Hall and Mr Pernavas were wrong about the meaning of paragraph 7.18. It is not possible in my view to convert what began as a claim under section 80 VATA for the recovery of overpaid tax based on a mutual but mistaken view of the law into an agreement to apply that tax treatment regardless of whether it is otherwise legally justified. On the evidence before the Tribunal it is clear that Mr Pernavas and HMRC would not have sanctioned the repayment had they adhered to the correct view of paragraph 7.18 and this is confirmed by the fact that they sought to recover the tax once they realised that their concession had been wrongly made."
Lord Justice Hughes
The Chancellor of the High Court