Oxfam v Revenue and Customs [2009] EWHC 3078 (Ch)

[2009] EWHC 3078 (Ch)Case No CH/2008/APP/0646
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 27/11/2009
Before
THE HONOURABLE MR JUSTICE SALES
Between
OxfamAppellantHer Majesty’s Revenue and CustomsRespondents
Mr David Milne QC, Mr Richard Vallat (instructed by Saffery Champness, Chartered Accountants) for AppellantMs Sarah Moore (instructed by Solicitor’s Office of HMRC) for RespondentsHearing Hearing dates: 14/10/09-15/10/09
Judgment

Introduction

[1]This matter concerns a decision of the VAT & Duties Tribunal (“the Tribunal”) dated 30 July 2008 rejecting an appeal by the Appellant (“Oxfam”, a term which I use to include all companies in the appellant’s group of companies) against a decision by the Defendants (“HMRC”) dated 10 January 2007 refusing to allow in full a claim by Oxfam for repayment of certain input value added tax (“VAT”) in respect of Oxfam’s activities in the period 1 August 1997 to 30 September 2005. It comes before me both as an appeal under the Value Added Tax Act 1994 (“VATA”) and also as a potential judicial review claim by Oxfam of the same decision of HMRC, as being in breach of what Oxfam says is its legitimate expectation based on an assurance given by HMRC.[2]By its appeal and judicial review claim, Oxfam seeks to challenge HMRC’s decision in their letter of 10 January 2007 to amend the terms of a method for the apportionment of input VAT between the business and non-business activities of Oxfam (“the Approved Method”) agreed between the parties by a letter from HMRC dated 17 October 2000, countersigned by Oxfam, in relation to the recovery of VAT incurred by Oxfam on the costs incurred by it in securing unrestricted charitable donations (“unrestricted fundraising expenditure”).[3]The judicial review claim was issued in parallel with Oxfam’s appeal to the Tribunal because of concerns on Oxfam’s part regarding the jurisdiction of the Tribunal in respect of its claim based on public law principles and the doctrine of legitimate expectation. The judicial review claim was adjourned pending the outcome of the appeal to the Tribunal, and is now renewed before me in the form of an application for permission to bring judicial review proceedings rolled up with a hearing on the merits, if permission is to be granted.[4]So far as jurisdiction is concerned, Oxfam’s concern was entirely understandable in the light of the practice of the Tribunal up to this point to refuse jurisdiction in relation to claims based on public law principles which may be brought by way of judicial review in the High Court. However, as I explain below, I consider that Oxfam’s claim based upon public law principles and the doctrine of legitimate expectation could properly have been raised in its appeal to the Tribunal. The benefit of the Tribunal having jurisdiction to hear such claims is that the unattractive, costly and potentially time-consuming proliferation of applications to different bodies (the Tribunal and the High Court) can be avoided, and the Tribunal is in a position to consider all relevant points bearing on the same issue (namely, whether input tax could be reclaimed by the taxpayer) at one hearing, and to give a single ruling which completely determines that issue.[5]Since Oxfam did not (for understandable reasons) raise its legitimate expectation argument in its appeal to the Tribunal, I think that the correct approach for me is to treat that argument as a new argument raised on the appeal under VATA with the leave of the court and to rule upon it in the context of that appeal, applying principles of public law. Having given leave for the argument to be raised in the appeal, it is unnecessary for me to grant permission for the same argument to be brought by way of judicial review. (If I had reached a different conclusion about the jurisdiction of the Tribunal and of this court on a VAT appeal, I would have granted Oxfam permission to bring its judicial review claim and would have dealt with it on the substance of the legitimate expectation argument in the same way as I have done below in the context of this appeal).

Oxfam’s Activities

[6]Oxfam is the well-known charity, which provides various forms of humanitarian relief for the developing world, supports development and campaigns for lasting change to alleviate poverty. The Claimant is a private company limited by guarantee which has wholly owned subsidiaries, all being registered for VAT as a group. Oxfam is a member of Oxfam International, a separate legal entity registered in the Netherlands which co-ordinates the joint activities of Oxfam and related organisations in other countries.[7]Oxfam raises money for its activities by a number of means. For example, it carries on business through shops selling second-hand clothes and goods purchased from commercial suppliers and sold at profit. It also seeks to attract donations from members of the public. To that end, it has for some years engaged organisations which provide personnel who seek to stop people passing in the street and persuade them to make donations to Oxfam. Oxfam pays fees to these organisations. This is the unrestricted fundraising expenditure to which the appeal relates.[8]With the money which Oxfam raises from its commercial activities and from attracting donations, Oxfam carries on a number of activities. It is deemed for VAT purposes to engage in both business and non-business activities. In the course of its business activities, it makes supplies which, as the case may be, are taxable at the standard rate, are zero-rated or are treated as exempt from VAT. Where Oxfam makes business supplies which are taxable at the standard rate or are zero-rated, it is entitled to reclaim as input tax that VAT which it pays on supplies to it which are attributable to such supplies made by it. Where Oxfam makes non-business supplies, or business supplies which are exempt from VAT, it is not entitled to reclaim as input tax the VAT which it pays on supplies to it which are attributable to such supplies made by it. The question of attribution of supplies to Oxfam to the different sorts of supplies made by Oxfam is therefore of considerable importance, since it governs the extent to which Oxfam can reclaim input VAT paid by it.[9]Oxfam identifies VAT incurred in respect of supplies made to it, and where possible directly attributes those supplies (and the associated VAT) to its different activities. Where this is possible, the answer to the question whether such VAT may be reclaimed as input tax or not is straightforward. But there are supplies to Oxfam which cannot be directly attributed to one or other of the types of supply made by Oxfam in a simple manner. The extent to which the VAT on such supplies to Oxfam may be reclaimed by it as input tax then depends on a more complex method of attribution. The present case concerns the method of attribution to be applied in respect of the VAT on supplies which cannot be attributed exclusively to standard-rated and zero-rated business supplies by Oxfam (which may be reclaimed as input tax) nor attributed exclusively to non-business supplies or exempt business supplies (which may not be reclaimed as input tax), but which are partly attributable to both these categories (so that the VAT is partly reclaimable as input tax – I refer to this category of case as “a mixed case”).

The Legal Framework

[10]The EU law governing the imposition of VAT at the relevant time was contained in the Sixth Council Directive 77/388/EEC. The recitals to the Sixth Directive indicate that the budget of the EU is to be funded from resources which include those accruing from VAT “obtained by applying a common rate of tax on a basis of assessment determined in a uniform manner according to Community rules”. Article 17 of the Sixth Directive is concerned with the right to deduct input VAT. Article 17(2) provides: “In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person …”.[11]In cases where it is difficult to be sure whether or not input tax is attributable to taxable supplies to be made by the taxpayer, the Sixth Directive does not provide detailed guidance but leaves it to Member States to arrive at a suitable method of attribution for the purposes of working out what input tax may be deducted and what may not. In the United Kingdom, the principal governing provision to deal with such cases is s. 24(5) of VATA, which provides:
“(5) Where goods or services supplied to a taxable person, goods acquired by a taxable person from another member State or goods imported by a taxable person from a place outside the member States are used or to be used partly for the purposes of a business carried on or to be carried on by him and partly for other purposes, VAT on supplies, acquisitions and importations shall be apportioned so that only so much as is referable to his business purposes is counted as his input tax.”
[12]That provision does not provide detailed guidance as to how attribution should be made in a mixed case, and so leaves it to HMRC and the taxpayer to arrive at an appropriate method of attribution of input VAT as between taxable supplies and non-taxable supplies made by the taxpayer. (In some areas, more detailed legal regulations have been introduced, such as in relation to retail schemes as considered in GUS Merchandise Corp. Ltd v Customs and Excise Commissioners (No. 2) [1995] STC 279, CA, and Revenue and Customs Commissioners v Boots Co. plc [2009] STC 1577; but no such regulations are applicable in the present case).[13]HMRC’s internal guidance for its officers in relation to attribution of input VAT in mixed cases included the following: “Guidance VI-6 Business/Non-business 5. Apportionment of tax 5.1 Important This section gives guidance on cases where a trader incurs tax on goods or services that they intend to use for both business activities and non-business activities such as charitable activities. … 5.3 Section 24(5) Apportionment – General It is implicit in Section 24 of the Value Added Tax Act that traders should directly attribute as much tax as possible to business and non-business activities. This should always be done. A business/non-business apportionment should not be seen as an alternative to direct attribution. Yet it is probable that following a direct attribution there will still be a block of expenditure, which cannot be directly attributed to either category. This non-attributable expenditure must be apportioned. Under VATA Section 24(5) the trader is required to apportion tax so that only tax, which relates to their business purposes, is treated as input tax. … 5.4 Methods of apportionment The law does not specify any particular method by which traders must apportion tax incurred. Any method of doing so may be used provided that it results in a fair and reasonable apportionment of the tax bearing in mind the trader’s various activities and the purposes for which the expenditure is incurred. 5.5. Judging if a result is fair or reasonable VATA 24(5) states that the trader should apportion tax to reflect their business and non-business purposes. Unfortunately defining what a trader’s purpose is for an item of expenditure is inherently a subjective question and one on which different people will take different views. Therefore in practice there is likely to be a range of acceptable apportionment figures that can be justified. Officers should only challenge an apportionment if it is completely outside what they perceive to be this range. It may be that a single apportionment of all overhead tax does not achieve a “fair and reasonable” result and that a range of apportionments of different items of overhead expenditure may be required. … If an officer is satisfied that the method is soundly based then approval should be given. However it is important to inform the trader that the method is approved on the basis of the current level of business and non-business activities. If these activities change substantially, the method may no longer give an accurate apportionment. The traders should be required to keep the method under review and to notify Customs if there are significant changes in the nature or level of business/non-business activities. When agreeing methods – especially complex ones – it is important that officers send a letter to the trader indicating the basis on which they accept the method. For example, if it is based on income it will be because in the trader’s current circumstances income provides an accurate indicator of non-business activity. It should be made clear that the method will need to change if this is no longer the case. Also if the method is complex, officers should ensure that they record their understanding of what the various terms and categories used within the method actually mean. Over time both Customs’ staff and the trader’s representative who agreed the method are liable to change and it is important their successors have an understanding of how it was envisaged that the method would work. Any agreement on apportionment is to be noted on the Form VAT 465A. On subsequent control visits officers should check that the agreed method has been properly applied and that it still represents a fair and reasonable reflection of the business and non-business use of the relevant supplies. In order to prevent distortion a method for traders with regular non-business activity should incorporate an annual adjustment calculation. 5.10 Retrospective changes of method If a trader requests a retrospective change of a previously agreed method of apportionment he will need to demonstrate that: the former method did not produce a fair and reasonable result; and the proposed method does achieve this objective. Provided these criteria are satisfied the request may be approved. Similarly, if either of the criteria are not satisfied the request should not be approved. … 5.12 Challenging apportionments As the law does not mention “methods” it is not possible for officers to challenge a method as such but only the proportion of input tax resulting from its application. If a trader proposes a method that you agree currently gives a fair result but which you believe is likely to give an inaccurate result in the future you cannot challenge the method immediately. Instead you should notify the trader of your concerns and in the future challenge the misleading result. If you find that you disagree with the proportion of tax treated as input tax by a trader, you should initially bring it to the trader’s attention and ask them to alter it or justify it. If you still believe it is outside the range of what might be considered fair and reasonable – and then only if the trader refuses to alter it – should you substitute your own judgement and assess the difference between their figures and yours. …”

the former method did not produce a fair and reasonable result; and

[14]VAT is a tax based on self-assessment by the taxpayer. The focus of this internal guidance is on the circumstances in which HMRC will give their approval for tax treatment proposed by the taxpayer. Although the guidance also refers to “agreeing methods” and to an “agreement on apportionment”, those expressions are to be read in the context of the whole document, which contemplates a procedure in which a taxpayer seeks approval for a method of apportionment which he proposes. The agreement contemplated by this guidance is no more than HMRC indicating that it regards some method of apportionment proposed by the taxpayer as acceptable – the guidance does not refer to a binding, private law contract between HMRC and the taxpayer.[15]Where, in accordance with the internal guidance, approval is given by HMRC to a proposed method of apportionment of input tax, although it is not contemplated that a binding contract is made with the taxpayer, HMRC’s approval nonetheless provides a significant degree of comfort for the taxpayer that it is safe to apportion input tax in that way, because HMRC are bound by rules of public law (in particular, the doctrine of legitimate expectation) so that they may not capriciously change the basis of apportionment. But those rules also afford HMRC a degree of flexibility to adjust to changes in circumstances.[16]In fact, it is not altogether clear that HMRC, in the exercise of their tax management powers, could enter into a binding contract with a taxpayer regarding a method of apportionment of input tax. The Court of Appeal in GUS Merchandise Corp Ltd (No. 2) were of the view that HMRC’s general tax management powers do include the power to enter into a binding contract in relation to such matters, but the point went by concession (see [1995] STC at 281h-282a). My own preliminary view is the same as that of the Court of Appeal. One could imagine a situation in which it might greatly ease the burden on HMRC in collecting tax to reach an agreement on some simple method of calculating the appropriate apportionment of input tax as between taxable and non-taxable supplies by the taxpayer, and where the taxpayer refuses to agree such a method unless it is made binding as a contract between HMRC and the taxpayer. In such circumstances, it would seem that the making of such a binding contract could be regarded as falling within the scope of the proper exercise of HMRC’s tax management powers. But Miss Moore for HMRC wished to reserve their position on this issue, and indicated that it would be necessary for me to consider other authorities and hear more extensive argument before I could finally decide the point. Since it is not necessary for me to resolve this question for the purposes of deciding the case, I do not rule on the point.[17]However, the issue is a relevant part of the background to the case, since it was part of Oxfam’s argument before the Tribunal and before this court that it was the beneficiary of a binding contract with HMRC as to the method of apportionment of input tax to be applied in its case. The Tribunal dismissed Oxfam’s case on this on the facts which it found.

The Facts

[18]Oxfam had been using the method of apportionment of input tax which became the Approved Method for some time prior to 2000. In a letter dated 25 January 2000 to Oxfam from the officer of HMRC dealing with Oxfam’s VAT affairs, the officer wrote:
“In November I visited to look at the method used to apportion business/non-business input tax and to calculate the recovery rate for residual input tax under the current agreed partial exemption method. Firstly we need to agree a method to identify the tax relating to business and non-business activity and its recovery (Section 25(4) of the VAT Act 1994 refers). At present there is no formal agreement between us and this needs to be addressed. … I would be grateful for your comments and proposal …”
I would be grateful for your comments and proposal …”[19]Oxfam replied by letter dated 3 March 2000, setting out arguments in favour of continuing to use the existing method and also proposing two possible alternative methods of calculating a rate of apportionment which it contended would give a “fair and reasonable result”.[20]Eventually HMRC responded to Oxfam’s proposals in a letter dated 17 October 2000, which included the following:
“This letter formalises the existing method by which you calculate how much of the VAT you incur may be treated as input tax. The Commissioners agree to the method used subject to the conditions below (1) You must use this method to calculate your input tax with effect from 1 May 2000 and you must use it until such time as the Commissioners approve or direct the termination of its use. This approval is given in the context of your current business structure and trading patterns. Should there be any changes in the structure of the business or any changes in trading patterns to such an extent that the agreed method no longer produces a fair and reasonable calculation of input tax, you should inform this office in writing immediately. … Please sign and date the duplicate copy of this letter to indicate acceptance of the terms and conditions set out herein and return it to this office.”
[21]Mr Childs (Oxfam’s Tax and Treasury Manager) countersigned the letter on behalf of Oxfam as requested and returned it to HMRC.[22]The Tribunal set out certain facts agreed by the parties in paragraphs [12]ff of its decision. It is relevant to recite the following (with adaptations to match the terminology used in this judgment):
“18. The Approved Method was agreed by HMRC in their letter to Oxfam of 17 October 2000. The Approved Method proceeded in three stages: (1) Oxfam shall identify all supplies, acquisitions and imports Oxfam received which were used, or to be used, in whole by Oxfam exclusively in the course or furtherance of Oxfam’s business activities [Oxfam’s “business expenditure” or “BE”]. The VAT thereon was input tax. (2) Oxfam shall identify all supplies, acquisitions and imports Oxfam received which were used, or to be used, in whole by Oxfam exclusively in carrying out any activity other than the making of taxable and/or exempt supplies [Oxfam’s “non-business expenditure” or “non BE”]. The VAT thereon was not input tax and was not recoverable. (3) Oxfam shall determine how much of any remaining, non-attributable VAT shall be treated as input tax according to the following formula: The value (excl VAT) of expenditure incurred exclusively in the course or furtherance of Oxfam’s business activities ____________________________________________________ The value (excl VAT) of expenditure incurred exclusively in the course or furtherance of Oxfam’s business activities The value (excl VAT) of expenditure incurred exclusively in the course or furtherance of Oxfam’s non-business activities 19. In short, the formula (the Approved Method Formula) applicable in relation to the residual VAT amounted to: BE BE + Non BE 20. The Approved Method Formula was used to produce a ratio expressed as a percentage calculated to the nearest two decimal places. The total residual VAT was multiplied by this percentage figure in order to determine the amount of residual VAT which was input tax. 21. The Approved Method contained the proviso that “Should there be any changes in the structure of the business or any changes in the trading patterns to such an extent that the agreed method no longer produced a fair and reasonable calculation of input tax, [Oxfam] should inform [HMRC] in writing immediately.” 22. There has been no such change in the structure of the business or the trading patterns of Oxfam. 23. The issue in this case arose because of a change in the parties’ understanding of the law relating to the VAT status of unrestricted fundraising expenditure. 24. Before the decision of the High Court in Church of England Children’s Society v Commissioners of Revenue and Customs [2005] EWHC 1692 (Ch), [2005] STC 1644, it was HMRC’s policy that the receipt of voluntary donations by a charity represented non-business income for VAT purposes. As a result: (1) The income received by a charity from voluntary donations was outside the scope of VAT; and (2) VAT incurred on the unrestricted fundraising expenditure was not input tax and was therefore wholly irrecoverable. 25. When this approach was applied in relation to the formula of the Approved Method, the result was that the unrestricted fundraising expenditure (which was treated as non-business income) was included in the denominator of the Approved Method Formula. The formula, therefore, produced a smaller percentage figure, restricting the recovery of residual VAT incurred by Oxfam, than if it were not included in the fraction. 26. The parties’ understanding of the law has altered as a result of Church of England Children’s Society, in which Blackburne J held, following the decision of the ECJ in Kretztechnik AG v Finanzamt Linz (Case C-465/03) that ([2005] STC 1644 at paragraphs [28]-[29]): (1) Receipt of unrestricted voluntary donations was not a supply for VAT purposes and the income was therefore outside the scope of VAT. (2) However, since the unrestricted voluntary income from donations was, by its nature, available to fund all the Society’s activities, some of which were business activities for VAT purposes, the VAT incurred on unrestricted fundraising expenditure was recoverable by the Society in part. 27. HMRC declined to appeal the decision in Church of England Children’s Society, setting out its understanding of the law and its policy following that decision in Business Brief 19/05 in which it noted that: “[W]here a charity which has non-business and business activities incurs VAT on fundraising costs and the funds raised support various activities of the charity, the VAT incurred can only be recoverable input tax to the extent that the funds raised will support taxable business supplies. In practice this means that the VAT incurred on fundraising costs must first be subject to an initial business/non-business apportionment to determine how much of the VAT incurred may be treated as input tax. Then, in circumstances where the charity has exempt business activities, this input tax is further subject to the partial exemption rules. In some cases, a charity’s existing business/non-business apportionment method and partial exemption method will produce a fair and reasonable basis by which input tax can be recovered. However, where this is not the case, HMRC will consider proposals for alternative methods. If exceptional circumstances exist, HMRC may allow alternative methods to be applied retrospectively, provided that it is fair and reasonable for the charity as a whole.” 28. HMRC further stated that Making claims for repayment of Tax “Charities that wish to make claims for input tax may do so by making a voluntary disclosure to their local VAT office in accordance with guidance in Notice 700/45 How to correct VAT errors and make adjustments or claims, subject to the time limit in Regulation 29(1A) of the VAT Regulations 1995. This restricts late claims for input tax to three years from the due date of the return for the prescribed accounting period in which the input tax was chargeable.” 29. Oxfam made a claim under Regulation 29 VAT Regulations 1995 (hereinafter referred to as the 1995 Regulations) by letter dated 17 March 2006 retrospectively to reclaim VAT incurred on the fees of professional fundraisers in generating voluntary charitable donations (the Claim). 30. For the purposes of the Claim, Oxfam used the Approved Method and proceeded on the basis of its understanding of the decision in Church of England Children’s Society. This was that the unrestricted fundraising expenditure was neither expenditure incurred exclusively in the furtherance of the Appellant’s business activities, nor expenditure incurred exclusively in the furtherance of its non-business activities. In other words, it was neither business nor non-business expenditure. For this reason, in the Claim, Oxfam excluded the unrestricted fundraising expenditure from the denominator of the Approved Method Formula. As a result, the Approved Method Formula produced a higher percentage figure and an increased amount of residual VAT incurred by Oxfam was deemed to be input tax and therefore recoverable. 31. In letters dated 16 October 2006, 4 September 2006 and the final decision letter of 10 January 2007, HMRC refused to repay the Claim, on the basis that the Church of England Children’s Society had changed the effect of the Approved Method Formula so that it no longer produced a “fair and reasonable” result as regards Oxfam’s level of input tax. 32. On 30 May 2006, HMRC withdrew their approval of the Approved Method Formula and advised Oxfam that a revised method needed to be put in place. Oxfam has not yet put forward a revised method which HMRC were able to approve.”
BE + Non BE (1) The income received by a charity from voluntary donations was outside the scope of VAT; and (2) VAT incurred on the unrestricted fundraising expenditure was not input tax and was therefore wholly irrecoverable. (1) Receipt of unrestricted voluntary donations was not a supply for VAT purposes and the income was therefore outside the scope of VAT. (2) However, since the unrestricted voluntary income from donations was, by its nature, available to fund all the Society’s activities, some of which were business activities for VAT purposes, the VAT incurred on unrestricted fundraising expenditure was recoverable by the Society in part. “[W]here a charity which has non-business and business activities incurs VAT on fundraising costs and the funds raised support various activities of the charity, the VAT incurred can only be recoverable input tax to the extent that the funds raised will support taxable business supplies. In practice this means that the VAT incurred on fundraising costs must first be subject to an initial business/non-business apportionment to determine how much of the VAT incurred may be treated as input tax. Then, in circumstances where the charity has exempt business activities, this input tax is further subject to the partial exemption rules. In some cases, a charity’s existing business/non-business apportionment method and partial exemption method will produce a fair and reasonable basis by which input tax can be recovered. However, where this is not the case, HMRC will consider proposals for alternative methods. If exceptional circumstances exist, HMRC may allow alternative methods to be applied retrospectively, provided that it is fair and reasonable for the charity as a whole.” Making claims for repayment of Tax “Charities that wish to make claims for input tax may do so by making a voluntary disclosure to their local VAT office in accordance with guidance in Notice 700/45 How to correct VAT errors and make adjustments or claims, subject to the time limit in Regulation 29(1A) of the VAT Regulations 1995. This restricts late claims for input tax to three years from the due date of the return for the prescribed accounting period in which the input tax was chargeable.”

BE + Non BE

[23]The Tribunal heard oral evidence, including from Mr Higgins (the officer of HMRC who dealt with Oxfam’s claim for recovery of further input tax based on application of the Approved Method in light of the Church of England Children’s Society case) and from Mr Childs. Mr Higgins had not been involved in the discussions regarding the adoption of the Approved Method, but Mr Childs had been.[24]The Tribunal said this at paragraphs [35] and [36] of the decision:
“35. The original recovery rate of VAT in respect of the business/non-business apportionment under the Approved Method was in the region of 75 per cent per year. Oxfam’s proposed application of the Approved Method following the Church of England Children’s Society decision increased the recovery rate to around 85 to 90 per cent. In Mr Higgins’ view this did not produce a fair and reasonable rate of recovery, and represented a significant departure from the shared understanding upon which the Approved Method was agreed. Further, Oxfam’s proposal meant that it would effectively be recovering VAT on services which were used for its non-business activities. Mr Higgins pointed out that Oxfam’s financial statements recorded that its trading activities were profitable. This indicated that the expenditure incurred on professional fund raisers generated income for use in Oxfam’s aims of overcoming poverty which was a non-business activity. Oxfam’s website stated that for every £1 donated, 79 pence was spent on emergency, development and campaigning work, 11 pence was spent on support and running costs and 10 pence was invested to generate future income. 36. Mr Childs accepted HMRC’s evidence of Oxfam’s website and its financial statements. Mr Childs, however, considered that the information on the breakdown of every £1 donated was just one way of looking at Oxfam’s activities. In reality the funds raised by Oxfam were applied to the totality of its activities, not for selected activities. Further the information on the website did not mention that Oxfam expended considerable resources on the warehousing and export of relief goods which were zero-rated activities for VAT purposes. In any event Oxfam was not putting its case on the basis that the VAT claimed in its voluntary disclosure was attributable to business activities. Oxfam’s case was straightforward, namely HMRC were bound by the terms of the approved method.”
[25]At paragraph 67 of the decision the Tribunal said:
“Although the facts of the Appeal were largely agreed there were some areas particularly arising from the oral evidence which required determination by the Tribunal. We make the following findings of fact: (1) Oxfam was deemed for VAT purposes to have income from “non-business” activities and business income which was taxable at the standard and zero-rate, as well as income which was exempt from VAT. (2) Oxfam operated a method for apportioning VAT between business and non-business activities from May 1995. The Respondents gave formal approval to the method in a letter dated 17 October 2000. (3) Formal approval was given on the shared understanding of the parties that unrestricted fundraising expenditure should be counted in the value of non-business expenditure, which constituted a denominator in the Approved Method Formula. (4) The discussions leading to the Approved Method in October 2000 comprised Oxfam justifying its existing method and rejecting HMRC’s suggestions to alter it. (5) Oxfam’s business operations were profitable, and Oxfam applied over 80 per cent of donations to the relief of poverty, a non-business activity. (6) Oxfam adduced no evidence that the unrestricted fundraising expenditure upon which its claim for VAT was based was used for the purposes of its business. (7) Oxfam’s claim would enable it to recover about 85 per cent of the VAT incurred on unrestricted fundraising expenditure. (8) HMRC applied the Approved Method as understood by the parties in October 2000 to Oxfam’s claim resulting in a VAT repayment of over £2 million.” (1) Oxfam was deemed for VAT purposes to have income from “non-business” activities and business income which was taxable at the standard and zero-rate, as well as income which was exempt from VAT. (2) Oxfam operated a method for apportioning VAT between business and non-business activities from May 1995. The Respondents gave formal approval to the method in a letter dated 17 October 2000. (3) Formal approval was given on the shared understanding of the parties that unrestricted fundraising expenditure should be counted in the value of non-business expenditure, which constituted a denominator in the Approved Method Formula. (4) The discussions leading to the Approved Method in October 2000 comprised Oxfam justifying its existing method and rejecting HMRC’s suggestions to alter it. (5) Oxfam’s business operations were profitable, and Oxfam applied over 80 per cent of donations to the relief of poverty, a non-business activity. (6) Oxfam adduced no evidence that the unrestricted fundraising expenditure upon which its claim for VAT was based was used for the purposes of its business. (7) Oxfam’s claim would enable it to recover about 85 per cent of the VAT incurred on unrestricted fundraising expenditure. (8) HMRC applied the Approved Method as understood by the parties in October 2000 to Oxfam’s claim resulting in a VAT repayment of over £2 million.”
[26]The judgment of the court in the Church of England Children’s Society case unravelled an assumption which was common to Oxfam and HMRC, that for VAT purposes the receipt of voluntary donations by a charity represented income relating to its non-business activities. The judgment therefore appeared to have the effect of changing the practical operation of the Approved Method, so as to give an apportionment of input tax to taxable supplies made by Oxfam which was considerably more favourable to Oxfam than had previously been the case (85-90%, as opposed to 75%).[27]This change in the level of recovery of input tax by Oxfam, if the Approved Method was adhered to, would be achieved even though there was no significant change in the pattern of supplies being made by Oxfam over the whole of the material period up to and after the judgment in Church of England Children’s Society and even though Oxfam had been content for some years to accept as fair (indeed, had proposed) a method of apportionment which gave a level of apportionment of only 75% of input tax to Oxfam’s own taxable supplies. These are points of significance, since the underlying object of the discussions about and adoption of the Approved Method was to achieve an appropriate and realistic apportionment of input tax between Oxfam’s taxable and non-taxable supplies, as required by Article 17(2) of the Sixth Directive and s. 24(5) of VATA. Since the balance between Oxfam’s own taxable and non-taxable supplies did not change over the period, then as a matter of principle one would not expect the appropriate apportionment of input tax between them to change either. The fact that the Church of England Children’s Society ruling, when applied to the Approved Method, produced a different balance of apportionment of input tax as a matter of arithmetic did not reflect any change in the real world in the balance between taxable and non-taxable supplies by Oxfam.[28]Oxfam accepts that HMRC was entitled to revoke its acceptance of the Approved Method for the calculation of recoverable input tax prospectively by a new decision taken after judgment was given in Church of England Children’s Society, but it says that HMRC was not entitled to do this going back in time before that judgment.

The Decision of the Tribunal

[29]Before the Tribunal, Oxfam submitted that there was a binding agreement (i.e. a contract) between it and HMRC, made by HMRC in the exercise of their tax management powers (see paragraph [78] of the decision), to the effect that the Approved Method should govern the apportionment of input tax between Oxfam’s taxable and non-taxable supplies, and that accordingly Oxfam was entitled to have the benefit of the improved recovery rate of input tax of 85-90% given by the Approved Method applied by reference to the law as clarified in Church of England Children’s Society. On that basis, Oxfam contended that it was entitled to recover additional input tax for the period before that judgment.[30]Oxfam also wished to contend that, even if the agreement on the Approved Method did not constitute a binding contract, it had an alternative argument that HMRC were bound to accept the application of the Approved Method for calculating Oxfam’s recoverable input tax on the ground that Oxfam had an enforceable legitimate expectation to that effect. In light of the understanding of the parties at the time regarding the jurisdiction of the Tribunal under section 83 of VATA (a subject to which I return below), it was thought that this alternative claim based on legitimate expectation could not be raised in the appeal to the Tribunal. Accordingly, Oxfam also commenced its judicial review proceedings in the High Court, as the forum which was regarded as the proper forum to determine that claim. The Tribunal did not, therefore, deal with Oxfam’s legitimate expectation claim.[31]As regards Oxfam’s contract claim, the Tribunal distinguished the Court of Appeal decision in GUS Merchandising Corp (No. 2) (relied upon by Oxfam), saying at paragraph [73] of the decision:
“There is no equivalent legislative framework for methods apportioning residual VAT between business and non-business activities [as the regulations regarding retail schemes which had been considered in that case]. Section 24(5) of the VAT Act 1994 simply states that VAT on supplies, acquisitions, and importations shall be apportioned so that only so much as is referable to his business purposes is counted as his input tax. The legislation is silent on how the taxpayer should discharge his responsibility to apportion VAT to business purposes. The Respondents provide advice to taxpayers about apportioning VAT, which does not have the force of law. The Respondents’ internal guidance emphasises that it is the taxpayer’s responsibility to choose the most appropriate apportionment method. The Respondents’ consent is not required for the method chosen, although they will give their approval if requested and in order to be of assistance to the taxpayer. The guidance permits a retrospective change of a previously approved method by a taxpayer, if it did not produce a fair and reasonable result. The guidance clearly states that it is not open to officers to challenge a method of apportionment. They can only contest the proportion of input tax resulting from the application of the method.”
[32]The Tribunal addressed Oxfam’s argument that there was a binding contract requiring application of the Approved Method, and dismissed it on the facts at paragraphs [81] to [84] of the decision, as follows:
“81. We are satisfied that the discussions and documents associated with the Approved Method when looked at as a whole followed the approach adopted in the Respondents’ internal guidance. The letter of 17 October 2000 referred to the Respondents formalising the existing method by which the Appellant counted VAT as input tax. The condition about changes in the structure of the business replicated the recommendation in the guidance. As stated by Mr Higgins, the Respondents’ purpose for agreeing to methods was to assist the taxpayer. The guidance was clear that it was not open to the Respondents to challenge the method of apportionment. 82. The evidence of Mr Childs about the events in 2000 portrayed a picture of the Appellant justifying its existing method to the Respondents not one of the parties negotiating a contract. The Appellant made representations and rejected the Respondents’ suggestion to alter their existing method. Mr Childs’ description was consistent with the process envisaged in the internal guidance. 83. We find that there was no evidence of intention on the part of the parties to create contractual relations with the Approved Method. There was no meeting of minds. The Appellant continued with its existing method. The Respondents followed the steps laid out in their internal guidance. 84. Our conclusion on the facts is consistent with the legal context for apportionment methods. The legislation does not recognize such methods and places responsibility upon the taxpayer to get it right. The internal guidance stresses that the Respondents have no legal challenge to the method used by the taxpayer. The guidance does not mention the use of care and management powers to secure free-standing agreements on apportionment. Thus on our analysis any purported exercise by the Respondents of care and management powers to enter into contractually binding agreements on an apportionment method would be contrary to their statutory functions and section 24(5) of the VAT Act 1994.”
[33]The Tribunal also held at paragraphs [87] to [90] that there was an additional compelling argument why Oxfam’s appeal should fail, to the effect that the true agreement between Oxfam and HMRC was that the denominator of the Approved Method Formula should include the value of unrestricted fundraising (an agreement which was unaffected by the judgment in Church of England Children’s Society), and that it was not HMRC but Oxfam which was seeking to go back on that agreement.[34]Finally, the Tribunal considered Oxfam’s claim for recovery of additional input tax apart from its contentions based on contract and found that it was not made out (paragraph [91]). This was unsurprising, since in reality Oxfam’s whole claim before the Tribunal had been based on the contract which it alleged it had with HMRC.

The Appeal against the Tribunal’s Decision

[35]On the appeal against the Tribunal’s decision, Mr Milne QC for Oxfam submitted that the Tribunal had erred in law in concluding that there was no binding agreement between HMRC and Oxfam which entitled Oxfam to have the Approved Method Formula applied by reference to the law as clarified in the judgment in Church of England Children’s Society. At first, Mr Milne indicated that there was a difficulty in analysing the case in ordinary contract terms, on the grounds (he said) that there was no consideration given by Oxfam for a binding contractual agreement (this does not appear to have been a point raised with the Tribunal). Instead, he submitted that there was a binding agreement irrespective of any consideration.[36]I was left in some doubt about what the juridical basis for such a binding agreement might be, apart from an ordinary binding contract made under rules of the general law of contract or an enforceable legitimate expectation arising by operation of principles of public law. However, it is not necessary to explore this further, because I do not think that want of consideration is relevant here. If HMRC and a taxpayer make an agreement that the taxpayer’s input tax in relation to a mixed case category should be calculated in accordance with some formula, for practical convenience on both sides and to reduce the scope for argument each year, the benefits each party would receive would in my view plainly be capable of constituting consideration: see also GUS Merchandise Corp. (No. 2) at 282c-d per Steyn LJ. It should be noted that the Tribunal did not base its decision on any want of consideration.[37]After some debate, Mr Milne adjusted his position on this, and submitted that there was good consideration and that there was a binding contract between Oxfam and HMRC that the Approved Method Formula should be used to apportion Oxfam’s input tax in relation to the mixed case category, and that the formula had to be read and applied in light of the judgment in Church of England Children’s Society. He submitted that the Tribunal erred in law in concluding otherwise.[38]The argument presented to the Tribunal indeed appears to have been that there was a binding contract to this effect between Oxfam and HMRC. The main reason the argument was rejected by the Tribunal was that there had been no intention of the parties to create such a contract (see paragraphs [81] to [84] of the decision, set out above). Mr Milne submitted that this was not a conclusion which a tribunal, properly directing itself on the law, could have reached on the evidence presented to it.[39]I reject that submission. The decision does not disclose any misdirection of law by the Tribunal on this point. The issue is whether there was a sufficient evidential basis on which the Tribunal could conclude that there was no intention on the part of the parties to create a binding contract. In my view, there plainly was.[40]The Tribunal heard evidence from Mr Higgins and had regard to the HMRC internal guidance. Mr Higgins had not been a party to the relevant negotiations between Oxfam and HMRC, but he was in a position to explain the usual approach of HMRC in agreeing methods of apportionment with taxpayers, and that HMRC did not generally seek to enter into binding contractual relations on such a topic. The internal guidance supported that evidence: see para. [14] above. The reference in HMRC’s letter of 17 October 2000 to “formalis[ing]” the method by which input tax is apportioned and the request that Oxfam sign the letter “to indicate acceptance of the terms and conditions” set out in it are capable of being read consistently with the approach in the internal guidance, and that is clearly how the Tribunal read that letter in the light of all the evidence.[41]The Tribunal also heard evidence from Mr Childs, who had been involved in the relevant negotiations. It also had before it the correspondence referred to above. In my view, particularly having regard to Oxfam’s letter of 3 March 2000, the Tribunal was well entitled to characterise the position of Oxfam at the time as one in which it was seeking approval from HMRC for the method it proposed to adopt in apportioning input tax, rather than inviting HMRC to enter into a contract. The Tribunal concluded from Mr Child’s evidence that his “description was consistent with the process envisaged in the internal guidance” (paragraph [82]), i.e. a process for HMRC to give approval for a method of apportionment proposed by a taxpayer rather than leading to the making of a binding contract with a taxpayer. The Tribunal was entitled to make its own assessment of the effect of Mr Childs’ evidence. I do not have a transcript of what he said in his oral evidence, and there is nothing in the materials before me which suggests that this was not a conclusion which could properly be drawn from what Mr Childs said in evidence.[42]Since the Tribunal was entitled to find on the evidence before it that there was no intention on the part of the parties to create a binding contract, the appeal is dismissed.[43]I should add that I also think the Tribunal was right in its reasoning on the alternative ground for dismissing the appeal (paragraphs [87]-[90] of the decision). The object of the agreement on a formula for the apportionment of input VAT was to arrive at a practically workable method of calculation which bore a reasonable relationship to the likely breakdown of Oxfam’s own taxable and non-taxable supplies of goods and services. Oxfam and HMRC specifically agreed the Approved Method Formula on the basis that the denominator of the Approved Method Formula should include the value of unrestricted fundraising (see paragraphs [67(3)] and [88] of the decision), so giving a recovery rate for input tax of about 75% which each party regarded as reasonable. There was no agreement that the Approved Method Formula should be capable of operating in any different way, if the general understanding of the law might happen to change in some respect (as occurred with the judgment in Church of England Children’s Society). That might undermine the intended effect of the agreement, to produce a reasonable relationship between recoverable input tax and the proportion of Oxfam’s activities which involved the making of taxable supplies (as would indeed be the case if the operation of the Approved Method Formula were changed in the light of the judgment in Church of England Children’s Society, since a reasonable rate of recovery of 75% of input tax would be increased to an unreasonable rate of 85-90%). On the evidence before it, the Tribunal was entitled to conclude that the agreement which had been made by the parties was specific as to the operation of the Approved Method Formula, namely that it should operate with the value of unrestricted fundraising expenditure included in the denominator, so giving a rate of recovery of only 75%.[44]The dismissal of the appeal is not the end of the matter, since Oxfam maintains its alternative case that, even if there was no contract, nonetheless HMRC gave it a clear assurance that is binding by reason of principles of public law, on the ground that it created a substantive legitimate expectation for Oxfam as to how its input tax should be apportioned. I turn to consider that alternative claim.

Legitimate Expectation

[45]Oxfam’s claim based on legitimate expectation was not presented to the Tribunal, but is the subject of the judicial review proceedings which it issued in parallel with its appeal to the Tribunal, by reason of perceived limits on the jurisdiction of the Tribunal in relation to that claim. Oxfam are not to be criticised for this. On the state of the authorities, this was a sensible and legitimate course for it to take.[46]Although the agreement of HMRC to the use of the Approved Method Formula by Oxfam did not constitute a binding contract, it clearly did amount to an express assurance by HMRC that Oxfam’s recoverable input tax would be calculated by reference to that formula. Accordingly, the question whether HMRC were bound in law to accept the validity of Oxfam’s claim for additional recovery of input tax for the three years before the judgment in Church of England Children’s Society, by application of the Approved Method Formula read with that judgment, is to be determined by reference to the doctrine of substantive legitimate expectation in public law. As the Court of Appeal held in R v North and East Devon Health Authority, ex p. Coughlan [2001] QB 213 at [57]:
“Where the court considers that a lawful promise or practice has induced a legitimate expectation of a benefit which is substantive, not simply procedural, authority now establishes that … the court will in a proper case decide whether to frustrate the expectation is so unfair that to take a new and different course will amount to an abuse of power. Here, once the legitimacy of the expectation is established, the court will have the task of weighing the requirements of fairness against any overriding interest relied upon for the change of policy.”
[47]The law in relation to the protection of substantive legitimate expectations is still in a state of development. The scope for its operation is potentially wide, ranging from general statements of policy which cover a large number of cases to assurances given specifically to one or a few persons. The present case falls at the latter end of the spectrum. There is no general policy of HMRC to use the Approved Method Formula in apportioning input tax in a mixed case. The Approved Method Formula was something agreed by HMRC specifically with Oxfam, as the method of apportionment appropriate to Oxfam’s particular case.[48]This point is, in my view, relevant to consideration of the submission by Mr Milne that it is not necessary for Oxfam to show that it relied to its detriment on the assurance in this case before being entitled to insist that HMRC are bound by the assurance. On the facts in this case, there was no detrimental reliance by Oxfam on any assurance that the Approved Method Formula would operate with the value of unrestricted fundraising expenditure excluded from the denominator. The possibility of interpreting the Approved Method Formula in that way only emerged with the judgment in Church of England Children’s Society, after the period to which this case relates; in that period Oxfam had organised its affairs on the assumption that the value of unrestricted fundraising expenditure was included in the denominator. Mr Milne submitted that this was irrelevant to Oxfam’s claim based on substantive legitimate expectation.[49]I do not accept that submission. As observed by Peter Gibson LJ in R v Secretary of State for Education, ex p. Begbie [2000] 1 WLR 1115, at 1124B-C: “… it would be wrong to understate the significance of reliance in this area of the law. It is very much the exception, rather than the rule, that detrimental reliance will not be present when the court finds unfairness in the defeating of a legitimate expectation.” (For the significance of detrimental reliance, see also 1126H-1127D per Peter Gibson LJ, 1131F-G per Laws LJ and 1133F-H per Sedley LJ; R v IRC, ex p. MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, at 1569H per Bingham LJ and R (Bamber) v HMRC [2006] STC 1035; [2005] EWHC 3221 (Admin), [56], [59] and [72]-[73] per Lindsay J).[50]In my view, in a case such as this, involving an assurance given to only one person and where there is no irrationality on the part of the public authority in adopting a different approach, the absence of detrimental reliance on the part of the person to whom the assurance is given is fatal to the argument that to modify the assurance would involve an abuse of power on the part of the public authority which gave the assurance.[51]The general position in public law is that discretionary powers are conferred on a public authority in order to allow that authority to make judgments about how to treat specific cases. Where many cases fall to be considered, it will often be sensible for the authority to promulgate a policy indicating how it will deal with individual cases. A public authority is free, within the limits of rationality, to decide on any policy as to how to exercise its discretion; it is entitled to change its policy from time to time for the future (e.g. as its perception of the public interest changes in the light of new circumstances); and a person whose case falls within the scope of the policy is only entitled to have whatever policy is lawfully in place at the relevant time applied to him (In re Findlay [1985] AC 318, 338C-G).[52]Since there is a rule that a public authority is not entitled to fetter its discretion, it is obliged to keep open the possibility of not applying that policy in any particular case if the specific circumstances of that case warrant the disapplication of the policy in relation to it: see e.g. British Oxygen Co. Ltd v Board of Trade [1971] AC 610. Thus an individual who would suffer from the application of the policy in his case is entitled to contend that the policy should not be applied to him, and the public authority has to consider that contention on its merits. In addition, since the public authority may not fetter its public law obligation to consider how it should exercise its discretion in the public interest, it may disapply a policy which favours an individual by having regard to the particular circumstances of that individual’s case, even though the policy itself remains unchanged, provided the authority acts fairly and rationally in doing so: see e.g. R (Mullen) v Secretary of State for the Home Department [2004] UKHL 18; [2005] 1 AC 1, [58]-[62].[53]It is in this last class of case that detrimental reliance by the individual on the assurance contained in the policy will be particularly relevant. Mullen was a case in which there was no detrimental reliance on the part of the individual based upon the relevant policy (which concerned the circumstances in which compensation would be paid in relation to miscarriages of justice), and the requirement of fairness was satisfied by affording the individual an opportunity to make representations before the policy was disapplied in his case, so as to deprive him of compensation. The position would be different in the case of an attempt to disapply a policy in circumstances where there had been detrimental reliance by the individual. In that situation, the requirements of fairness will be more demanding and the public authority may only be entitled to disapply the policy which was in place at the relevant time if the court is satisfied that there is some overriding public interest, as explained in Coughlan.[54]There is another class of case, in which an absence of detrimental reliance on the part of the individual may be irrelevant. Where one is dealing with a general statement of policy (i.e. at the other end of the spectrum of assurances from the present case) and there is no question of the public authority changing that general policy (so it is not an In re Findlay type of case), then ordinary rules of public law preventing a public authority from acting arbitrarily and capriciously will have the effect that the authority will not be entitled to disapply that policy in an individual case where there is no rational basis for distinguishing that case from the general run of cases covered by the policy: cf Mullen at [61]. Like cases should be treated alike, and in such a situation the individual will have a good claim to be entitled to the benefit of the policy in his case even though there has been no detrimental reliance on his part (and, indeed, even if he was not personally aware of the policy). This seems to be the sort of case contemplated by Sedley LJ in Begbie at 1133D-E (“I have no difficulty with the proposition that in cases where government has made known how it intends to exercise its powers which affect the public at large it may be held to its word irrespective of whether the applicant had been relying specifically upon it”) and by Bingham LJ in another leading case in this area, R v IRC, ex p. MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, at 1569C-D (“No doubt a statement formally published by the Inland Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them”). It is a position which accords with well recognised general principles.[55]I have reviewed these types of situation and the applicable rules in order to explain why I do not accept Mr Milne’s submission in the present case. In the absence of any detrimental reliance by Oxfam in this case, I do not consider that there was any abuse of power on the part of HMRC in deciding that the Approved Method Formula should be revised to make it completely clear that the judgment in Church of England Children’s Society does not affect the operation of the formula in the period before that judgment was handed down. In that regard, the present case is most similar to the situation in Mullen, and in view of the specific nature of the assurance in this case there is no scope for Oxfam to contend that principles of equal treatment require that it be afforded the benefit of some general policy which is applied to others.[56]The statement in the Business Brief (set out in paragraph [27] of the Tribunal’s decision, set out above) does not affect this conclusion. It contained no clear statement that a revised approach would not be adopted after consideration of the judgment in Church of England Children’s Society, in relation to claims to recover input VAT in respect of periods before that judgment, in any appropriate case – i.e. if that was necessary, as here, to ensure that a fair and reasonable basis for apportionment of recoverable input tax was achieved.[57]I also consider that Oxfam’s legitimate expectation claim fails for three further reasons. First, as Oxfam appreciated, the assurance contained in the agreement set out in the letter of 17 October 2000 was directed to approval of a formula which produced a reasonable relationship between recoverable input tax and Oxfam’s own taxable, business supplies; it was not directed to approval of a formula modified by application of the judgment in Church of England Children’s Society, which would havedistorted that relationship: see para. [43] above. Therefore, Oxfam is unable to show that its case falls clearly within an assurance which is “clear, unambiguous and devoid of relevant qualification”: see ex p. MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, 1569G. Accordingly, it had no relevant legitimate expectation that the Approved Method Formula would be applied without the inclusion of the value of unrestricted fundraising expenditure in the denominator of the formula.[58]Secondly, the reason HMRC refused to accept that the Approved Method Formula should be applied by reference to the judgment in Church of England Children’s Society was that that judgment falsified the common assumption of HMRC and Oxfam as to how the formula would in fact operate. Before that judgment was handed down, both parties had made a common mistake about the true application of the general law of VAT in respect of unrestricted fundraising expenditure. HMRC adopted a revised position once they appreciated this error. In Begbie, the correction of a unilateral mistake in the formulation of a policy, made through incompetence, was found to involve no abuse of power: see [2000] 1 WLR 1115, 1126H-1127D, 1131D-G and 1133H. A fortiori there is no abuse of power in the present case, in my view, where the mistake which has been corrected was a reasonable one made by both parties. In that regard, I would endorse the observation of the Tribunal at paragraph [90] of the decision that “[HMRC’s] conduct … was that of a responsible public authority mindful of its duties to the Exchequer and at the same time acting fairly to the citizen”.[59]Thirdly, if one were to reach this stage in the analysis, I think that HMRC acted properly and for a powerful overriding public interest in correcting the formula as it did. The importance of the public duty of HMRC to collect taxes which are due is well recognised: see e.g. R v IRC, ex p. National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617, 660A per Lord Roskill; R v IRC, ex p. Preston [1985] 1 AC 835, 864. It is also an important public interest that HMRC should seek to collect taxes in a way which achieves reasonable fairness as between taxpayers, avoiding where possible unmerited windfalls for particular taxpayers: see e.g. ex p. National Federation of Self-Employed and Small Businesses Ltd at 651E-G per Lord Scarman; ex p. Preston at 864. In the context of the collection of VAT, there is a yet further dimension of the public interest, which is the desirability of ensuring the uniform application of VAT rules throughout the European Union and of HMRC seeking to ensure that funds are provided for the EU, in fulfilment of the United Kingdom’s obligations of co-operation with the EU, by the collection of VAT which is properly due. All of these aspects of the public interest point strongly towards the legitimacy of HMRC correcting the operation of the Approved Method Formula in this case, and are properly to be regarded as overriding any countervailing interest of Oxfam (particularly in view of the absence of any detrimental reliance on the part of Oxfam). That conclusion is supported by R (Bamber) v HMRC, in which it was found that there was no abuse of power in relation to HMRC changing a tax agreement which had operated with unexpected consequences, even though an individual may have incurred a degree of personal expenditure in reliance on the agreement: see [45]-[59] and [71]-[73].[60]I conclude that there was no abuse of power on the part of HMRC in acting as they did. Therefore, Oxfam’s claim based on legitimate expectation also falls to be dismissed.

Jurisdiction of the Tribunal

[61]That is sufficient to dispose of Oxfam’s claims to be entitled to further recovery of input tax. However, the question of the proper procedure to be adopted to address the issues between Oxfam and HMRC arises, and I should deal with it.[62]The jurisdiction of the Tribunal is defined in the VATA. Section 83 deals with appeals. It provides, so far as material, as follows:
“(1) … an appeal shall lie to a tribunal with respect to any of the following matters – … (c) the amount of any input tax which may be credited to a person;…”
[63]On the ordinary meaning of the language of that provision, it appears that it covers all the issues between Oxfam and HMRC regarding the question whether HMRC should have allowed Oxfam credit for a higher amount of input tax under the Approved Method Formula, including both the contract issue and the legitimate expectation issue. The words, “with respect to”, in section 83(1) appear clearly to be wide enough to cover any legal question capable of being determinative of the issue of the amount of input tax which should be credited to a taxpayer. The Tribunal’s jurisdiction is defined by reference to the subject matter specified in the section, not by reference to the particular legal regime or type of law to be applied in resolving issues arising in respect of that subject matter.[64]In this case, issues of contract law (under rules of general private law), legitimate expectation (under rules of general public law) and application of general rules of VAT law all arose. The first two issues were the primary issues governing the question whether Oxfam should be credited with more input tax, since Oxfam did not maintain any serious argument against its assessment apart from by reference to those issues.[65]The parties and the Tribunal agreed that the Tribunal had jurisdiction to deal with the contract law argument. I think this is correct – the question of contract was an issue potentially determinative of Oxfam’s rights to be credited with input tax, so the Tribunal had jurisdiction to deal with it.[66]However, the parties thought that the Tribunal did not have jurisdiction to consider Oxfam’s alternative legitimate expectation argument. In my view, this is not correct. By the same construction of section 83(1)(c) and the same reasoning which led to the conclusion that Oxfam’s contract claim was within the jurisdiction of the Tribunal, Oxfam’s legitimate expectation argument also fell within the jurisdiction of the Tribunal. I can see no sensible basis in the language of that provision for differentiating between Oxfam’s contract claim and its legitimate expectation claim. In both cases, if Oxfam’s claim had been made out, an error of law on the part of HMRC in arriving at its decision on the amount of input tax to be credited to Oxfam would have been established (either a failure to respect Oxfam’s contractual rights or a failure to treat Oxfam fairly, in breach of Oxfam’s legitimate expectation) which would, on the face of it, be a proper basis for an appeal to the Tribunal against HMRC’s decision within the terms of section 83(1)(c).[67]Usually, of course, an appeal under one of the sub-paragraphs of section 83(1) will be on the merits of decision taken by HMRC, and questions of private law or public law (such as whether HMRC took into account irrelevant considerations or failed to take account of relevant considerations) will simply not be relevant to the Tribunal’s task on the appeal. But in my view it does not follow from this that the Tribunal will never have jurisdiction to consider issues of general private law and general public law where that is necessary for it to determine the outcome of an appeal against a decision of HMRC whose subject matter falls within one of the sub-paragraphs of section 83(1).[68]I do not think that it is a valid objection to this straightforward interpretation of section 83(1)(c) according to its natural meaning that it has the effect that sometimes the Tribunal will have to apply public law concepts in order to determine cases before it. It happens regularly elsewhere in the legal system that courts or tribunals with jurisdiction defined in statute by general words have jurisdiction to decide issues of public law which may be relevant to determination of questions falling within their statutorily defined jurisdiction. No special language is required to achieve that effect. Where they are themselves independent and impartial courts or tribunals (as the Tribunal is) there is no presumption that public law issues are reserved to the High Court in the exercise of its judicial review jurisdiction. So, for example, a county court may have to consider whether possession proceedings issued by a local authority have been issued in breach of its public law obligations (Wandsworth LBC v Winder [1985] AC 461; Doherty v Birmingham City Council [2008] UKHL 57); magistrates courts and the Crown Court may have to decide issues of public law in so far as they arise in relation to criminal proceedings (e.g. to determine if a by-law is a valid and proper foundation for a criminal charge: Boddington v British Transport Police [1999] 2 AC 143 or to determine the validity of a formal instrument which is in some way a necessary foundation for the criminal charge: DPP v Head [1959] AC 83); and employment tribunals may have to decide issues of public law in employment proceedings (e.g. to determine whether a contract of employment with a public authority is vitiated as having been made ultra vires).[69]I cannot see any good reason for adopting a different approach to the interpretation of the jurisdiction of the Tribunal in section 83 of VATA. The Tribunal is used to dealing with complex issues of tax law. There is no reason to think that it would not be competent to deal with issues of public law, in so far as they might be relevant to determine the outcome of any appeal. That view is reinforced by the fact that the Tribunal may have to deal with complex public law arguments in relation to Convention rights when construing legislation under section 3 of the Human Rights Act 1998, and is recognised by Parliament as being competent to do so.[70]Moreover, there is a clear public benefit in construing section 83 by reference to its ordinary and natural meaning which strongly supports that construction. It is desirable for the Tribunal to hear all matters relevant to determination of a question under section 83 (here, the amount of input tax to be credited to a taxpayer) because(a) it is a specialist tribunal which is particularly well positioned to make judgments about the fair treatment of taxpayers by HMRC and(b) it avoids the cost, delay and potential injustice and confusion associated with proliferation of proceedings and ensures that all issues relevant to determine the one thing the HMRC and taxpayer are interested in (in this case, the amount of input tax to be recovered) are resolved on one occasion in one place. It seems plausible to suppose that Parliament would have had these public benefits in mind when legislating in the wide terms of section 83.[71]Therefore, apart from any authority on this question, I would hold that section 83(1)(c) bears its ordinary and natural meaning, so that resolution of the issue of legitimate expectation which arose between Oxfam and HMRC fell within the Tribunal’s jurisdiction.[72]Am I constrained by authority to come to a different view? There are a number of cases at the level of the Tribunal (e.g. Marks and Spencer plc v Customs and Excise Comrs [1998] V&DR 93, Greenwich Property Ltd v Customs and Excise Comrs, decision 16746 of 9 June 2000, referred to in R (Greenwich Property Ltd) v Customs and Excise Comrs [2001] EWHC Admin 230; [2001] STC 618, at [1]) and in the High Court (Customs and Excise Comrs v Arnold [1996] STC 1271; Marks and Spencer plc v Customs and Excise Comrs [1999] STC 205, 246; Customs and Excise Comrs v National Westminster Bank plc [2003] EWHC 1822 (Ch); [2003] STC 1072) which have adopted a narrower interpretation of section 83(1), and have held that it excludes a general supervisory jurisdiction on public law grounds in relation to HMRC. Some of the authorities are reviewed by Jacob J in National Westminster Bank at [46]-[56] (though the point in relation to domestic public law was conceded before him: see [53]). There is also a Scottish decision of the Second Division of the Inner House of the Court of Session (Customs and Excise Commissioners v United Biscuits (UK) Ltd [1992] STC 325) which held at 326-327, by reference to a decision of the Tribunal in Cando 70 v Customs and Excise Comrs [1978] VATTR 211 and without extensive reasoning of its own, that “The whole area of value added tax guide concessions was beyond the jurisdiction of the tribunal”. None of these authorities are directly binding on me, if I am clearly of the view that their reasoning on this point should not be followed.[73]Jacob J in National Westminster Bank at [49] considered that such a view of the limited jurisdiction of the Tribunal is also supported by a dictum of Lord Lane (with whom Lords Diplock, Scarman and Simon of Glaisdale agreed) in Customs and Excise Comrs v J.H. Corbitt (Numismatists) Ltd [1981] AC 22 at 60-61 in relation to the predecessor to section 83 of VATA – section 40 of the Finance Act 1972 - where he said: “Assume for the moment that the tribunal has the power to review the commissioners’ discretion. It could only properly do so if it were shown the commissioners had acted in a way in which no reasonable panel of commissioners could have acted; if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. If it had been intended to give a supervisory jurisdiction of that nature to the tribunal one would have expected clear words to that effect in the Act [the Finance Act 1972]. But there are no such words to be found. Section 40(1) sets out nine specific headings under which an appeal may be brought and seems by inference to negative the existence of any general supervisory jurisdiction.” (Section 83 contains more specific headings of jurisdiction, but still does not contain a provision conferring any general supervisory jurisdiction).[74]Having considered the point carefully, I do not think that this dictum provides firm support for a narrower interpretation of section 83 of VATA, excluding reference to rules of public law in every case. The question in J.H. Corbitt (Numismatists) Ltd was whether the taxpayer could take advantage of a special scheme of concessions set out in subordinate legislation (the Value Added Tax (Works of Art, Antiques and Scientific Collections) Order 1972), which in turn, by virtue of Article 3(5) of the Order, depended upon whether the taxpayer had kept “such records and accounts as the commissioners may specify in a notice published by them for the purposes of this Order or may recognise as sufficient for those purposes.” It was admitted that the taxpayer had not complied with the requirements or conditions specified in the relevant published notice, and the commissioners in the exercise of their discretionary power of assessment under the second limb of Article 3(5) did not recognise the records which the taxpayer had kept as being sufficient for the purposes of the Order. That resulted in the commissioners making an assessment of tax under section 31(1) of the 1972 Act, which provided that where a taxpayer had failed to keep any documents to verify a return or it appeared to the commissioners that the return was incomplete the commissioners could assess tax due from him to the best of their ability. The particular issue for the House of Lords was whether the failure or refusal of the commissioners to exercise their discretion in favour of the taxpayer in assessing the sufficiency of the records which had been kept was a matter falling within the jurisdiction of the tribunal on an appeal under section 40(1)(b) of the 1972 Act, which provided for a right of appeal to the tribunal with respect to an assessment under section 31 of that Act: see [1981] AC at 57H-58G per Lord Lane.[75]Lord Lane treated this as a short point of construction, and reasoned that since (as was common ground) the setting of requirements by the commissioners in a published notice within the first limb of Article 3(5) did not fall within the defined jurisdiction of the tribunal and there was no basis for distinguishing the position where the commissioners exercised their discretion under the second limb of Article 3(5), therefore as a matter of construction an appeal in relation to the commissioners’ decision under the second limb also did not fall within the jurisdiction of the Tribunal: [1981] AC at 60A-G. In doing so, he approved the reasoning of Neill J at first instance, who had said in relation to the commissioners setting the conditions in a notice under the first limb of Article 3(5) that the tribunal could not substitute its view of the appropriate requirements for the view of the commissioners, although the tribunal could “certainly consider whether or not those conditions have as a matter of fact been complied with”: [1981] AC at 60E.[76]Lord Lane’s observation quoted at para. [70] above has to be read in the context of what was in issue in the case and in the context of his primary reasoning to the effect that on its proper construction section 40(b) of the 1972 Act did not cover an attempt to review a discretionary judgment of the commissioners under the second limb of Article 3(5). The observation was made obiter and without exploring any wider implications it might have. In approving what Neill J had said at first instance about the jurisdiction of the tribunal to decide whether the facts of any particular case came within the scope of a notice published by the commissioners, Lord Lane contemplated the tribunal having jurisdiction in a case which could today be analysed in terms of legitimate expectation (i.e. whether a particular case falls clearly within the terms of a policy published by HMRC). It is clear that section 83 – like section 40 of the 1972 Act - does not confer any general supervisory jurisdiction on the Tribunal, but it seems to me to be a non sequitur to say that the Tribunal has no power to apply public law principles if they are relevant to an appeal against (i.e. a decision either to uphold or overturn) a decision of HMRC which falls within the terms of one of the headings of jurisdiction set out in section 83 (here, HMRC’s decision regarding the amount of any input tax which may be credited to Oxfam). In J.H. Corbitt (Numismatists) Ltd Lord Lane considered that the commissioners’ decision not to accept the taxpayers’ records as sufficient under Article 3(5) was too remote from the immediate decision of the commissioners under section 31 (in relation to which an appeal lay to the tribunal); but in the present case Oxfam’s complaints based on breach of contract and breach of legitimate expectation sought directly to impugn HMRC’s decision in relation to the input tax to be credited to Oxfam. Therefore, whereas the taxpayer’s complaints in that case did not fall within the scope of section 40(1)(b) of the 1972 Act, Oxfam’s complaints in this case do fall within the scope of section 83(1)(c) of VATA. (It should also be noted that Parliament responded to the decision in J.H. Corbitt (Numismatists) Ltd by expanding the jurisdiction of the tribunal to allow it to review such prior or remote decisions, by introducing what became section 84(10) of VATA – which tends to reinforce the view that no general exclusion of public law concepts was intended to apply in relation to the appeal provision in section 83).[77]Further, if Lord Lane’s dictum were taken to exclude jurisdiction for the Tribunal under section 83(1)(c) in this case, it would be very difficult to reconcile with the approach in the other decisions of the House of Lords and the general approach to interpretation of statutory jurisdiction provisions referred to in para. [66] above.[78]The issue is not straightforward, but I think that I should follow those decisions and that approach. Accordingly, I do not consider that I am bound by authority to reach a conclusion contrary to that given by the natural and ordinary meaning of the words used in section 83(c). I am fortified in that view by the fact that I raised this question with Miss Moore for HMRC and invited her to take specific instructions on it, and having done so she indicated that HMRC did not seek to argue against this construction and indeed presented argument in support of it. Mr Milne, who has extensive experience in this area, also did not seek to argue against this construction.[79]For these reasons, I consider that Oxfam’s legitimate expectation argument was one which could properly have been raised in its appeal to the Tribunal.[80]I am conscious that this is a procedural point of importance, that I am departing from a widely held view that the Tribunal’s jurisdiction is more limited and that I am doing so without the benefit of detailed argument to the contrary before me. Until the issue is authoritatively ruled upon at a level higher than this court, I think the prudent course for a taxpayer who wishes on public law grounds to challenge a relevant decision of HMRC falling within the scope of one of the headings in section 83 may be to seek to put forward such grounds in the course of an appeal to the Tribunal, but at the same time to issue a protective judicial review claim within time in case it is later determined that - contrary to my view in this judgment - the Tribunal has no jurisdiction in the matter.

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