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M33: Settling appeals by agreement
Direct tax: s.54 agreement
Pre-condition: notice of appeal must be given in accordance with s.31A (in writing, within 30 days, to the relevant officer, specifying grounds)
“It is clear from the drafting of s54(1) that the giving of a notice of appeal by a person is pre-condition to the operation of section and that the reference to notice of appeal is one which is covered by s31A TMA 1970. We find as fact, given the correspondence we have received, that no appeal was filed in writing prior to the meeting at which it is maintained a s54 agreement was reached.” (Saheid v. HMRC [2016] UKFTT 224 (TC), §72).
HMRC cannot treat oral appeal as s.31A notice
“While we can appreciate that HMRC’s stated motivations for accepting an oral appeal stemmed from a desire to reach a pragmatic resolution to the enquiry we were not persuaded, despite HMRC’s arguments, that there was a legal foundation for treating a verbal appeal as if it were notice of appeal that had been filed in writing.” (Saheid v. HMRC [2016] UKFTT 224 (TC), §77).
Appeal treated as determined in accordance with the agreement
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"(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the tribunal, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the tribunal had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be." (TMA 1970, s.54(1))
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Agreement that is not in writing must be confirmed by notice in writing
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"(3) Where an agreement is not in writing—
(a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the inspector or other proper officer of the Crown to the appellant or by the appellant to the inspector or other proper officer;" (TMA 1970, s.54(3)(a))
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“Read in the context of the preceding correspondence, and having regard to the express reference to section 54 TMA 1970, I consider that HMRC’s letter dated 5 March 2008 quoted in paragraph 20 above amounted to notice that the Trustee had agreed that the assessment the subject of the closure notice should be upheld without variation.” (McNulty v. HMRC [2012] UKUT 174 (TCC), §51).
Agreement may be with a person acting on behalf of the Appellant
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"(5) The references in this section to an agreement being come to with an appellant and the giving of notice or notification to or by an appellant include references to an agreement being come to with, and the giving of notice or notification to or by, a person acting on behalf of the appellant in relation to the appeal." (TMA 1970, s.54(5))
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Right to resile within 30 days of written agreement or written notice
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"(2) Subsection (1) of this section shall not apply where, within thirty days from the date when the agreement was come to, the appellant gives notice in writing to the inspector or other proper officer of the Crown that he desires to repudiate or resile from the agreement." (TMA 1970, s.54(2))
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"(3) Where an agreement is not in writing—
(a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the inspector or other proper officer of the Crown to the appellant or by the appellant to the inspector or other proper officer; and
(b) the references in the said preceding provisions to the time when the agreement was come to shall be construed as references to the time of the giving of the said notice of confirmation." (TMA 1970, s.54(3))
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Repudiation must be clear and unequivocal
“We have already referred to the need for certainty in relation to agreements under s 54 TMA 1970. For the same reason it is necessary, in a case where an appellant wishes to repudiate or resile from such an agreement, that the way in which the appellant expresses such a wish should be clear and unequivocal. Mr Thompson did not state that he wished to withdraw from the agreement with HMRC; he merely said that he would “discuss with Mr Skinner whether to go for a full tribunal regarding all payments”. In making this statement, he was referring both to the dispute relating to interest, and to the tax liability. He was considering whether to seek a tribunal hearing, but was not stating a definite intention to proceed with one. There is a difference between informing HMRC that he and Mr Skinner were discussing a course of action and giving notice to HMRC that they were definitely going to take that course of action. We find that the email did not amount to a notice under s 54(2) TMA 1970.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §69)
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VAT: s.85 agreement
"(1) Subject to the provisions of this section, where a person gives notice of appeal under section 83 and, before the appeal is determined by a tribunal, HMRC and the appellant come to an agreement (whether in writing or otherwise) under the terms of which the decision under appeal is to be treated—
(a) as upheld without variation, or
(b) as varied in a particular manner, or
(c) as discharged or cancelled,
the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, a tribunal had determined the appeal in accordance with the terms of the agreement." (VATA 1994, s.85(1))
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Oral agreement must be confirmed in writing
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"(3) Where an agreement is not in writing—
(a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by HMRC to the appellant or by the appellant to HMRC, and
(b) references in those provisions to the time when the agreement was come to shall be construed as references to the time of the giving of that notice of confirmation." (VATA 1994, s.85(3))
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Includes persons acting on the taxpayer's behalf
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"(5) References in this section to an agreement being come to with an appellant and the giving of notice or notification to or by an appellant include references to an agreement being come to with, and the giving of notice or notification to or by, a person acting on behalf of the appellant in relation to the appeal." (VATA 1994, s.85(5))
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Taxpayer's right to resile within 30 days
"(2) Subsection (1) above shall not apply where, within 30 days from the date when the agreement was come to, the appellant gives notice in writing to HMRC that he desires to repudiate or resile for the agreement." (VATA 1994, s.85(2))
Repudiation must be clear and unequivocal
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See above.
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No duty on Tribunal to consider whether assessment too high or too low
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"[147] Where, as here, an appeal has been withdrawn before the hearing, HMRC’s decision is deemed to have been upheld “without variation”. As the UT said in Albert House, the provisions relating to the consequences of withdrawal are an express statutory exception to the Tribunal’s general duty to consider whether the assessment is too high or too low. It is, instead, the decision itself which is deemed to have been agreed as between the parties." (Telent Technology Services Limited v. HMRC [2022] UKFTT 147 (TC), Judge Redston)
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Agreement
Meeting of minds (offer and acceptance)
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“I find it difficult to envisage a situation in which an agreement which is effective under s 54(1) ("a s 54 agreement'') would not also be enforceable as a binding contract at common law; but I also agree with the Judge that it is not necessary for present purposes to decide whether a s 54 agreement must invariably meet all the requirements of the common law in relation to the enforceability of contracts, including in particular the requirement of consideration. 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…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 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.” (Schuldenfrei v. Hilton [1999] STC 821, §§42…44).
“But no offer or invitation to come to an agreement was made by DFS. In the absence of such an offer or invitation, no oral acceptance was possible on 25 November 1996 or at any other time. In the absence of an offer and an acceptance, there was no meeting of minds and no agreement, either within the meaning of section 85 or at common law.” (R (oao DFS Furniture Co plc) v. CEC [2002] EWCA Civ 1708, §42).
“Schuldenfrei is authority for the view that an agreement plainly implies, not merely that the parties are of the same mind in relation to a particular matter, but also that their minds had met so as to form a mutual consensus and that that meeting of minds had resulted from a process in which each party had to some extent participated. Here there is no evidence that the taxpayer and the Revenue were ever of the same mind about the application of the accounts basis, nor that their minds had ever met to form a consensus, nor that there was a process in which each party participated.” (Malone v. Quinn [2001] STC (SCD) 63, §41).
Objective test
“Both parties were agreed that whether there was an offer must be assessed objectively. What matters is what was said rather than what was meant.” (B v. HMRC [2014] UKFTT 256 (TC), §26, Judge Mosedale).
Identifying terms of agreement different to identifying existence of agreement
“In my view the appellant is correct to draw a distinction between the court's task when seeking to ascertain the parties' intention under the terms of a contract which both accept has been made and the court's task when seeking to determine whether or not a contract has been made at all. In the former case the question is "what did the parties intend by the words used in the agreement which they made": in the latter, the questions are (i) "was there an proposal (or "offer") made by one party which was capable of being accepted by the other" and, if so, (ii) "was that proposal accepted by the party to whom it was made". In determining the first of those questions – was there a proposal made by one party (A) which was capable of being accepted by the other (B) – the correct approach is to ask whether a person in the position of B (having the knowledge of the relevant circumstances which B had), acting reasonably, would understand that A was making a proposal to which he intended to be bound in the event of an unequivocal acceptance.” (Crest Nicholson (Londinium) Ltd v. Akaria Investments Ltd [2010] EWCA Civ 1331, §25).
“Varied in a particular manner”: there must be sufficient agreement to be able to calculate the financial result
“…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. In the present case the agreement provided neither a figure nor any basis on which a figure could be calculated and in my judgment it was not an agreement falling within the section.” (Delbourgo v. Field [1978] STC 234 at 238 - agreement to apportion an amount between income and gains, but no agreement on how that apportionment was to be done).
Offer
Whether a reduced or nil assessment is an offer depends on the circumstances of the case
“As I read the May 1993 notice, it purported to do no more nor less than notify the taxpayer that the Revenue had adjusted the original assessment by reducing it to nil. It did not invite any response from the taxpayer, still less did it look to any 'acceptance' from him. Moreover, it came out of the blue, in the sense that it was not the product of any earlier discussion, still less negotiation, between the Revenue and the taxpayer…In agreement with the judge, therefore, I conclude that the May 1993 notice did not contain any offer capable of acceptance by the taxpayer so as to result in a s 54 agreement.” (Schuldenfrei v. Hilton [1999] STC 821, §§46…47, per Jonathan Parker J sitting in the Court of Appeal).
“While I do not rule out the possibility that, in some contexts, an offer can be communicated on a proforma such as the 1993 notice, like Jonathan Parker J, I do not, in the context of this case, regard the 1993 notice as constituting a proposal for an agreement which was capable of acceptance by the taxpayer.” (Schuldenfrei v. Hilton [1999] STC 821, §3, per Schiemann LJ).
Amendment to statement of case not an offer
“In this case, it seems to me to be clear that the Amended SoC could not be construed as an offer by HMRC to settle the appeal on the basis of an increase in the partnership profits of £74,166. The Amended SoC was not expressed as an offer to settle. It was part of the pleadings in the appeal and did not invite any acceptance by Orchid but was predicated on the existence of a dispute between the parties.” (Orchid Properties v. HMRC [2012] UKFTT 651 (TC), §31 – HMRC reduced the amount of tax they said was due by amending their SoC to an erroneously low figure, which T treated as an offer and withdrew its appeal in purported acceptance).
Request for payment not an offer
“The first point to note is that this is not worded as an offer of any sort. It is a request for payment, and a request for payment of a liability which (albeit wrongly) had already been expressed as due and payable by virtue of the notice of determination.” (Foulser v. HMRC [2014] UKFTT 483 (TC), §42).
Request for payment “in full settlement” not an offer in context).
“The letter employs the words "in full settlement", but it does not refer to settlement of Mr Foulser's tax liability generally for the tax year in question. In the context, and having regard to the background, there is in my judgment no basis on which the letter could be construed as an offer of settlement. The use of that phrase refers only to settlement in full of the amount that was considered to be due and payable, as not being postponed.”(Foulser v. HMRC [2014] UKFTT 483 (TC), §43).
Purported acceptance may be an offer
“The absence of prior negotiation is no bar to a settlement being tendered; settlement offers are often the starting point for negotiations and not the culmination of them. Whilst I accept that Mr Foulser's letter could have been expressed more clearly in terms of an offer, I am satisfied that it was a clear tender of payment in full and final settlement. That, in my judgment, is enough to render Mr Foulser's letter an offer capable of acceptance.” (Foulser v. HMRC [2014] UKFTT 483 (TC), §52).
Conditional offer
“In this case, however, the closure notice clearly stated that the offer to treat the further £30,000 as not taxable was a concession made in order to try to reach agreement. Mr Moorthy did not accept the offer and appealed to the FTT. As agreement was not reached, the condition on which the offer was made was not met and HMRC’s offer fell away.” (Moorthy v. HMRC [2016] UKUT 13 TCC, §65, Rose J and Judge Sinfield).
Acceptance
Includes unqualified acceptance of HMRC’s demand
“Read in the context of the preceding correspondence set out in paragraphs 13-18 above, I consider that the Trustee’s letter dated 27 February 2008 quoted in paragraph 19 above amounted to an agreement by the Trustee not to challenge the assessment under appeal i.e. an agreement that it should be “upheld without variation” in the words of section 54(1).” (McNulty v. HMRC [2012] UKUT 174 (TCC), §49).
No need for reference to full and final settlement
“In our view, the correspondence and the course of dealing between Southern Cross and HMRC amounted to a compromise agreement by which the original claim of Southern Cross was compromised to the lesser amount of 74%, with the intention that this agreement would be binding on both parties. Although there was no express language of full and final settlement, that was the effect of what was agreed. We agree with Mr Mantle that the language of the correspondence supports this analysis. We consider that the proposal made by Mr Knight in the letter of 26 March 2010 was an offer to settle at 50%, capable of acceptance by Southern Cross, that the 74% proposal made in HCW’s letter dated 14 April 2010 was a counter-offer, and that this offer was accepted by HMRC by the letter from Mr Knight of 26 April 2010.” (Southern Cross Employment Agency Ltd v. HMRC [2014] UKFTT 88 (TC), §41).
Agreement may be inferred from conduct
“It is true that it may be possible to infer an agreement to settle a claim or an appeal from the conduct of the parties and from the surrounding circumstances, by relying, for example, on the refund followed by the withdrawal of the appeal. But the making of the refund and the withdrawal of the appeal need not, in all circumstances, be referable to a prior agreement reached by the parties. It all depends on the context in which the refund was made.” (R (oao DFS Furniture Co plc) v. CEC [2002] EWCA Civ 1708, §43).
“It is, as Mummery LJ pointed out at [43], possible that an agreement to settle a claim or an appeal may be inferred from the conduct of the parties and from the surrounding circumstances, relying, for example, on a refund followed by a withdrawal of an appeal. But those events need not be referable to a prior agreement between the parties; there may be a non-contractual explanation, as was the case in DFS itself, where the Court of Appeal found that the true explanation for the refund was that it was made in consequence of a unilateral reversal by the commissioners of the deferral policy that had been declared unlawful. The refund was made by the commissioners without the need to come to an agreement with DFS to settle the appeal.” (Southern Cross Employment Agency Ltd v. HMRC [2014] UKFTT 88 (TC), §30).
Acceptance by silence will be exceptional
“I therefore consider that, even if the 1993 notice is to be regarded as an offer, which I reject, that offer in the circumstances of this case was not one capable of acceptance by mere silence.” (Schuldenfrei v. Hilton [1999] STC 821, §3, per Schiemann LJ, emphasis original).
“…it seems impossible to me to say that the offer, if it was in these terms, also dispensed with the need for communication of acceptance by the taxpayer. If it is treated as an offer, and there was no prior agreement to which it could refer, then the Inspector inevitably was expecting an acknowledgement or reply. I can see no grounds for inferring either that he was prepared to treat 30 days' silence as an acceptance, or that the offer was intended to ripen into an agreement at some unspecified date during that period. The 30-day period is part of the statutory scheme but it did not apply to the amended notice, which was outside the scheme.” (Schuldenfrei v. Hilton [1999] STC 821, §10 per Evans LJ).
“There was no agreement made orally between HMRC and the Thomas brothers, and the failure of HMRC to respond to the relevant part of Mr Thomas' email cannot result in an agreement.” (Thomas v. HMRC [2013] UKFTT 203 (TC), §55).
Acceptance by accepting a payment (depends on the circumstances)
"If a person sends a sum of money on the terms that it is to be taken, if at all, in satisfaction of a larger claim; and if the money is kept, it is a question of fact as to the terms upon which it is so kept. Accord and satisfaction imply an agreement to take the money in satisfaction of the claim in respect of which it is sent. If accord is a question of agreement, there must be either two minds agreeing or one of the two persons acting in such a way as to induce the other to think that the money is taken in satisfaction of the claim, and to cause him to act upon that view. In either case it is a question of fact." (Day v. McLea (1889) 22 QBD 710 at 613, per Bowen LJ).
"Cashing the cheque is always strong evidence of acceptance, especially if it is not accompanied by immediate rejection of the offer. Retention of the cheque without rejection is also strong evidence of acceptance depending on the length of the delay. But neither of these factors are conclusive; and it would, I think, be artificial to draw a hard and fast line between cases where the payment is accompanied by immediate rejection of the offer and cases where objection comes within a day or within a few days." (Stour Valley Builders v. Stuart (1992) CAT 1281).
“Cashing of the cheque gives rise to no more than a rebuttable presumption of acceptance of the accompanying letter. That presumption is fully rebutted here.” (IRC v. Fry [2001] STC 1715, §11 – IRC immediately called taxpayer to say that the cheque had been banked but the offer of full and final settlement was not accepted).
“Both parties referred me to Foskett, The Law and Practice of Compromise (Seventh edition), at paras 3-30 to 3-48, which address the presentation of a cheque in settlement, for further helpful guidance. As might be expected, to a large extent, Foskett summarises certain of the principles to be derived from the authorities I have referred to, but I take from the passage I was referred to the following further principles:
(1) The evidence must show that a definite offer has been made to settle on a "full and final" basis. Without this, no question of an equivalent acceptance on that basis can arise.
(2) An objective construction must be placed on the material events. The presentation for payment of a cheque tendered "in full and final settlement" of a dispute, without demur or qualification, will be taken as an objective manifestation of an intention to accept the offer of settlement thus made.
(3) The manifestation of an intention not to accept the proceeds other than as part payment may negate the inference of acceptance, but a significant delay between the receipt of and/or the payment in of the cheque and the subsequent manifestation of such an intention will give rise to the inference of acceptance.
(4) As noted above, from Stour Valley Builders, it would be artificial to draw a hard and fast line between cases where the payment is accompanied by immediate rejection of the offer and cases where objection comes within a day or a few days…I find, therefore, that the statement of account was not an acceptance of Mr Foulser's payment in full and final settlement. It was, by contrast, a clear manifestation of a refusal by HMRC to accept the payment on those terms. There was no, or certainly no significant, delay in Mr Foulser being sent the statement of account, and accordingly this case does not cross the threshold in that respect as described by Lloyd LJ in Stour Valley Builders.” (Foulser v. HMRC [2014] UKFTT 483 (TC), §§38…60).
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Unilateral withdrawal of decision followed by withdrawal of appeal not an agreement
"[94] I am also of the view that the tribunal did not err in law in deciding that the withdrawal of the appeal was not the result of an agreement between the parties. The Commissioners unilaterally withdrew their decision and invited Matalan to withdraw its appeal in consequence. The withdrawal of the decision by the Commissioners was not conditional on the withdrawal of the appeal by Matalan and had occurred before Matalan did so. The withdrawal of the appeal followed the withdrawal of the decision but was not made as the price of that withdrawal.
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[96] For the reasons set out above I do not regard the Commissioners and Matalan as having come to an agreement that the decision under appeal should be treated as discharged or cancelled (or varied in a particular manner). Even if, contrary to my view, they are to be taken as having reached an agreement that the review decision would be withdrawn, under section 85 the effect of such an agreement would be the same as if the Tribunal had ordered the review decision to be cancelled. That leaves unresolved what is to happen in respect of the BTI which was the subject of the (cancelled) review decision." (Matalan Retail Ltd v. HMRC [2009] EWHC 2046 (Ch), Clarke J)
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See also N11: Estoppels and abuse
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Power to enter into agreement
Agreement with persons acting on behalf of the taxpayer is sufficient
See TMA 1970, s.54(5) and VATA s.85(5).
Mistake by agent over scope of authority not relevant
“Mr Shareef submitted that any agreement reached with HMRC was based on a misunderstanding of his instructions from the Appellant, due to his obviously great language difficulties and the long periods when he was unable to contact him due to his absence abroad with his mother…We are satisfied that Shareef & Co were acting on behalf of the Appellant in his appeal for the purposes of section 54(5).” (Tuncel v. HMRC [2014] UKFTT 171 (TC), §§24…30, Judge Poole).
Trustee in bankruptcy cannot settle right of appeal that is personal to the taxpayer
“Counsel for the Appellant challenged the Tribunal’s conclusion that the Trustee had settled the appeal on three grounds. One of these grounds was predicated upon the correctness of the contention that the right of appeal was personal to the Appellant. Counsel for the Appellant argued that in that event it followed that the Trustee had no authority to settle the appeal. Counsel for HMRC did not dispute this argument, and I accept it. Since the premise for the argument has not been established, however, it does not arise.” (McNulty v. HMRC [2012] UKUT 174 (TCC), §47).
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Mistake
Taxpayer awareness of HMRC error may prevent agreement
“As to 'acceptance', the fact that following receipt of the May 1993 notice the taxpayer was (albeit not surprisingly, given the nature of the professional advice which he had received) entirely silent and passive, making no response at all until he thought it was too late for the Revenue to correct their error, is in my judgment the clearest indication that the Revenue and the taxpayer did not 'come to an agreement' that the original assessment be reduced to nil.” (Schuldenfrei v. Hilton [1999] STC 821, §48).
“I see no reason why the ordinary law of contract should not apply to this agreement as to any other agreement. The effect of a concluded agreement under s 54(2) is that it shall be final and conclusive but that does not mean that the court is not entitled to look and see whether all the ingredients necessary to the formation of a proper contract have been complied with. Thus capacity, fraud, mistake and such like matters seem to me to be available to a party who seeks to challenge the agreement on one or more grounds. In the sense that the agreement is res judicata of the issues which it determines it is clearly final and conclusive. But that does not mean, in my judgment, that the ordinary rules governing the formation of the contract are deemed to have been complied with.” (R v. Inspector of Taxes, ex p Bass Holdings Ltd [1993] STC 122 at 132)
However:
“The fact of the matter is that he (the inspector) did agree to just that, and it is of no consequence why he did so, provided it was not due to misleading information. I find myself in respectful agreement with the following passage in the judgment of Fox LJ in the Court of Appeal ([1984] STC 141 at 150, [1984] 1 WLR 675 at 687): “It is true that the actual point of law was never formulated. But I do not think that can be necessary. The section is dealing with agreements as to how an assessment shall be dealt with. It is not dealing with the formulation of points of law. We do not know why the inspector agreed the computation. He may have made an error of law or he may have misunderstood the facts or he may have failed to think about the matter at all. Subject to the question, which I mention later, as to whether the taxpayer has provided misleading information, I do not see why the circumstances that the inspector has made a mistake either of law or fact should take the case outside s 510. Essentially, the question is not why he agreed but whether he agreed. The purpose of the section must be to protect the taxpayer by producing finality, and Parliament, I would suppose, must have contemplated that the taxpayer would be protected, even though the inspector made some error in his view of the facts or the law. That is a likely, if not the most likely, event in which the question of going back on the agreement would ever arise at all.”” (Scorer v. Olin Energy Systems Ltd [1985] STC 218 at 223 – 224 per Lord Keith).
“It was conceded that the Crown could not reopen that question however erroneous the agreement under s 54 was shown to be, since there was no question of concealment.” (Tod v. South Essex Motors (Basildon) Ltd [1988] STC 392 at 404).
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Duress
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May vitiate apparent agreement
“The question of duress is an important matter. The reason for the existence of the agreement procedure under s 54 TMA 1970 is the need for certainty as between taxpayers and HMRC. Entering into such an agreement provides finality for both sides. It would therefore be undesirable for either party to be able to re-open a matter which had been thought to be settled under s 54. If a party wishes to challenge what appears to be a s 54 agreement on grounds of duress, pressure or having been misled into making the agreement as a result of misunderstanding or some misrepresentation, that party must discharge a heavy burden in seeking to demonstrate that the agreement was not properly entered into. In making these comments, we are also conscious of the comments of the Court of Appeal in Schuldenfrei that the question whether a s 54 agreement has been concluded has to be considered in a statutory, not a common law, context, although common law concepts may be of assistance. This leaves open the extent to which matters such as duress and misrepresentation are to be considered by tribunals in considering s 54 agreements.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §64)
Cogent evidence of undue pressure required
“Without cogent evidence as to undue pressure, it is not appropriate for us to explore the precise extent to which contractual disputes about s 54 agreements fall within the jurisdiction of the Tribunal.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §67)
Pressure of circumstances is not undue pressure
“Like Mr Thompson, he paid the tax under protest. We view this as a reluctant acceptance by Mr Skinner that there was no practical alternative. Pressure of circumstances does not amount to undue pressure or duress.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §77)
Query whether FTT is the right forum
“Without cogent evidence as to undue pressure, it is not appropriate for us to explore the precise extent to which contractual disputes about s 54 agreements fall within the jurisdiction of the Tribunal.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §67)
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Rectification and correction
Parties agreeing to correct the agreement
“I see no obstacle to the parties to a s 54 agreement correcting an error in an earlier agreement as they did here, and when they do so it is the corrected agreement rather than the original one which is operative, both under the ordinary law of contract and the purposes of s 54. The fact that the correction proceeded upon an erroneous view of fact or law, if it did, matters not so long as there was no concealment. If the Crown's argument on this matter was correct it would not be open to an inspector to correct otherwise than by some unofficial process not sanctioned by law an agreement reached with a taxpayer which turned out to be both incorrect and disadvantageous to the taxpayer. It is just such a correction that the inspector thought he was making when he wrote his letter of 14 March 1977, and assuming for the purposes of this part of the argument that he was right in his proposed correction, his conduct was in the best traditions of the public service. I should be sorry to have to decide that he was acting outside the framework of enacted law, and see no need to do so. Indeed, it is to me rather surprising to find the Crown arguing for such a restricted interpretation of s 54 of the Taxes Management Act 1970.” (Tod v. South Essex Motors (Basildon) Ltd [1988] STC 392 at 403 – 404).
Rectification available
“I see no reason to question the actual decision in the Bass Holdings case. It would be strange if the court had no jurisdiction to rectify a written s 54 or s 85 agreement; and the equitable doctrine of rectification is not, of course, confined to documents which either contain, or evidence, contracts at common law. The remedy extends to written documents generally, including unilateral ones.” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §240)
Interpretation
Consensus must be established in relation to the particular point relied upon
“The consensus that it is necessary for Mr Thomas to show, namely that the settlor issue was agreed as part of the s 54 agreement, and so could be regarded as determined by the Tribunal, is entirely absent. Not only is there no express agreement of the settlor issue, the very basis of the s 54 agreement was that the settlor issue remained to be determined by the Tribunal in respect of other years under appeal, including 2005/06.” (Thomas v. HMRC [2014] UKFTT 640 (TC), §14).
But need not show consensus on a particular underlying point of law
“I am further of opinion that the material which they put before the inspector was sufficient to bring home to the mind of an ordinarily competent inspector in his position precisely what they were claiming…So there are no grounds for the view that the accountants did not lay before the inspector material apt to cause him to appreciate the nature of their claim. The situation must be viewed objectively, from the point of view of whether the inspector's agreement to the relevant computation, having regard to the surrounding circumstances including all the material known to be in his possession, was such as to lead a reasonable man to the conclusion that he had decided to admit the claim which had been made. In my opinion that question falls to be answered in the affirmative.” (Scorer v. Olin Energy Systems Ltd [1985] STC 218 at 223 per Lord Keith).
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Agreement relates to the determination in respect of tax position rather than the reasons for that determination
“But HMRC are, in my judgment, bound by Mr Musgrove’s cancellation of the discovery assessment not now to assert again that Easinghall has understated its business takings in respect of the year ended 31 March 2012. That was the particular matter or point at issue that was agreed between the parties and HMRC cannot amend the return as a result of an enquiry into the same matter in the light of that settlement…It is true that the reason why Mr Musgrove came to that conclusion was because there was insufficient evidence put forward by HMRC to support the discovery assessment. In fact, no evidence was put forward for that year and HMRC relied on the presumption of continuity. Mr Musgrove rejected reliance on that presumption but it is not right to describe the matter in question as ‘whether there was enough evidence to show that there had been an understatement of business takings in the period 2011/2012’. That confuses the process of arriving at a determination with the determination itself.” (Easinghall Ltd v. HMRC [2016] UKUT 105 (TCC), §§49…50).
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Effect of statutory agreement
Statutory agreement ousts FTT’s jurisdiction over appeal
“My view is that the effect of s 54 TMA or paragraph 37(1) (if they were applicable) was that if there was a contract settlement the Tribunal would have no jurisdiction.” (B v. HMRC [2014] UKFTT 256 (TC), §24, Judge Mosedale).
Statutory agreement provisions do not apply to some penalty appeals
“While paragraph 5(5) of Sch 14 brings in paragraphs 36A-36I of Schedule 10 (which are the provisions equivalent to s 49A-I of TMA for SDLT assessments), no provision of Sch 14 brings in paragraph 37. Rather oddly, therefore, there seems there is nothing that enables HMRC and a taxpayer to settle an SDLT penalty appeal by agreement. Section 54 itself does not apply as it applies only to appeals under the Taxes Acts (see s 48). The Taxes Acts (see s 118(1) TMA and Sch 1 Interpretation Act 1978) do not include the FA 2003 provisions relating to SDLT as it is not an income tax.” (B v. HMRC [2014] UKFTT 256 (TC), §26, Judge Mosedale).
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No assessments possible in relation to such matters
Direct tax
“[The Revenue’s argument] on this matter may be briefly stated. He submitted that no agreement which an inspector may make under section 510, and no determination on an appeal before the commissioners, can prevent the operation of the assessing machinery provided by the Income Tax Acts, and preclude an inspector from raising by a first or additional assessment the imposition of the correct liability on the taxpayer. The logical consequence of that submission, subject to the general limitation of six years, is that no agreement by the inspector and no determination of an appeal by the commissioners after a hearing is binding on the Crown ... In my judgment, if we were to give effect to the submissions made on behalf of the Crown, we should be rendering section 50(2) completely nugatory; and, what is equally important, it was quite futile and unnecessary to pass section 510 as section 51 of the Finance Act 1949: for in essence the Crown would not be bound until the passing of six years, and they could always reopen any assessment on a change of mind as to the law applicable. It seems to me that section 50(2) is directed to the case where a particular point has been determined, and when that point is determined it cannot be relitigated; both sides are bound. So with section 510, when a particular point has been agreed, the parties are bound subject only to a locus poenitentiae given to the subject but not to the Crown under subsection (2). If they are bound, both sides must be bound, and it cannot be open to the Crown, under the guise of an additional assessment under section 41, to relitigate the very point, and in this case the only point, that has been agreed between the parties.” (Celon Finance Co Ltd v. Ellwood 40 TC 176 at 195 - 196, Upjohn LJ).
Indirect tax
“Section 80(4A) operates whenever there has been a voluntary payment in response to a claim under 80(2), but sub–s (4A) does not operate where a payment has been made in settlement of a dispute which has given rise to an appeal settled within the meaning of s 85. The distinction finds support at para 106 in BSOC (see [2000] STC 892 at 921–922). It is true that there was no intervention of a judicial determination as in BSOC, but s 85 has the same effect as the intervention of a judicial determination.” (R (oao DFS Furniture Co plc) v. CEC [2002] EWHC 807, §61 reversed on the question of whether there was an agreement in CA).
Statutory effects of agreement are exhaustive
No contractual estoppel
Contractual estoppel is the doctrine by which parties to a contract who agree that a state of affairs will be the basis of their contractual dealings with one another are estopped from denying the truth of the assumed state of affairs (see JP Morgan Chase Bank v. Srpingwell Navigation Corp [2010] EWCA Civ 1221, §143 and Prime Sight Ltd v Lavarello (Official Trustee of Marrache) [2013] UKPC 22). If that doctrine applied to tax settlement agreements, they would have an effect going beyond the normal effect of an appeal decision. Authority indicates that they do not.
“Although the point is not free from doubt, I think the better view is that the consequences laid down by the section were intended by Parliament to be exhaustive. The section says that 'the like consequences shall ensue for all purposes as would have ensued if … a tribunal had determined the appeal in accordance with the terms of the agreement' (my emphasis). The words 'for all purposes' could hardly be more general. If, in the present case, the relevant appeals had been determined by the Tribunal, the determination would not have been a matter of contract between the parties. The Caffoor principle would in my view have operated, and there would in any event have been no contract which could ground a contractual estoppel. I do not believe that Parliament contemplated a hybrid world in which a contractual estoppel could co-exist with the ordinary consequences of a deemed determination by the Tribunal.” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §241)
Res judicata effect limited to the conclusion
“I accept that the binding effect of an agreement under s 54(1) of the Taxes Management Act 1970 can be no wider than the binding effect of a determination of commissioners or an appeal from them, and I therefore conclude that the General Commissioners erred in law in holding that the Crown was precluded by the agreement under s 54 of the Taxes Management Act 1970 from challenging the allowable loss claimed by the company. I am much fortified in that view by the consideration that there is no machinery provided for determination of the size of an allowable loss which both taxpayer and the Crown agree is more than large enough to wipe out all chargeable gains in the relevant accounting period but upon which they disagree about the excess over those chargeable gains. It would in my view be intolerable for there to be treated as unchallengeable in subsequent years what could not be effectively challenged in the earlier year.” (Tod v. South Essex Motors (Basildon) Ltd [1988] STC 392 at 408).
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Effect of non-statutory agreement
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Non-statutory agreements also oust jurisdiction
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“Nevertheless, as a matter of general law courts recognise the binding nature of contracts, so it is difficult to see how the Tribunal could have been intended by Parliament to have jurisdiction in a case where the parties have settled the matter by a binding and lawful contract. The contract itself would oust jurisdiction or, alternatively, permission to appeal simply should not be granted as to do so would be to fail to recognise the binding nature of contracts in English law.” (B v. HMRC [2014] UKFTT 256 (TC), §27, Judge Mosedale).
Abuse of process to relitigate settled matter on penalty appeal
“Therefore, on 18 April 2011, as a result of withdrawing its appeal there was in effect a binding Tribunal determination that Meridian’s claims for input tax for 04/06 and 05/06 was incorrect as it was overstated and had no right to deduct input tax attributable to the transactions for which its recovery had been denied on the basis that it knew or should have known that these transaction were connected to fraud. This therefore disposes of the issue of whether the 04/06 and 05/06 returns are correct and, as such, Meridian is estopped from advancing the same arguments in the present appeal. In addition we find that it would be an abuse of process were it to be allowed to do so.” (Meridian Defence & Security Ltd v. HMRC [2014] UKFTT 300 (TC), §24, Judge John Brooks).
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Partnership disputes
Partnership settlements not automatically binding on partners
“HMRC made an additional and distinct submission to the effect that by virtue of the partnership settlement agreement and the effect given to it under section 54 of the TMA, the Claimants were simply precluded from denying that the relevant amounts of the partnership losses to be brought into account for the purposes of their carry back claims for relief were any different from those agreed in that agreement. I was not impressed by this submission...Had HMRC's defence based on that analysis failed, I would have rejected this separate argument. The Claimants were not parties to the partnership settlement agreement and so were not directly bound by its terms.” (R (oao Silva) v. HMRC [2014] UKUT 170 (TCC), §64).
Settlement by the partnership allows HMRC to amend the partners’ tax returns
“Where, on the other hand, an appeal is settled by an agreement made under section 54, the effect is the same as if the agreement were a decision of the Tribunal: see section 54(1). Therefore, when the partnership settlement agreement was entered into, HMRC were required by section 50(9), read with section 54(1), to amend the Claimants' individual returns for the tax periods which corresponded to the periods covered by the partnership statements which were amended pursuant to the partnership settlement agreement.” (R (oao Silva) v. HMRC [2014] UKUT 170 (TCC), §31).
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