The Boots Company Plc v HM Revenue & Customs

For a retailer operating an agreed VAT scheme, a retrospective repayment of tax does not, without more, amend that scheme or amount to permission to use a different valuation method. The legal effect of an exchange of correspondence is determined objectively from the communications read in their relevant common context. Private intentions, internal departmental communications and later events do not assist in construing the agreement or permission. Where the correspondence shows only a claim that tax was overpaid and an acceptance of that claim, the repayment is made under Value Added Tax Act 1994, rather than by retrospective variation of the retailer’s scheme. A tribunal errs if it converts a claim based on a mistaken view of the law into an agreement to apply that treatment regardless of its legal validity.

The appellant, the representative member of a VAT group, ran five promotions in 2002 and early 2003 under which customers spending at least £15 received a £5 voucher for a later purchase. Boots claimed repayment of VAT, contending that the price paid when the voucher was issued should be apportioned between the goods and voucher, with VAT accounted for on redemption.

The Value Added Tax and Duties Tribunal held that the ordinary VAT treatment was different but found that correspondence with HMRC had retrospectively amended Boots’ bespoke retail scheme. On HMRC’s appeal, Patten J allowed the appeal, holding that the Tribunal’s conclusion was unsupported by the correspondence: [2009] EWHC 487 (Ch). The central issue was whether HMRC’s acceptance of Boots’ repayment claim also constituted a binding variation of the scheme or permission to use the proposed method.

1. Appeal dismissed. The Court of Appeal upheld Patten J’s conclusion that the Tribunal had reached a conclusion which was not open to it on a proper reading of the relevant correspondence. The Tribunal should not have allowed Boots’ appeal against the assessment.
2. The court treated the issue as, at least, a mixed question of fact and law, and potentially directly as a question of law. The legal effect of the five letters had to be determined objectively from their terms, read in the context known to both parties. Subjective intentions, HMRC’s internal communications and later events were irrelevant to construction. The same principles applied whether the issue was a binding agreement or unilateral permission by HMRC. This was consistent with GUS Merchandise Corp Ltd v Customs & Excise Commissioners [1995] STC 279, which required attention to the correspondence in context and the parties’ objectives.
3. Boots’ letters, properly construed, made a claim for repayment of VAT said to have been overpaid in respect of completed promotions. HMRC’s final letter accepted that claim on the basis that the legislative treatment before the 2003 Budget differed from that thereafter. It did not objectively show agreement to amend the bespoke retail scheme or permission under regulation 67 of the Value Added Tax Regulations 1995 to use the proposed method. The fact that other arrangements had informally amended the scheme, and that the repayment was made, did not establish a wider effect.
4. The Tribunal’s finding was additionally flawed because Boots relied on paragraph 7.18 of Notice 727/4, but that provision did not apply to Boots’ bespoke scheme and, in any event, did not have the meaning or effect Boots asserted. The correspondence focused on legal entitlement, not on a request for a special retrospective method regardless of the law.
5. The repayment therefore arose under section 80 of the Value Added Tax Act 1994. HMRC was entitled to assess and recover the excess under section 80(4A). The court did not need to decide the separate issues raised by HMRC concerning ultra vires action or retrospective withdrawal under regulation 68.

• Court of Appeal (Civil Division): appeal dismissed; Patten J’s decision upheld, [2009] EWHC 487 (Ch).
• High Court of Justice, Chancery Division: HMRC’s appeal from the Tribunal allowed. Patten J held that the Tribunal’s conclusion that the correspondence amended Boots’ bespoke retail scheme could not properly have been reached.
• Value Added Tax and Duties Tribunal: Boots’ appeal was allowed on the binding-amendment issue, despite the Tribunal rejecting Boots’ arguments on the ordinary VAT treatment and Notice 727/4, [2008] UKVAT V20644.