Estoppel and earlier withdrawn VAT appeals

The UT has upheld the decision of the FTT that HMRC were not prevented by estoppel by acquiescence from arguing that the taxpayer was estopped from claiming a repayment of input VAT on certain investment management services on the basis that it had previously withdrawn an earlier appeal on the same issue: Telent Technology Services Ltd v HMRC [2024] UKUT 183.

HMRC’s initial indication that it would not raise estoppel as a defence was not detrimental to the taxpayer and so didn’t prevent HMRC later raising the procedural point. On the other hand, both issue and cause of action estoppel based on the taxpayer’s earlier withdrawal of its appeal against an assessment for input VAT on certain investment adviser fees did prevent it later seeking to claim a repayment of the same amounts.

Background

In 2006, the Telent Group placed a sum in escrow to provide comfort to the Pensions Regulator as to the funding of its pension scheme. It recovered input VAT on fees paid to investment advisers in relation to the management of those funds. In 2014, HMRC issued an assessment to recover that VAT. Telent initially appealed that assessment but later withdrew its appeal.

In 2016, Telent changed professional advisers and made a further claim to recover the input VAT on the investment management services. This new claim for repayment covered periods from 2012 to 2016, including several periods which had been the subject of the original 2014 HMRC assessment (the overlap period). HMRC rejected the claim and Telent appealed.

During the course of the dispute, HMRC first raised the issue that Telent was estopped from bringing a new claim for input VAT recovery for the overlap period, but then, following additional points raised, appeared to concede the point. HMRC’s statement of case did not raise the estoppel issue, however, HMRC continued to resist the claim on substantive grounds. Later, HMRC offered to settle the matter, but that following a further review they wanted to revisit the jurisdictional issue and so offered to settle the dispute on the basis that Telent conceded the claim for the overlap period. Telent rejected that offer. HMRC then withdrew its case on the substantive point, but continued to reject the claim for the overlap period on procedural grounds.

The FTT held that HMRC were not estopped from raising the point that Telent was estopped from relitigating the input VAT recovery for the overlap period and went on to uphold HMRC’s strike out application on the basis that Telent was estopped from raising the input VAT recovery for the overlap period, based both on cause of action and issue estoppel.

Decision of the UT

The UT has upheld the decision of the FTT.

Telent argued that HMRC, by its conduct, was prevented from raising the argument that Telent could not relitigate the input VAT recovery for the overlap period. HMRC had initially acquiesced in the argument that Telent could bring the claim, had not raised the issue in its statement of case and could not now rely on that point. In essence, Telent argued that it would be unconscionable for HMRC to have indicated to Telent that its appeal could proceed without procedural objection, and to state, in effect, that they would meet the claim in full if Telent succeeded on the substantive issue, only then to reverse their position shortly before trial, having conceded the substantive issue.

The UT rejected that argument. It was clear from authority that it is a necessary ingredient of estoppel by acquiescence, as for any estoppel by representation, that the party claiming the benefit of it has suffered detriment. In this case, the FTT made a clear finding that Telent had not suffered any detriment (the FTT considered that Telent would have continued to bring the claim even if HMRC had argued estoppel from the outset) and that aspect of the FTT decision had not been appealed.

Were Telent estopped from making its claim for the overlap period, given the fact that it had previously withdrawn its appeal against HMRC’s assessment for the same input VAT? VATA 1994 s.85 provides (broadly) that where an appeal is settled or withdrawn, then the position is treated as if the tribunal had determined the appeal or upheld the appeal.

The UT has held that Parliament intended s.85 could give rise to issue estoppel. Telent argued that the only effect of s.85 was to prevent re-litigation of the VAT assessment and that it did not extend to importing the reasons for the decision so as to affect a later different claim relating to the same situation. The FTT disagreed and that decision has been upheld by the UT. Section 85 deems to be determined “for all purposes” the grounds of appeal relied on by an appellant. The issue, therefore, was whether Telent’s entitlement to input VAT for the overlap period was a necessary element in its cause of action in the earlier withdrawn appeal – the answer to which was clearly yes. In this case, the grounds for claiming input VAT by Telent were, therefore, implicitly deemed to have been rejected and could not be revisited in the current action.

Even if it were wrong on that point, the UT went on to agree that Telent would, in any event, be prevented from bringing its claim for the overlap period by cause of action estoppel. Telent argued that the two claims covering the same matter had different causes of action. The first was HMRC’s decision to assess and the second was HMRC’s decision to refuse the claim for repayment. These were different causes of action. That argument was rejected as too narrow an approach. In this case, the cause of action was Telent’s claim to be entitled to input VAT credit on investment adviser fees, and that was the same cause of action as the earlier withdrawn appeal.

Comment

The decision highlights the complexities of the arguments around the relevance of estoppel in tax litigation as well as the potential dangers in failing to take up issues early in the trial process.