Serpentine Trust Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 July 2018 |
| Neutral Citation | [2018] UKFTT 535 (TC) |
| Date | 31 July 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0535 (TC)
Judge Anne Redston
Richard Vallat QC and Mr Hugh Gunson of Counsel, instructed by Weil, Gotshal & Manges (London) LLP, appeared for the appellant
Mr Michael Jones of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Supporter schemes and charitable donations – ADR meeting – FTT jurisdiction – What did the ADR decide – Was there a contract – If a contract, whether unilateral mistake by HMRC – Whether HMRC have the vires to make an agreement in those terms – Held, agreement ultra vires.
The First-tier Tribunal (FTT) ruled on a dispute between the parties over what had been agreed at an Alternative Dispute Resolution (ADR) meeting.
Serpentine Trust Ltd is a charity which runs two art galleries, the Serpentine Gallery and Sackler Gallery. Following an HMRC inspection visit there were various issues to be resolved between the parties and, rather than litigate those issues, the Trust attempted to resolve them via ADR.
The issue before the FTT related to the VAT liability of income received by the Trust via its various supporter schemes. Under the schemes supporters paid the Trust a set sum per annum and received various benefits in return, such as invitations to private viewings etc. As the schemes were intended as fundraisers, the value of the benefits was relatively low compared to the amounts paid by the supporters.
The Trust had received a ruling back in 2003 that for one of its schemes it could divide the supporter's payment into two elements, a donation element which was outside the scope of VAT and a payment for the benefits which was standard rated. This division was not disclosed to the supporters, and the benefits were not available unless supporters paid the full amount due under the scheme.
At the conclusion of the ADR the Trust took the view that HMRC had agreed that, provided it disclosed the way in which scheme payments were split into donation and payment elements, it could, in future, account for VAT on the “payment” element alone across all of its schemes.
After the ADR hearing the FTT heard an appeal by the Trust against HMRC's ruling that historic (i.e pre-ADR) scheme payments were subject to VAT in full (Serpentine Trust Ltd [2014] TC 03992). In this hearing Judge Mosedale concluded that the scheme payments were subject to VAT in full and expressed the view that splitting future scheme payments in the way “agreed” at the ADR was “wrong in law”. After this hearing, HMRC assessed the Trust for VAT on all of its income received under the supporter schemes on the basis that it was subject to VAT in its entirety. HMRC disputed that it had agreed that income could be divided up into donation and payment elements.
At this appeal the FTT heard detailed evidence concerning the history of the dispute, reviewed meeting notes and correspondence recording the ADR process and heard evidence from the ADR mediator. The FTT concluded that the written agreement reached by the parties at the end of ADR did, as the Trust contended, record that HMRC had agreed that the scheme income could be divided into nonVATable donation and VATable payment elements, provided that this split was disclosed to supporters. However, the FTT also concluded that, as determined in the first hearing, this conclusion was wrong in law and therefore the ADR agreement was ultra vires. As a result, HMRC were able to assess the Trust for VAT due on all income derived from the schemes.
The FTT concluded that “the only way for the Appellant to challenge HMRC's change of position is by judicial review action on the ground of legitimate expectation”.
The Trust is deserving of considerable sympathy in this case, it used ADR to reach a written agreement with HMRC, but HMRC then then changed their position and issued a substantial VAT assessment (the amount involved in this case was £65,268). Two FTT Judges agreed with the Trust over its interpretation of the ADR agreement, however the ADR agreement was contrary to both the law and HMRC's published policy. The Trust's advisor was aware of HMRC's published policy but informed the Tribunal that he had reached similar agreements with HMRC for many other charities and on this basis believed that HMRC's practice was as per the ADR agreement.
This case demonstrates the importance of confirming the legal basis for any agreement with HMRC and, also, that just because HMRC reach an agreement with one taxpayer they will not automatically reach the same agreement with another.
[1] The Serpentine Trust Ltd (“the Appellant” or “the Serpentine”) is a company limited by guarantee and a registered charity. It operates several supporter schemes (“the Supporter Schemes” or “the Schemes”), under which supporters make payments to the Appellant and receive a range of benefits.
[2] In July 2013 the Appellant and HMRC held an Alternative Dispute Resolution (“ADR”) meeting about the Schemes. During that meeting the parties sought to resolve a number of issues, including the position of five Supporter Schemes after 1 April 2013. The dispute now before the Tribunal concerns that issue only.
[3] During the same ADR meeting the parties had also sought to resolve the position of four Schemes for periods from 03/09 to 06/12. HMRC's view was that all the money received by the Appellant from the Schemes during those periods was standard rated. HMRC had issued two decisions to that effect, and a related assessment.
[4] The ADR process did not resolve that issue, and the Appellant appealed to the FTT. On 11 August 2014 the Appellant's appeal was heard by Judge Mosedale and her decision was published on 8 September 2014 as Serpentine Trust Ltd [2014] TC 03992 (“Serpentine 1”). Judge Mosedale found that the income received by the Appellant from supporters of those three Schemes during the periods 03/09 to 06/12 was standard rated because the Appellant had made a “single supply of the opportunity … to partake of exclusive events at, and offers by, the trust”, see [108] of Serpentine 1. The Appellant did not seek to appeal Serpentine 1, and accepts that Judge Mosedale's analysis is correct.
[5] Paragraphs 115 to 119 of Serpentine 1 are headed “Footnote – the new arrangements”. In those paragraphs, Judge Mosedale expressed her view that the approach which she understood to have been agreed in relation to the position of the Schemes for future periods was “wrong in law” and “inconsistent with [HMRC's] published position”.
[6] On 21 January 2015, HMRC wrote to the Appellant, saying they had not intended to agree anything contrary to HMRC policy. On 10 December 2015, HMRC issued an assessment for periods 04/13 to 12/14 (“the relevant period”), charging VAT of £65,268. The Appellant appealed that assessment to the Tribunal.
[7] The parties agreed that the issues before the Tribunal were:
- whether the Tribunal has the jurisdiction to rule on the issues in dispute; and if so
- whether the paragraph about the Schemes which had been included in the document exchanged between the parties at the end of the ADR meeting had the meaning relied on by the Appellants, or the meaning relied on by HMRC;
- whether HMRC and the Appellant had concluded a contract, and in particular whether there was:agreement between the parties;an intention to create legal relations (ITCLR); and/orthe omission of an essential term, so as to void the contract;
- if there was a contract between the parties, whether a unilateral mistake had been made by HMRC;
- if there was no unilateral mistake, whether HMRC had the power to make the agreement, or whether it was ultra vires.
[8] I decided those issues as follows:
- the Tribunal has jurisdiction to rule on the issues;
- the meaning of the words in the document exchanged between the parties is that advanced by the Appellant;
- the parties had concluded a contract;
- there was no unilateral mistake by HMRC; but
- the term of that contract which concerned the Schemes was void as ultra vires.
[9] I therefore dismiss the Appellant's appeal and uphold the assessment. The Appellant has also sought judicial review of HMRC's decision to issue the assessment; those proceedings are stayed until the outcome of this appeal. It will be for the High Court or Upper Tribunal to decide whether the Appellant had a legitimate expectation that it could rely on the terms of the contract it concluded with HMRC.
[10] The Tribunal was provided with a helpful Bundle of documents prepared by Weil, Gotshal & Manges (London) LLP on behalf of the Appellant. This included:
- correspondence between the parties, and between the parties and the Tribunal;
- various documents relating to the ADR meeting;
- brochures and website information about the Supporter Schemes; and
- the Appellant's Grounds of Appeal in Serpentine 1 and HMRC's skeleton argument in that appeal.
[11] Mr Socratous, director of SOC VAT Consultants (“SOC”), provided two witness statements, gave oral evidence and was cross examined. Mr Socratous had acted for the Appellant since 12 October 2012, and he attended the ADR meeting in that capacity. I found him to be an honest witness.
[12] The following HMRC Officers provided witness statements:
- Ms Zharina Murdock, who visited the Appellant on 9 and 10 November 2011, and who subsequently issued the assessments appealed in Serpentine 1; she attended the ADR meeting;
- Ms Sandra Chambers, who in January 2014 replaced Ms Murdock as the HMRC officer dealing with HMRC's enquiries into the Appellant;
- Ms Senaka Attygalle, the line manager for both Ms Murdock and Ms Chambers; she attended the ADR meeting;
- Mr David Webb, a senior policy adviser at HMRC who also attended the ADR meeting; and
- Mr Mark Carnduff, whose experience is in international tax, but who is also accredited as a mediator by the Centre for...
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