“The Appellant is in discussions with the Respondents about this matter and a number of other matters as part of a consideration of the Appellant’s tax affairs. Those discussions may serve to narrow or resolve the issues between the parties in this Appeal , saving time and expense for the parties and the Tribunal. Thus a standover is appropriate in all the circumstances” 27. The first communication relevant to this application is a letter dated25 October 2011 from Mr Paul Hammond, a senior manager at Deloitte, to HMRC Large Business Services in Manchester. The letter is not marked “without prejudice”
“I am writing further to your decision to assess N Brown Group PLC (‘N Brown’) in respect of its partial exemption position – and specifically in respect of the period of time covered by the assessment. In our opinion, several periods covered by the assessment contained in your letter dated9 July 2010 (‘the assessment’) were ‘out of time’, and therefore the assessment should be corrected to reflect only those periods which were within the statutory time limits set out in theVAT Act 1994 (‘VATA 1994’). On a without prejudice basis, I would like to confirm at the outset, that there [sic] purpose of this particular letter is not to challenge the technical basis of the assessment or seek to comment on the accuracy of the assertions made by HMRC with regard to ‘use’ of input tax.” 28. The letter then sets out the background to the dispute and Deloitte’s technical analysis of the law and its application to N Brown Group plc before concluding that the assessment was largely out of time. 29. On27 October 2011 , Mr Carl Wood, customer relations manager in HMRC’s Large Business Services in Leeds, wrote to Mr Hammond. The letter was stated to be further to a letter from Mr Hammond on 21 April and a meeting on 18 May. The letter sets out HMRC’s detailed analysis of the arguments in the case. The letter stated that HMRC were confident of defending their position at the Tribunal, should it be required”
“HMRC are always willing to engage in further discussions if different situations or proposals come to light. Our Mr Todd reiterates that the best solution is to agree an approvable PE Special Method and that he would be happy to discuss a framework to help avoid litigation.” 30. Mr Mark Smith, partner in Deloitte, responded in a letter to Mr Wood dated22 November 2011 with the subject line “N Brown Group plc – Without Prejudice”
“Thank you for your letter dated27 October 2011 . Given the length of this dispute, it was extremely helpful to receive a reasoned analysis of your position and your views on how case law should be interpreted, not least because it allows us to pinpoint genuine areas of agreement, difference and misunderstanding.” 31. The letter then describes the differences between the parties and HMRC’s analysis. Under the heading “Group Strategy” the letter stated: “The central point to resolving this dispute is for the Commissioners to obtain a very clear understanding of the Group’s strategy in relation to marketing costs, personal accounts and financial income.” 32. The letter concluded under the heading “Next Steps”: “To remedy the fact deficit, we are reviewing the detailed operations of the Group’s marketing team and anticipate reporting back to you in writing within three weeks. We would suggest that it may be appropriate to defer the decision re enforcement of the assessment until this new factual information is received and it can be reviewed by the [HMRC] Solicitor’s office.” 33. Mr Wood replied to Mr Smith by letter dated22 December 2011 . The letter was headed “N Brown Group plc – Partial Exemption – Without Prejudice”
“However, it is acknowledged that it is important that both sides are in agreement as to the particular facts at the heart of the issue. To date we have conducted extensive investigations to establish the facts and have shared our conclusions with the business at every stage. One of the hoped-for outcomes of these discussions was to enable the approval of a new proposed special method. It remains our hope that this is still attainable. Given that presumably both sides wish to arrive at an approved fair and reasonable Partial Exemption method, it is vital that we work together to resolve issues if at all possible. There has [sic] already been lengthy discussions with your clients [sic] tax department and marketing representatives as well as two agents, however we appear to be no closer in reaching an agreement, hence HMRC having to take assessment action. We welcome your proposed review of the operations about the Group’s Marketing strategy and note that you intend to supply a report to us within three weeks. To date, nothing has been received. HMRC will, as we have constantly stated throughout this issue, be willing to consider any information supplied to us in relation to this issue and I would suggest that it would seem appropriate that any review of the Group’s marketing team operations includes the Commissioners. The risk otherwise is that work and resources may be unnecessarily duplicated for your client if we need to clarify or check the conclusions. … And we will be in touch shortly to discuss arrangements. I hope that you take away from this HMRC’s continued aim to ensure that we are constantly reviewing the issue and willing to consider new points or new information. However, HMRC are content on the actions already taken to raise assessments and are confident of presenting our case at the likely Tribunal.” 34. The penultimate paragraph of the letter stated: “HMRC have always been willing to consider new proposals or information and if that is enough to change HMRC’s views on the assessments raised then we will fully review that situation at the time and if the assessments are reduced, then repayment of that reduction will be made to your client.” 35. The issue is whether Mr Smith’s letter to Mr Wood dated22 November 2011 , assessed objectively as at the date of the communication and having regard to the relevant factual circumstances, is part of a negotiation with a view to settlement or merely an assertion of a party’s rights. The fact that the letter was marked “without prejudice” gives rise to a rebuttable presumption that it was a without prejudice communication but it is no more than that. The use of the phrase “without prejudice” does not mean that the letter is protected by the rule if it does not represent a genuine attempt to negotiate a settlement. In considering the status of the letter of22 November 2011 , I must consider what, on a reasonable basis, Mr Smith intended by the letter and how it would be understood by a reasonable recipient. In this case, I have taken Mr Wood as a proxy for the ‘reasonable recipient’. 36. Ms Sloane submitted that the stay of the proceedings showed that the parties had been engaged in negotiation to resolve the dispute without recourse to litigation. She noted that Mr Wood’s reply to Mr Smith’s letter was itself headed “without prejudice”