The court's ruling came in a decision in Telent Technology Services Limited v HM Revenue and Customs and has allowed HMRC’s strike-out application barring the taxpayer from claiming repayment.Telent Technology Services Limited (TTSL) had erred in law by not changing its statement from a previous appeal, which led The First-Tier Tribunal (FTT) to bar TTSL from appealing against HMRC's decision to deny a VAT refund of £855,754.
Telent Technology operates within various industry sectors including transport, emergency services, network providers, higher education and the public sector in November 2014 it was appealed for VAT recovery by HMRC from the duration of November 2010 to May 2014 for £1.4m. TTSL appealed the assessment but later pulled out. Later in 2016, TTSL sought another appeal for VAT pertaining to its retirement plans of £1.3m for the periods of August 2012-18 which consisted of the original assessment appeal, known as the overlap period, amounting to £855,754. HMRC denied TTSL the claim.
TTSL appealed this decision to the FFT.In July 2021, HMRC expressed that TTSL was ‘procedurally barred’ from reclaiming the VAT since their appeal consisted of 8 VAT periods, which included an overlap too. So the HMRC suggested that TTSL settle on that basis.The two parties failed to find common ground on the settlement of the dispute, therefore HMRC applied to strike out the appeal in relation to VAT periods and agreed to the rest of it.HMRC’s appeal to bar TTSL was based on section 85 of the Value Added Taxes Act (VATA) according to which, ‘where a person has withdrawn its appeal, the parties are deemed to have agreed that the decision under appeal should be upheld without variation’.
HMRC’s argument rested on the fact that when TTSL pulled out of the initial appeal, it was implied that both parties would come to the conclusion that the input tax on the investment into the retirement plan was not permissible. This resulted in VAT being deemed irrecoverable, and the principles of the cause of action estoppel, and/or abuse of process impeded relitigation.TTSL appealed that HMRC was stopped from denying to refund the VAT pertaining to the overlap period, due to its delay in raising the point.It was made prominent to the court that the main problem within the case was how section 85 of VATA was interpreted by the party. According to HMRC, based on section 85, the tribunal declared that the VAT for the overlap period was not refundable and according to Telent Technology, s85 VATA did not have that effect.
The tribunal stated: ‘Section 85(4) and (1) thus both include deeming provisions. When an appeal is withdrawn, the parties are deemed to have come to an agreement that the decision under appeal should be upheld without variation, and a tribunal is then deemed to have determined the appeal in accordance with the terms of the agreement’.It was then understood that the tribunal didn’t take into account the fact that how either party can ‘take issue’ with the ‘well established approach to the construction of deeming provisions’.Due to this, the court highlighted that TTSL had ‘simply notified HMRC that the appeal was withdrawn’ however, they had not reached an agreement. HMRC’s assessment rested on s73 of VATA as per HMRC's best judgment, which implied that input tax on the retirement plan was not permissible.
Additionally, it was also deduced that TTSL’s appeal against the assessment was under s83, however it withdrew its appeal under s85 which excludes relitigation of the case.The court highlighted that based on this, TTSL was deemed by s85 to come to terms with HMRC which didn’t happen. It then ruled that HMRC was not stopped from bringing up the jurisdiction issue, expressing that HMRC changed its perspective on the law with the court ruling that a party can change its view of the law at any time subject to the other party having a fair opportunity to respond' which TTSL had.
The court expressed that in relevant case law 'where the cause of action estoppel applies because an identical point has previously been decided creates an absolute bar to allowing the new case to proceed'. It additionally stated that TTSL had not contended that the case depended on any new or varied viewpoints in comparison to those that were set out in the first appeal against the assessment.Based on all of this evidence, TTSL was barred from claiming a refund for the proceedings that pertained to the overlap period. The court stated: ‘Even were I to be wrong on the cause of action estoppel, so that a more flexible approach was to be possible, the absence of any factual or legal new point means that relitigation would be an abuse of process.
’ The court ruled that this was enough to approve HMRC’s strike out application and disregard the appeal from TTSL for the overlap period of VAT worth £855,000.Although TTSL is permitted to appeal the ruling, no appeal has yet been made.
