Oxfam v Revenue and Customs

HMRC approval of a taxpayer’s VAT apportionment method does not ordinarily create a binding contract. Its legal effect may instead be governed by substantive legitimate expectation. Where an assurance is specific to one taxpayer, absence of detrimental reliance will ordinarily defeat a claim that changing the approach is an abuse of power, particularly where the change corrects a reasonable common mistake and protects the public interest in proper and fair tax collection. A public authority may revise a policy or assurance for the future, subject to rationality and fairness. The VAT tribunal’s jurisdiction under section 83(1)(c) of the Value Added Tax Act 1994 extends to private-law and public-law issues directly relevant to the amount of input tax creditable.

Oxfam appealed against the VAT and Duties Tribunal’s rejection of its claim for repayment of additional input VAT incurred on unrestricted fundraising expenditure. HMRC had approved an apportionment formula in 2000. Following Church of England Children’s Society v Commissioners of Revenue and Customs [2005] EWHC 1692 (Ch), Oxfam applied the formula differently and claimed a higher recovery rate for earlier periods. HMRC refused the claim and withdrew approval of the method prospectively.

Oxfam argued that the approved method was contractually binding or, alternatively, gave rise to a substantive legitimate expectation. The central issues were whether a contract existed, whether HMRC had unlawfully defeated a legitimate expectation, and whether those issues fell within the Tribunal’s jurisdiction under section 83(1)(c) of the Value Added Tax Act 1994.

1. Contract. The appeal was dismissed. The Tribunal was entitled to find that the parties did not intend to create contractual relations. The correspondence, evidence and HMRC guidance showed an approval process for a taxpayer’s proposed method, rather than a contractual commitment. The Tribunal’s conclusion disclosed no error of law.
2. The Tribunal was also entitled to find that the parties had agreed the formula on the basis that unrestricted fundraising expenditure formed part of the denominator. Applying the formula differently after the later VAT decision would produce an unreasonable recovery rate and undermine the agreement’s practical purpose.
3. Legitimate expectation. HMRC’s approval was an express assurance capable of engaging substantive legitimate expectation. The applicable question was whether frustrating the expectation would be so unfair as to amount to an abuse of power, weighing fairness against any overriding public interest, following R v North and East Devon Health Authority, ex p. Coughlan [2001] QB 213.
4. In a case involving a specific assurance to one taxpayer, detrimental reliance was ordinarily required. Oxfam had not relied detrimentally on any expectation that the formula would later operate with fundraising expenditure excluded. HMRC’s correction of a reasonable common mistake, together with the public interests in collecting tax fairly, avoiding windfalls and ensuring uniform VAT treatment, meant that there was no abuse of power.
5. The Tribunal’s jurisdiction under section 83(1)(c) was defined by the subject matter of the appeal, namely the amount of input tax creditable, rather than by the legal regime used to resolve the issue. It therefore extended to directly determinative contract and legitimate-expectation arguments. The contrary narrower authorities were not binding and should not be followed.

The judgment states that the appeal was from the VAT and Duties Tribunal’s decision dated 30 July 2008 rejecting Oxfam’s appeal against HMRC’s decision of 10 January 2007. The Tribunal’s decision was upheld.