Cambria Automobiles (South East) Limited & Anor v The Commissioners for HMRC

An agreement settling a VAT appeal under Value Added Tax Act 1994, section 85, has the same consequences as a tribunal determination in accordance with its terms. Its scope is determined objectively by construing the agreement in its documentary, factual and statutory context.

Where the agreement settles a claim for overpaid VAT concerning identified supplies and periods, a later claim for additional repayment based solely on a revised method of calculation is precluded if the agreement objectively extends to the whole overpayment. The fact that a later claim has something new to say does not displace the final effect of a section 85 settlement. A fresh calculation method does not itself create a distinct section 80 claim.

Cambria Automobiles (South East) Ltd and Invicta Motors Ltd made claims in 2003 for historical VAT overpaid on demonstrator vehicles. Their appeals against HMRC’s partial rejection of those claims were settled in 2006 by an agreement under Value Added Tax Act 1994, section 85.

After HMRC amended the tables used to calculate such claims, the companies made further claims in 2009 for the shortfall. The First-tier Tribunal held that the settlement covered those claims and that pursuing them was abusive. It struck out the appeals, while also purporting to dismiss them.

The Upper Tribunal considered whether the section 85 agreement settled only the claims as then calculated, or all overpaid VAT on the identified vehicles and accounting periods.

1. Appeal dismissed. The Upper Tribunal set aside the First-tier Tribunal’s decision for errors of law in its reasoning, but remade the decision and reached the same result.

2. The phrase “the Appellants’ claim for overpaid VAT” in the section 85 agreement was construed objectively, applying the contractual-interpretation approach in Arnold v Britton [2015] UKSC 36. Its natural and ordinary meaning was a settlement of the claim and appeal concerning overpaid VAT, rather than a settlement confined to a particular calculation method.

3. The factual background confirmed that, throughout the negotiations, the core objective was recovery of overpaid VAT on the identified demonstrator vehicles in the specified periods. The Italian tables were only a means of calculating the amount. Changes in vehicle numbers or margins during negotiation did not alter the identity of that claim.

4. The special provision concerning a Regulation 29 claim did not assist construction. Nor did commercial common sense favour either construction. HMRC’s statutory role did not permit the companies to disregard a final statutory settlement merely because later-discovered facts could have produced a better bargain.

5. The principle allowing a later section 80 claim which has something new to say, discussed in Hayward Gill v CCE and John Wilkins (Motor Engineers) Ltd v HMRC, did not govern a claim that had been settled under section 85. Those authorities did not concern an agreement or an actual or deemed tribunal determination. A tribunal determination of quantum could not plausibly leave either party free to reopen the same overpayments on later evidence.

6. Regulation 37 required a claimant to state the amount claimed and its method of calculation. It was administrative and did not mean that every alteration of calculation methodology created a new claim.

7. Accordingly, the agreement covered all Italian Republic overpayments for the relevant vehicles and periods. The 2009 claims were invalid, and the related appeals were an abuse of process.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the companies’ appeals, after setting aside and remaking the First-tier Tribunal’s decision for different reasons.
• First-tier Tribunal: decision dated 9 November 2021. It held that the section 85 agreement precluded the 2009 claims and that pursuing them was an abuse of process.