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The Serpentine Trust v HMRC

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In The Serpentine Trust v HMRC [2018] UKFTT 535 (31 July 2018), the FTT found that an agreement entered into by HMRC at the conclusion of an alternative dispute resolution (ADR) meeting was ultra vires and therefore void.

The Serpentine Trust is a company limited by guarantee and a registered charity. It operates several schemes under which supporters make payments to the Trust and receive a range of benefits. In July 2013, the trust and HMRC held an ADR meeting about the schemes. The FTT agreed with the parties, that, applying Southern Cross [2014] UKFTT 88, it had jurisdiction to decide the following substantive issues: whether the documents exchanged at the end of the ADR meeting formed a contract; and, if so, whether HMRC had made a unilateral mistake or the contract void, because it was ultra vires, as it did not reflect the legal position under VAT law.

On the first issue, the FTT found that the document exchanged at the end of the ADR meeting had clearly been intended by the parties to be a binding contract. The FTT referred in particular to the opening statement of the document: ‘This document records the agreement reached by close of discussions on 31 July 2013.’ The tribunal commented that it was not possible for HMRC ‘to go behind the words of the document’ to which both parties have agreed. It also referred to a letter from HMRC stating: ‘HMRC accept that there is an ADR agreement in place…’ The FTT added that the lack of term as to the duration of the agreement did not prevent the agreement from existing.

HMRC also contended that if the FTT found that the parties had made a binding contract, and the meaning of the words were those contended for by the Trust, the contract contained a mistake, and the Trust knew, or ought reasonably to have known, that HMRC did not intend to agree to those terms. The FTT observed that the HMRC officer had made extensive changes to the document, including clarificatory amendments, yet no changes had been made to the disputed paragraph. The FTT concluded that the trust had ‘no reason to suppose the existence of a mistake’. The contract was not void because of a unilateral mistake.

Finally, HMRC contended that the contract was ultra vires because it was a ‘forward or future agreement’. Referring to case law, the FTT considered that HMRC does have the power to make forward agreements of two types: those for which a specific vires is given by Parliament; and published extra-statutory concessions.

Gresham [1916] 1 Ch 228 and Al Fayed [2004] STC 1703 were, however, authority for the proposition that contracts between a taxpayer and HMRC which are stated to be binding for a stated period, or irrevocable, are ultra vires.

Similarly, referring to Preston [1985] AC 835, it observed that contracts between individual taxpayers and HMRC, which prevent HMRC from applying a taxing provision (other than in circumstances where the reason for that concession is for the purpose of HMRC’s overall task of collecting taxes), are ultra vires; and a change of position by HMRC can only be challenged by judicial review. It therefore followed from Preston that the only way for the Trust to challenge HMRC’s change of position was by judicial review action on the ground of legitimate expectation.

Read the decision.

Why it matters: It was accepted that what HMRC had agreed to was wrong as a matter of law. The FTT found that this meant that the agreement was ultra vires and void. This decision could be concerning for the future of ADR.