TC09595 - [2025] UKFTT 00894 (TC)

It is common ground that if there was an agreement between the parties under s 85 VATA in regard to the supply of training that took place in New Zealand, HMRC must give effect to it. It is also agreed that if there is to be an apportionment that 27.4% of the amounts received by APL from the cadets should be treated as relating to training in New Zealand. However, the parties part company on whether, in fact, there was such an agreement.

Section 85 VATA, insofar as applicable, provides:

In Schuldenfrei v Hilton (Inspector of Taxes) [2019] STC 821 the Court of Appeal considered whether the parties in that case had “come to an agreement” in relation to s 54 Taxes Management Act 1970 (“TMA”), the direct tax equivalent of s 85 VATA. Jonathan Parker J delivering the first judgment of the Court of Appeal said:

“… . The question which arises under s 54(1) is whether the Revenue and the taxpayer have ‘come to an agreement’ in relation to the assessment under appeal. If they have, then the subsection itself prescribes the consequences which are to follow from that agreement. Thus, the question whether a s 54 agreement has been concluded has to be considered in a statutory, not in a common law, context.

43.

That is not to say, however, that common law concepts such as that of offer and acceptance are not of assistance in addressing that question. It does not follow from the mere fact that parties are ‘in agreement’ in relation to a particular matter that they have concluded, reached, or ‘come to’ any agreement about it. As the commissioners rightly said: ‘the fact that two persons find that they have the same expectations or objectives does not mean that they have come to any agreement’ (see [1997] STC (SCD) 193 at 202, para 23).

44.

To my mind, the notion of parties having ‘come to’ an agreement plainly implies not merely that they are of the same mind in relation to a particular matter, but also that their minds have met so as to form a mutual consensus; and that that a meeting of minds, that mutual consensus, has resulted from a process in which each party has to some extent participated. On that footing it is, in my judgment, both legitimate and helpful (as both sides have accepted) to approach the question whether the Revenue and the taxpayer have made a s 54 agreement in the instant case by applying common law principles of offer and acceptance.”

In Delbourgo v Field (Inspector of Taxes) [1978] 2 All ER 193 at 197, Orr LJ (who was also concerned whether there was an agreement under s 54 TMA) said:

“… in my judgment, the agreement, to fall within the section, must be an agreement that the assessment is to be upheld or an agreement that it be discharged or an agreement that it is to be varied and, if it is an agreement to vary, it must specify what the varied amount of the assessment is to be or, at the very least, must provide the commissioners with a basis from which the varied figure can be readily calculated.”

As it is accepted that the same principles apply in the context of s 85 VATA (which is in very similar terms to s 54 TMA) it is necessary to consider whether the parties came to an agreement following the exchanges between them that we have set out above under the sub-heading “Contact with HMRC” (see paragraphs 66 – 77, above).

Ms Shaw contends that, although not expressed in terms of offer and acceptance, the substance and effect of the exchange between the parties is that APL, through its solicitors in the representations of 2 May 2023 (see above at paragraph 69) did provide the basis from which a varied figure could be readily calculated and that this was accepted by HMRC in their letter of 13 October 2023 (see paragraph 75, above).

Mr Watkinson, however, contends that the bases of a s 85 VATA agreement are not present. There is he says, no reference in the process to the settling the appeal or part of it, coming to any negotiated position on it, entering any contractual agreement any offer or any acceptance and even if there was it was withdrawn a week later before there had been any response to it. Moreover, he submits that any purported agreement is contingent on APL not accepting HMRC’s primary case and therefore there has been no variation in terms of quantum or actual liability.

However, we have come to the conclusion that HMRC’s response of 13 October 2023 was clearly acceptance of the representations made on APL’s behalf on 2 May 2023 which, particularly at paragraph 11 of the representations (see paragraph 69, above), does give HMRC a basis from which the varied amount can be readily calculated. Accordingly, it follows that there was a s 85 VATA agreement between the parties in regard to the supply of training that took place in New Zealand.

We find support for this conclusion in the application to the Tribunal on 28 September 2023 in which HMRC sought an extension of time to exchange lists of documents to accommodate the “change in its view” regarding place of supply (see paragraph 74, above).

Although HMRC sought to withdraw from that agreement by the letter of 20 October 2023, we consider that this was an attempt to shut the stable door after the horse had bolted. By 20 October 2023 the parties had already entered into an agreement from which HMRC could not resile given that it must be treated, under s 85 VATA, as if “a tribunal had determined the appeal in accordance with the terms of the agreement”.

We do not consider the fact that APL did not accept HMRC’s primary case has any bearing on our conclusion on this issue. Given that APL had already appealed to the Tribunal at the time it entered into negotiations regarding the place of supply with HMRC it would have been understood by the parties that, as is the case with all litigation, they might not succeed on every issue and seek to reach agreement to cover that eventuality.