“It seems that there is doubt whether [Southern Cross] would benefit by being wholly or partly unjustly enriched if the repayment of the claim of30 March 2009 was made in full. In view of this doubt …, 10 perhaps you could demonstrate how your client suffered a loss as result of passing the VAT on for the period of this claim. I would be happy to meet to discuss this further.”
“The point here is that the main competitors, for most of the period of the claim, were accounting for VAT in the same manner as your client. 20 Hence, to at least an extent, it cannot be said to have suffered a loss as a result of accounting for VAT on its services when its competitors were exempting their supplies. It appears that Temp Dent Dental Agency Ltd may have been the first competitor to have finally got the VAT treatment correct. 25 It follows, as VAT was passed on and as competitors were also accounting for VAT, that [Southern Cross] would, at least to an extent, be unjustly enriched by the payment of the claim.” 30 9. Replying on9 March 2010 , Horwath Clark Whitehill continued to “maintain that [Southern Cross] rather than being unjustly enriched was put in a position whereby its profits were squeezed”
“In order for our client to make a decision in respect of the offer in your letter of 26 March can you please provide me with the total payment (VAT plus interest) that would be made to [Southern Cross], 10 as if the claim was paid on the date of your response.”
“I can confirm that the Commissioners will accept that 74% of the claim of£861,212 will be repaid. The VAT repayment will amount to 35£637,296.90 and together with the appropriate interest (to be calculated next week). I will arrange for authorisation of this sum next week.”
“Since authorising this claim I have been advised by colleagues in VAT policy that the claim should not have been paid. As part of a 45 wider review, the Commissioners have received legal advice to confirm that supplies of staff are not care or medical care, and that the 5 published guidance at that time amounted to an informal concession …. That the exemption of the supplies in question was a concession means that when your client charged VAT on their 5 supplies between 1973 and 1995 they were right to do so ….”
“Section 80(4A) operates whenever there has been a voluntary 10 payment in response to a claim under 80(2), but sub-s (4A) does not operate where a payment has been made in settlement of a dispute which has given rise to an appeal settled within the meaning of s 85. The distinction finds support at para 106 in [the Building Societies Ombudsman case].... It is true that there was no intervention of a 15 judicial determination as in [the Building Societies Ombudsman case], but s 85 has the same effect as the intervention of a judicial determination.”
“The power to make agreements with taxpayers for the payment of back duty, even in the absence of assessment and appeal, is in my view a power necessary for carrying into execution the legislation relating to 15 Revenue within the meaning of s 1 of [theInland Revenue Regulation Act 1890 ]. It is, of course, a power to be exercised with circumspection and due regard to the Revenue’s statutory duty to collect the public revenue. But if in an appropriate case the Revenue reasonably considers that the public interest in collecting taxes will be better 20 served by informal compromise with the taxpayer than by exercising the full rigour of its coercive powers, such compromise seems to me to fall well within the wide managerial discretion of the body to whose care and management the collection of tax is committed. Such informal compromise deprives the taxpayer of the locus poenitentiae provided 25 by s 54(2), and the right to re-open assessments under s 33, but it protects him against exercise of the Revenue’s more draconian enforcement powers (eg under ss 61 and 65) and often, as here, against further liability for penalties and default interest. I have no hesitation in holding such an agreement, properly made, to be binding.” 30 37. In the end, I have concluded that section 80 of the VATA does not bar HMRC from entering into a binding agreement to settle a claim under section 80(1) where there is no pending appeal. My reasons include these: (a) It is apparent from Moses J’s judgment in the DFS case that section 85 35 of the VATA allows HMRC to enter into a binding settlement agreement in the context of an appeal. It is hard to see why Parliament would have wished HMRC to have such an ability only where an appeal has been instituted. On the face of it, Parliament might have been expected to have thought it undesirable that parties should have to 40 resort to litigation to achieve a binding agreement; (b) As mentioned above (paragraph 34), Moses J observed in the DFS case that “it falls for consideration elsewhere as to whether s 85 ousts or merely augments the common law rule”
“When Parliament imposes a tax, it is the duty of the commissioners to assess and levy it upon and from those who are liable by law. Of 25 course they may, indeed should, act with administrative commonsense. To expend a large amount of taxpayer’s money in collecting, or attempting to collect, small sums would be an exercise in futility: and no one is going to complain if they bring humanity to bear in hard cases. I accept also that they cannot, in the absence of clear power, tax 30 any given income more than once. But all of this falls far short of saying that so long as they do not exceed a maximum they can decide that beneficiary A is to bear so much tax and no more, or that beneficiary B is to bear no tax.” 35 42. It is also clear, however, that HMRC have a managerial discretion. In IRC v National Federation of Self-Employed and Small Businesses Ltd[1981] STC 260 , Lord Diplock said (at 269): “[T]he Board are charged by statute with the care, management and 40 collection on behalf of the Crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the Board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available 45 to them and the cost of collection. The Board and the inspectors and collectors who act under their directions are under a statutory duty of confidentiality with respect to information about individual taxpayers’ 17 affairs that has been obtained in the course of their duties in making assessments and collecting the taxes; and this imposes a limitation on their managerial discretion. I do not doubt, however, and I do not understand any of your Lordships to doubt, that if it were established that the Board were proposing to exercise or to refrain 5 from exercising their powers not for reasons of ‘good management’ but for some extraneous or ulterior reason that action or inaction of the Board would be ultra vires and would be a proper matter for judicial review if it were brought to the attention of the court by an applicant with ‘a 10 sufficient interest’ in having the Board compelled to observe the law.”
“The commissioners, of course, have no power to agree to take a smaller sum for tax than is lawfully due on the information before the commissioners. They can, however, make a decision in their 20 management functions as to the extent of the information which they can reasonably expect to get and then make an agreement on that basis as to the tax payable.”
“[I]f in an appropriate case the Revenue reasonably considers that the public interest in collecting taxes will be better served by informal compromise with the taxpayer than by exercising the full rigour of its 40 coercive powers, such compromise seems to me to fall well within the wide managerial discretion of the body to whose care and management the collection of tax is committed.”
“Lawyers familiar with the phraseology commonly 5 used in relation to exercise of statutory discretions often use the word ‘unreasonable’ in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to 10 speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting ‘unreasonably’. Similarly, there may be something so 15 absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington LJ in Short v Poole Corporation gave the example of the red-haired teacher, dismissed because she had red hair. That is unreasonable in one sense. In another sense it is taking into consideration extraneous matters. It is so unreasonable that it 20 might almost be described as being done in bad faith; and, in fact, all these things run into one another.”
“[O]ne may safely assume that no court is going to be astute to allow public authorities to escape too easily from their commercial 45 commitments. 20 That should particularly be the case where, as here, legitimate expectations have been aroused in the other party (who clearly entered the contract in good faith), where the relationship between the parties is essentially of a private law character, where it is the authority itself which is seeking to assert and pray in aid its own 5 lack of vires, and where that lack of vires is suggested to result not from the true construction of its statutory powers but rather from its own Wednesbury irrationality. The burden upon the authority in such a case must be a heavy one indeed. It does not seem to me that the council 10 came within measurable distance of discharging it here.”
“It seems to me that if an intending litigant bonâ fide forbears a right to litigate a question of law or fact which it is not vexatious or frivolous 45 to litigate, he does give up something of value. It is a mistake to suppose it is not an advantage, which a suitor is capable of appreciating, to be able to litigate his claim, even if he turns out to be 23 wrong. It seems to me it is equally a mistake to suppose that it is not sometimes a disadvantage to a man to have to defend an action even if in the end he succeeds in his defence; and I think therefore that the reality of the claim which is given up must be measured, not by the state of the law as it is ultimately discovered to be, 5 but by the state of the knowledge of the person who at the time has to judge and make the concession. Otherwise you would have to try the whole cause to know if the man had a right to compromise it, and with regard to questions of law it is obvious you could never safely compromise a question of law 10 at all.”
“[W]e do not consider that the correspondence can support a conclusion that this was simply a case of HMRC seeking to ascertain the amount properly due. It is plain that such particularity would have 25 eluded both HMRC and Southern Cross. There was no clear evidence of the effect of the competition on the issue of unjust enrichment. Mr Knight’s proposal that the claim be paid as to 50% can only be regarded as an unscientific attempt to reach a compromise, and the counter-proposal of Southern Cross as an offer to settle at an amount 30 based on a proxy for evidence that was not available to calculate a correct amount.”