London EC4A 1NL
B e f o r e :
| DAVID MARK KYTE
|- and -
|THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS
Edward Brown (instructed by General Counsel and Solicitor HM Revenue and Customs) for the Defendant
Hearing dates: 27 and 30 April 2018
Crown Copyright ©
Chief Master Marsh:
The Scion Scheme
(1) The claimant made a total capital contribution into the Scion Scheme of £1,481,122, such contribution being made during 2007/08.
(2) The total capital contribution was made up of two elements. First, £311,036 which was a contribution made by him "in cash". Secondly £1,170,086 which was a contribution made by him by using a limited recourse loan provided to him under the provisions of the Scion Scheme.
(3) The claimant was entitled to be credited with certain minimum payments on an annual basis. These are described as the "MAPs". They derived from a leaseback of the rights to the film Frost Nixon.
(4) The claimant became liable to make annual interest payments under the loan.
(5) The MAPs receivable by the claimant were mandated to be paid or credited to the lender, to be offset against the loan interest payable by the claimant, such that the claimant never actually received any monies under or by reference to his entitlement to the MAPs.
(1) A binding contract arose between him and HMRC on 12 January 2016, settling the issues relating to the Scion Scheme (so far as they related to the claimant's tax affairs and liabilities); and
(2) Payment of £316,955.30 has satisfied his liabilities under the contract (and/or pursuant to that contract such payment has satisfied his material tax liabilities).
"When explaining your figures to the taxpayer or agent, whether in writing or in person, you must make it clear that they are without prejudice and do not constitute an offer of settlement or the closure of your enquiry … You should take extra care where you are corresponding directly with the taxpayer".
"Where there is any doubt as to the basis of your discussions you should explain that a final position can only be reached when either
- HMRC enters into a binding contract settlement with that taxpayer by accepting their letter of offer;
"If the taxpayer or agent claims that any letter in which you explain your figures or any subsequent settlement proposals that you make have effectively completed the enquiry or constitute an offer to settle, you must immediately issue a disclaimer and seek advice from contact link …".
"Dear Mr Lamont
I attach copies of my calculations for 2007/08 to 2012/13. I also attach a copy of my notes detailing the amendments to each year and the overall adjustments for all years. Interest has been calculated to 31 January 2016.
If you have questions regarding these please do not hesitate to contact me."
Thanks for all your work on this. We have today had a meeting with Mr Kyte and he would like to go ahead with the settlement on Scion in accordance with your figures. Could you please let us have the settlement deed.
In addition would it be acceptable for Mr Kyte to pay the £316, 955.30 over a 9 month period?
I look forward to hearing from you."
"45. The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded, or the law requires, as being essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."
"(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole … (2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary 'subject to contract' case. (3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed … (4) Conversely, the parties may intend to be bound forthwith even though there are a further terms still to be agreed or some further formality to be fulfilled … (5) If the parties failed to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole on workable or void for uncertainty. (6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautological. If by 'essential' one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is true. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge [at p.611] 'the masters of their contractual fate'. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'."
"2.45 It is clear that whether a proposal constitutes an offer turns not on the actual intention in the proposer's mind, but on the apparent intention which the addressee is justified in concluding from the proposer's external manifestations. If the external manifestations do justify the addressee in judging a proposal to be an offer then the proposer cannot argue that it was not his intention to make an offer.
2.46 The language used in the proposal is the most decisive factor when examining what the addressee is entitled to conclude. The level of commitment is important, and language which expressly denies any commitment can be determinative. However, this language of commitment has to be interpreted in its context ...."
"Vagueness in what is said or omission of important terms may be grounds for concluding that no agreement has been reached at all or for concluding that, although an agreement has been reached, it is not intended to be legally binding. But certainty and completeness of terms is also an independent requirement of a contract. Thus, even where it is apparent that the parties have made an agreement which is intended to be legally binding, the court may conclude that the agreement is too uncertain or incomplete to be enforceable-for example, where it lacks an essential term which the court cannot supply for the parties. The courts are, however, reluctant to conclude that what the parties intended to be a legally binding agreement is too uncertain to be of contractual effect and such a conclusion is very much a last resort." [my emphasis]
"HMRC is prepared to discuss entering into an agreement with you as an individual to settle on the basis set out below ….".
"HMRC will discuss settlement on the basis of allowing amounts related to the initial cash contribution by you in the sole trader scheme less any disallowable fees paid from the cash contribution. No interest relief will be available for borrowed sums beyond the initial cash contribution. Future income from the scheme may be taxable."
"… the details we will require to establish the tax due will be:
1. The personal cash contribution;
2. If the [above] sum was borrowed, the amounts of loan interest that were paid to the lender from start to date.
3. The sums of MAP received or credited from the start to date."
"Why should I settle now?
Settling will give you the peace of mind that your tax affairs in relation to the scheme listed in your letter have been brought up-to-date with HMRC. You would not face litigation on the scheme, and the potential cost, publicity and scrutiny of your tax affairs that this can involve.
Choosing not to settle could mean you have to pay more tax. The broad terms of settlement on offer to you are that HMRC will allow part of your contribution to the scheme as a tax loss, after deducting any unallowable fees. The part we will allow is the amount you contributed from your own money. We will not allow any amount of your loss claim relating to a scheme loan and there may also be adjustments for loan interest relief claims and income in later years."
"I said that it was not as simple as that. HMRC is not open to offers. We have to stick to the agreed settlement opportunities. I said that I would arrange for the figures to be sent to him.
I confirmed that the APN is due to go out next week."
"I attach my calculation of the settlement figure of £695,378.48".
"From: Colin Lamont
Sent: 02 December 2015 16:42
To: Pitt, Jenny
Subject: Scion Settlement
The Scion settlement does not appear to give any relief for the investment Mr Kyte made. Is this correct?
From: Jenny Pitt
Sent: 17 December 2015 15:38
To: Colin Lamont
I understand that your query relates to Scion, not Goldcrest?
Sue is reviewing the calculations, and we'll get back to you as soon as possible."
(1) They are not headed "indicative". Instead they are headed: "Calculations 2007/08 to 2012/13"
(2) They include a table of adjustments that take account of the overpayments of tax made by the claimant.
(3) Interest is calculated to 31 January 2016 (rather than to the following day) and the date is stated expressly in the body of the email.
"We need to bottom out the payment instalment arrangements before we can issue the settlement deed (as it alters the wording). I'll need some more information, which I'll come back to you on ASAP.
However, I have a query on the previous arrangement. Did your client pay the full £88,523.24 as agreed on 16 December? Our records show he was £270 light. Can you please advise whether this error is his, or ours? If it is his, we obviously need the balance to be paid urgently."
"13. (c) Given HMRC's guidance the objective understanding of the circumstances of the correspondence was that any binding contract would only be formed by accepting a letter from the claimant setting out an offer.
(d) The mutual understanding of the parties in any event was that any dialogue would be on the basis of an exchange of information with terms to be finalised in a settlement deed or equivalent formal memorandum. The email correspondence did not have legal or contractual effect.
(e) The terms of the purported contract were too vague to be certain in any event."
(1) There is no juridical reason that prevented HMRC from concluding a contract with the claimant to settle the dispute with HMRC about the extent of reliefs available from the Scion Scheme on the terms set out in the particulars of claim.
(2) HMRC does not rely upon evidence of custom or practice that affect the legal position.
(3) The approach for the court to adopt is to look at the language that was used and to decide whether it is consistent with contractual intent, by there being an offer and an acceptance. If there is such intent, the court should conclude there was a contract unless there is a reason not to do so such as that the agreement being subject to contract.
(1) It may be strictly right that that there is no legal bar to HMRC concluding an agreement, but it is necessary to look at the alleged agreement in its proper context, namely that the claimant and HMRC were dealing with an enquiry into a series of tax returns and tax enquiries arise under the statutory framework of the TMA. There are exceptions to HMRC's ability to settle disputes arising in connection with an enquiry. One example can be seen in section 54 TMA where there is an appeal. The section provides a framework for agreements that affects the ability of the taxpayer and HMRC to conclude a common-law agreement. In this case, it is not said that the agreement relied upon by the claimant entitled the claimant to obtain closure of the enquiry. Mr Brown points to the limited relief that the claimant seeks in the claim.
(2) Although it is accepted that there is no evidence of custom or practice, or of 'notorious fact', Mr Brown submits that it is important to take account of HMRC's position as an authority that is given wide statutory powers to collect tax under a complex regime that is allied with the taxpayer's statutory duty to pay tax. The agreement does not arise in connection with HMRC operating as a commercial entity but, rather, within the relevant statutory framework. This is relevant, he submits, to the way in which the language is construed and the likelihood of the parties having achieved a settled contractual intent.
(3) It is agreed that the principal task of the court is to consider the language used by the parties, but it is important not to lose sight of the relevant context and the nature of the contracting parties as part of the process of considering what the language was intended to achieve.
"… English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration."
Was there an offer?
Was there an acceptance?
Was there legal certainty?
Was any agreement subject to contract?