The Boots Company plc v Her Majesty's Revenue & Customs, V 20644
Jurisdiction | UK Non-devolved |
Judge | Dr A Nuala BRICE |
Judgment Date | 09 April 2008 |
Respondent | Her Majesty's Revenue & Customs |
Appellant | The Boots Company plc |
Reference | V 20644 |
Court | First-tier Tribunal (Tax Chamber) |
20644
VALUE ADDED TAX – retail scheme - Appellant accounted for tax in accordance with a bespoke retail scheme – a customer who spent £15 on qualifying goods was given a “voupon” which entitled the customer to a discount of £5 on purchase of other goods (redemption goods) – Appellant claimed that it should account for tax on the voupons by reducing the value of the qualifying goods by £5 and not reducing the value of the redemption goods – Customs agreed and made a repayment accordingly - later Customs decided that the repayment was a mistake and raised an assessment to recover the amount paid - whether repayment made on a correct view of the law – no – whether repayment made on correct view of published notice upon which Appellant entitled to rely - no - whether Customs had agreed a (binding) amendment to the Appellant’s bespoke retail scheme – yes – whether, if no binding amendment, assessment invalidly made – no – appeal allowed – Sixth Directive (77/388/EEC) Arts 11 and 27- VATA 1994 ss 19, 58, 73, 78A(2) and 80; Sch 6 para 5 and Sch 11 para 2(6) - Value Added Tax Regulations 1995 SI 1995 No. 2518 regs 37, 66, 67 and 68 – Public Notice 727/4 para 7.18
LONDON TRIBUNAL CENTRE
THE BOOTS COMPANY PLC
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Tribunal: DR A N BRICE
MRS C E FARQUHARSON
Sitting in London on 25 to 28 February 2008
Melanie Hall QC with Tim Ward, Counsel, instructed by KPMG LLP for the Appellant
Owain Thomas, Counsel, with Andrea Lindsay Strugo, Counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2008
DECISION
The appeal
1. The Boots Company plc (the Appellant) appeals against (1) a decision of The Commissioners for Her Majesty’s Revenue and Customs (Customs) dated 10 January 2005 withdrawing a decision made on 28 November 2003 that the Appellant could account for tax on the reduced value of a qualifying supply which was accompanied by a voucher for a subsequent supply and (2) an assessment dated 23 March 2005 for £2,006,794 which sought to recover most of the amount repaid to the Appellant in December 2003 as a result of the decision of November 2003.
Background
2. The Appellant accounted for value added tax by reference to a bespoke retail scheme. During 2002 and 2003 the Appellant ran five sales promotions during which a document called a voupon was given to each customer who purchased goods for at least £15 (the qualifying goods). The voupon entitled the customer to £5 off some subsequent purchases (the redemption goods). Initially the Appellant accounted for value added tax on the full value of the qualifying goods and on the reduced value of the redemption goods. On 28 November 2003 Customs decided that in 2002 and 2003 the Appellant could account for tax on the reduced value of the qualifying goods and the full value of the redemption goods and on 11 December 2003 repaid the Appellant the sum of £3,354,435. On 10 January 2005 Customs withdrew the decision of 28 November 2003. On 23 March 2005 Customs issued an assessment to the Appellant under section 80(4A) of the Value Added Tax Act 1994 (the 1994 Act) for £2,006,794 in order to recover most of the amount repaid on 11 December 2003.
The issues
3. The Appellant put forward four alternative arguments. These were: first, that on 28 November 2003 Customs had agreed a binding amendment to the Appellant’s retail scheme and could not amend that agreement retrospectively; secondly, that the assessment was invalid because it should have been raised under section 73 of the 1994 Act (and not under section 80(4A)) and did any new assessment would not comply with the time limits in section 73; thirdly, that the repayment made on 11 December 2003 reflected the true value of the qualifying supply; and, fourthly, that the repayment made on 11 December 2003 accorded with the method of valuation in paragraph 7.18 of Notice 727/4 upon which the Appellant was entitled to rely.
4. Customs put forward four main arguments. These were: first, that the repayment made on 11 December 2003 did not reflect the true value of the qualifying supply because the voupons had been supplied for no consideration and so the legal position was that tax was due on the full price of the qualifying goods and on the reduced price of the redemption goods; secondly that paragraph 7.18 of Notice 727/4 only applied to vouchers which had been issued for a consideration and so did not apply to voupons and, in any event, Notice 727/4 did not apply to the Appellant who was not entitled to rely on it; thirdly, that Customs had not agreed a binding amendment to the Appellant’s retail scheme but rather had given an erroneous ruling on a matter of law from which they were entitled to resile; and fourthly that the assessment was correctly made under section 80(4A) and was in time.
5. It seems to us that we first have to decide whether the repayment was made on the correct view of the law. If we find against the Appellant on that matter we then need to ask whether the repayment accorded with the method of valuation in paragraph 7.18 of Notice 727/4 and whether the Appellant was entitled to rely on that paragraph. If we find against the Appellant on that matter we need to ask whether there had, nevertheless, been an agreement to amend the Appellant’s bespoke retail scheme which was binding on both parties. Again, if we find against the Appellant on that matter we have to go on to ask whether the assessment was validly made. Thus we have identified the following issues for determination in the appeal:
(1) whether the repayment was made on the correct view of the law; if not
(2) whether the repayment was in accordance with paragraph 7.18 of Notice 727/4 and whether the Appellant was entitled to rely on that paragraph; if not
(3) whether Customs had agreed a binding amendment to the Appellant’s retail scheme; and if not
(4) whether the assessment was validly made.
The evidence
6. Five bundles of documents were produced by the parties. Oral evidence was given on behalf of the Appellant by Mr Jeremy Michael Hall, the Group VAT Manager of Alliance Boots, the successor of the Appellant, and by Mr Christopher John Bunyan of KPMG London.
The facts
7. From the evidence before us we find the following facts.
8. The Appellant is the representative member of a VAT group whose main business activity is that of retail chemists, including photographic and optical sales. The Appellant has been registered for value added tax since 1973.
9. In four of the five accounting periods the subject of this appeal (namely the accounting periods ending in February 2002, May 2002, February 2003 and May 2003) the Appellant had to pay tax to Customs; in the other accounting period, namely that ending in November 2002, the Appellant claimed a repayment from Customs.
The Appellant’s retail scheme
10. Businesses with an annual tax exclusive turnover in excess of £100 million are ineligible to use a published retail scheme and must agree a retail scheme with Customs. Such agreed schemes are called bespoke retail schemes. The Appellant accounts for value added tax under a bespoke retail scheme.
11. An Agreement in Principle in respect of a bespoke retail scheme was agreed between the Appellant and Customs on 24 June 1998. That agreement provided that fourteen matters were to be excluded from the agreed calculation methods and any value added tax arising would be dealt with as a separate calculation. One of the fourteen excluded matters was “sales of gift vouchers”. The Agreement in Principle concluded by recording that best endeavours would be made by the Appellant and Customs to have a full formal agreement completed by 30 September 1998 but, until the formal agreement was signed, the Agreement in Principle would be binding on both parties.
12. In fact, no other formal agreement was ever signed but we saw a document called Draft 4 which was a draft of a Bespoke Retail Scheme Agreement between the Appellant and Customs. It did not bear a date but the (blank)...
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