Neutral Citation Number: [2009] EWHC 487 (Ch)
Case No: CH/2008/APP/0367
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

ON APPEAL FROM THE VALUE ADDED TAX AND DUTIES TRIBUNAL

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 16th March 2009

Before :

THE HON MR JUSTICE PATTEN

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Between :

	The Commissioners for Her Majesty’s Revenue & Customs	
Appellant	
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	The Boots Company Plc	Respondent	

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Owain Thomas and Andrea Lindsay Strugo (instructed by the Solicitor for HM Revenue and Customs) for the Appellant
Melanie Hall QC and Tim Ward (instructed by KPMG LLP) for the Respondent

Hearing dates: 11th, 12th, 15th and 16th December 2008

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Judgment

The Hon Mr Justice Patten : 

Introduction
1.	During 2002 and 2003 the Boots Company PLC (“Boots”), which is the respondent to this appeal, ran five sales promotions as part of which a customer who purchased goods to a value of at least £15 (“the qualifying goods”) received a document called a voupon.  This entitled the customer, on presentation, to a credit of £5 against the value of certain specified brands of goods subsequently purchased from a Boots’ store.  
2.	Most of the promotions related to various skin care products and cosmetics.  They are set out in paragraph 16 of the decision of the VAT and Duties Tribunal (Dr A.N. Brice and Mrs C.E. Farquharson) released on 15 May 2008 which is the subject of this appeal but the detail does not matter.  As the Tribunal found, each of the five voupon promotions operated in the same way and were designed to encourage customers to purchase qualifying goods and to make subsequent purchases of the products specified in the promotion in order to redeem the voupons.  The volume of sales, the number of transactions and their average value all increased during the periods when the promotions were in operation.
3.	The Tribunal described the operation of the voupon promotions in paragraphs 17-20 of its decision.  Again, nothing really turns on these precise details for the purposes of this appeal but, in essence, one voupon was handed to each customer who spent more than £15 in a Boots’ store.  The customer was not given the alternative of taking a price reduction for the qualifying goods nor was a cash alternative to the voupon available on redemption.  Only one voupon could be redeemed in each transaction and if the value of the redemption goods purchased was below £5 no change was given.  After the end of the promotion period the voupons ceased to be redeemable and were valueless.  
4.	At the time of all five of the voupon promotions Boots accounted for VAT under the terms of a bespoke retail scheme (“BRS”) agreed with the Commissioners for HM Revenue and Customs (“HMRC”) on 24th June 1998.  I will need to return to the detail of this scheme later in this judgment but, by way of introduction, it is enough to observe that the BRS excluded from the agreed accounting and valuation methods 14 matters including “sales of gift vouchers”.  These had therefore to be dealt with by way of separate calculation in accordance with the relevant accounting principles applicable to them.  
5.	The Tribunal found that the BRS, although described as an agreement in principle, was never superceded by a more formal agreement and remained constituted at all material times by the original agreement in principle and a draft Retail Scheme Agreement referred to in the Tribunal’s decision as Draft 4.  Boots made its returns in accordance with the BRS in this form and HMRC accepted that, for the periods in question, it remained bound by it.  
6.	In relation to the qualifying goods purchased under the various voupon promotions, Boots accounted for VAT on the full amount of the consideration received from the purchasing customer and made no deduction from that amount in respect of the face value of the voupon.  If the voupon was later redeemed the consideration on the subsequent purchase was reduced for VAT purposes by the £5 credit given in respect of the voupon.
7.	In contrast to this, the amount paid for gift vouchers (which the customer purchases and which can be used as payment for any products sold in a Boots’ store) was not accounted for as part of Boots’ turnover on the sale of the voucher but was accounted for on redemption of the voucher by including in the turnover calculation the full price of the goods purchased with the voucher.
8.	In 2002 Mr Michael Hall joined Boots as Group VAT Manager and came to consider the VAT treatment adopted in respect of the voupon promotions.  He entered into correspondence with Mr Pernavas of HMRC in which he maintained that Boots had incorrectly accounted for VAT on the voupons and that the consideration received from the customer on the qualifying purchase should have been apportioned between the goods and the voupon and therefore reduced by £5.  The value of the redemption goods purchased using a voupon ought correspondingly to have been increased by £5.  
9.	Mr Hall said in his witness statement before the Tribunal that face value vouchers had a special treatment for VAT purposes and that he was concerned to establish how the value of the voupons was reflected in Boots’ turnover both on issue and redemption.  The BRS had been entered into before the voupon promotions began and did not address the issue of how to calculate their value for VAT purposes.  But Mr Hall said that he became aware that HMRC had published what he described as a specific policy in relation to the VAT treatment of face value vouchers which is contained in paragraph 16(ii) of VAT Notice 700/7/94 and is also set out in VAT Notice 727/4 at paragraph 7.18.  
10.	Paragraph 16 of Notice 700/7/94 stated that:
“Face/cash value vouchers – issued for a payment
16.(i)	Basically, these are vouchers which are commonly called “gift vouchers”.  They show a cash value and are normally sold at, or below, face value and can be used without further payment.  There is no VAT due on their sale unless sold for an amount greater than the face value.  VAT is only due on the excess above face value.  If a “greetings” card is sold with the voucher, VAT is due on the price of the card.  When redeemed for goods or services these vouchers are consideration (payment).  The redemption value is the full face value.
(ii)	If a customer making a specified purchase also receives a gift voucher, the supply of the goods and voucher is treated as a combined/multiple supply.  VAT is only due on that proportion of the consideration (payment) which relates to the goods.  That part of the consideration which relates to the gift voucher, usually the face value, should be omitted from the daily gross takings.  The face value of the voucher must be included in the daily gross takings when redeemed by the customer.
(iii)	Whether sold below, at, or above face value, upon redemption the face value is the value for VAT purposes.” 
11.	Paragraph 7.18 of Notice 727/4 is to the same effect.  It is headed “Gift, Book and Record Vouchers” and takes the form of a table made up of seven boxes in which a particular type of transaction is mentioned followed by a statement of the correct VAT treatment.  The first three boxes deal in terms with the sale of gift vouchers.  The fourth box begins: “If you include gift vouchers with other products for a single charge”; and then states:
“the supply of the goods and voucher is treated as a multiple supply.  This means VAT is only due on the portion of the payment which relates to the goods. You should omit from your DGT [daily gross takings] that part of the payment which relates to the gift voucher, usually the face value. But you must include in your DGT the face value of the voucher when redeemed by the customer.”
12.	Notice 727/4 is one of a series of notices published by the Commissioners under the provisions of Schedule 11, paragraph 2(6)(a) of VATA 1994.  Schedule 11 contains provisions dealing with the administration, collection and enforcement of VAT pursuant to s.58 of the 1994 Act.  Paragraph 2(6) of Schedule 11 contains a power for the Commissioners to make regulations which states:
“2(6) Regulations under this paragraph may make special provision for such taxable supplies by retailers ... as may be determined by or under the regulations, and in particular -
(a) for permitting the value which is to be taken as the value of the supplies in any prescribed accounting period or part thereof to be determined, subject to any limitations or restrictions, by such method or one of such methods as may have been described in any notice published by the Commissioners in pursuance of the regulations and not withdrawn by a further notice or as may be agreed with the Commissioners;…”
13.	The regulations made under the power contained in paragraph 2(6)(a) are contained in Part IX (regulations 66-75) of the Value Added Tax Regulations 1995 SI 1995 No. 2518 (“the 1995 Regulations”).  So far as material, regulations 66, 67 and 68 provide as follows:
"66.  In this Part-
"notice" means any notice or leaflet published by the Commissioners pursuant to this Part;
"scheme" means a method as referred to in regulation 67. 
67-(1) The Commissioners may permit the value which is to be taken as the value, in any prescribed accounting period or part thereof, of supplies by a retailer which are taxable at other than the zero rate to be determined by a method agreed with that retailer or by any method described in a notice published by the Commissioners for that purpose; and they may publish any notice accordingly.
(2) The Commissioners may vary the terms of any method by-
	(a) 	publishing a fresh notice,
	(b) 	publishing a notice which amends an existing notice, or
	(c) 	adapting any method by agreement with any retailer. 
68. The Commissioners may refuse to permit the value of taxable supplies to be determined in accordance with a scheme if it appears to them-
(a) 	that the use of any particular scheme does not produce a fair and reasonable valuation during any period,
(b)	that it is necessary to do so for the protection of the revenue, or 
(c) 	that the retailer could reasonably be expected to account for VAT in accordance with regulations made under paragraph 2(1) of Schedule 11 to the Act.” 
14.	Notices such as Notice 727/4 published under the 1995 Regulations have the force of law.  Mr Hall says in his witness statement that he was aware of this and also that the provisions of paragraph 7.18 of Notice 727/4 had existed in the January 1997 and March 2002 versions of the same notice.  He therefore took the view that the accounting treatment described in paragraph 7.18 should have been used to calculate Boots’ turnover in respect of the voupon promotions.  As a consequence, the face value of the voupons should have been deducted from the price of the qualifying goods and only included in the calculation of turnover on redemption.  Accordingly on 25th June 2003 Mr Hall wrote to Mr Pernavas enclosing a schedule detailing a claim for the repayment of overpaid output tax based on the methodology of paragraph 7.18 of Notice 727/4.  HMRC was asked to accept the letter and the accompanying schedule as a notice of voluntary disclosure for overpaid VAT.
15.	The eventual outcome of the claim to recover the alleged overpayment was that on 28th November 2003 HMRC informed Boots that in 2002 and 2003 they would be permitted to account for tax on the value of the qualifying goods less the face value of the voupon but on the full value of the redemption goods.  On 11th December 2003 they repaid the sum of £3,354,435.  However, on 10th January 2005 the decision of 28th November 2003 was withdrawn and on 23rd March 2005 an assessment was issued under s.80(4A) VATA 1994 in the sum of £2,006,794 which was designed to recover most of the tax repaid in December 2003.
16.	Boots appealed to the Tribunal against this assessment and, as recorded in paragraph 3 of the Tribunal’s decision, put forward four alternative arguments.  They were:
(i)	that the assessment was invalid because it should have been raised under s.73 VATA 1994 and not under s.80(4A) and that any new assessment would be out of time;
(ii)	that the repayment of tax made on 11th December 2003 did, as a matter of law, represent the correct value of the qualifying supply;
(iii)	further, and in any event, that the repayment accorded with the method of valuation set out in paragraph 7.18 of Notice 727/4 upon which Boots was entitled to rely; and
(iv)	that even if it could not rely on paragraph 7.18 HMRC had on 28th November 2003, as part of the repayment arrangements, agreed to a binding amendment to the BRS to that effect and could not amend that agreement retrospectively.
17.	The Tribunal rejected the first three of these arguments and there has been no appeal by Boots against its decision on those issues.  But it held (to use its words) that “there was a meeting of minds in November 2003 and that the parties agreed a binding amendment to (BRS) for a period which started in 2002 and ended with the Budget of 2003”.  It therefore allowed Boots’ appeal against the 2005 assessment. 
18.	HMRC appeals against that decision on a number of grounds.  They can be summarised as follows:
(i)	they contend (as they did before the Tribunal) that HMRC did not agree a binding amendment to the BRS in accordance with regulation 67(2)(c) but merely acceded to a claim for repayment based on an erroneous view of the law from which they were entitled to resile.  The Tribunal’s finding was contrary to all of the evidence and, in particular, was inconsistent with Mr Hall’s stated purpose and intention which was to seek to recover overpaid tax on the basis that paragraph 7.18 of Notice 727/4 prescribed the correct treatment for voupons;
(ii)	even if there was an agreement to amend the BRS, it could only have been an agreement to adopt as part of the BRS the terms and methodology set out in paragraph 7.18 which, on the Tribunal’s own findings, had no application to voupons;
(iii)	the Tribunal avoided this conclusion by finding that the parties had agreed not to apply paragraph 7.18 in its correct interpretation and therefore to allow Boots to account for VAT on the voupons promotions in a way which was not permitted on the proper application of either paragraph 7.18 or the relevant provisions of VATA 1994.  HMRC had no power to enter into any such agreement or to grant any such derogation pursuant to the 1995 Regulations or otherwise and they were entitled to resile from any such agreement.
19.	I should mention for completeness that Boots has served a Respondents’ Notice.  This seeks to uphold the decision of the Tribunal on the basis that, properly analysed, it amounted to a finding that the parties had merely agreed to apply a particular accounting method to the voupon promotions which, although the same as that prescribed by paragraph 7.18 of Notice 727/4, was independent of it.  This argument is intended to avoid the characterisation of the agreement as one to apply the provisions of paragraph 7.18 to voupons regardless of whether it had any application to them.  Boots contend that in November 2003 they were simply given permission under regulation 67(1) to account for VAT on voupons by an agreed method of valuation not previously applied.  The effect of this was to amend the BRS but not by reference to paragraph 7.18.  
20.	The arguments on both sides, therefore, centre on what actually occurred between the parties in November 2003 and whether the Tribunal’s conclusion that there was an agreement under regulation 67 to value the voupons according to the method contended for by Boots is sustainable in the light of the evidence before it.  None of this would matter if HMRC was free to resile from the agreement and therefore to raise the new assessment under s.80(1)(4A) to recover the overpaid tax which the Tribunal has held was otherwise valid and in time.  Both sides agree that there is power under regulation 68 for HMRC to revoke a scheme such as the BRS prospectively on the grounds there set out, but Boots contend that regulation 68 does not operate retrospectively.  This appears to have been common ground before the Tribunal where the point was not argued, but HMRC now wish to contend as part of this appeal that regulation 68 does give them a power in the circumstances there specified to revoke an agreement with retrospective effect.  Mrs Hall QC, on behalf of Boots, accepts that this is a point of law and does not object to it being taken on this appeal.  It will therefore arise for decision if HMRC are unsuccessful in their primary contentions about the correctness of the Tribunal’s decision about the November agreement.
Error of Law
21.	An appeal to the High Court from a decision of the VAT and Duties Tribunal lies only in respect of an error of law.  At the outset of her submissions Mrs Hall reminded me of the limited circumstances in which the conclusions of the fact-finding Tribunal can be set aside on the ground that the Tribunal has erred in law.
22.	The Tribunal asked itself whether the exchanges between Mr Hall and Mr Pernavas resulted in a binding amendment to the existing BRS.  The formulation of this question was dictated by Boots’ necessary reliance on the 1995 Regulations.  It is common ground (subject to HMRC’s new position about revocability) that an agreed method of valuation under regulation 67 remains binding unless varied by agreement in accordance with regulation 67(2)(c).  Unless HMRC can be said to have repaid the tax to Boots pursuant to an agreement made in exercise of their regulation 67 power, they are free to seek its repayment.  Boots had therefore to persuade the Tribunal that such an agreement was made.
23.	Mrs Hall submitted that the word “agreed” in regulation 67 is not defined and is an ordinary English word.  As such, its meaning is not a question of law.  She referred me to the speech of Lord Reid in Brutus v Cozens [1973] 1 AC 854 at page 861 in which the issue was whether the appellant had used insulting behaviour within the meaning of s.5 of the Public Order Act 1936 when he interrupted a tennis match at Wimbledon by protesting at the involvement of a South African player.  Lord Reid said this:
“It is not clear to me what precisely is the point of law which we have to decide. The question in the case stated for the opinion of the court is "Whether, on the above statement of facts, we came to a correct determination and decision in point of law." This seems to assume that the meaning of the word "insulting" in section 5 is a matter of law. And the Divisional Court appear to have proceeded on that footing.
In my judgment that is not right. The meaning of an ordinary word of the English language is not a question of law. The proper construction of a statute is a question of law. If the context shows that a word is used in an unusual sense the court will determine in other words what that unusual sense is. But here there is in my opinion no question of the word "insulting" being used in any unusual sense. It appears to me, for reasons which I shall give later, to be intended to have its ordinary meaning. It is for the tribunal which decides the case to consider, not as law but as fact, whether in the whole circumstances the words of the statute do or do not as a matter of ordinary usage of the English language cover or apply to the facts which have barrel proved. If it is alleged that the tribunal has reached a wrong decision then there can be a question of law but only of a limited character. The question would normally be whether their decision was unreasonable in the sense that no tribunal acquainted with the ordinary use of language could reasonably reach that decision.”
24.	But in this case there is very little real dispute about what is meant by “agreed”.  Both sides accept that to come within regulation 67 the parties must have reached a binding agreement which, although not a private contract as such, must satisfy the requirements of certainty which a contract would involve.  In her written submissions to the Tribunal, Mrs Hall said that the requirements for an agreement are essentially those required for a contract in private law, although the need for consideration and the possibility of suing for its breach are not, of course, among its features.  It can be reached in a relatively informal manner but, for it to exist, there must obviously be finality in respect of its terms and an intention to enter into the agreement to which both parties then become bound.
25.	Mr Thomas does not therefore suggest that the formulation by the Tribunal of the question whether the parties had agreed a binding amendment to the BRS amounted in itself to a misdirection.  His complaint is that the decision reached and the finding made was one which, on the application of conventional Edwards v Bairstow principles, cannot stand.  Those principles are well known but, given the emphasis placed by Mrs Hall upon the factual nature of the finding under appeal, I set them out.  In his speech ([1956] AC 14 at page 36) Lord Radcliffe said this:
“When the case comes before the court it is its duty to examine the determination having regard to its knowledge of the relevant law. If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination or as one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three, since I think that it is rather misleading to speak of there being no evidence to support a conclusion when in cases such as these many of the facts are likely to be neutral in themselves, and only to take their colour from the combination of circumstances in which they are found to occur.”
26.	Mr Thomas contends that the Tribunal’s finding that a binding agreement under regulation 67 came about falls squarely within this test.
Was there an agreement to amend the BRS?
27.	The first and primary issue is therefore whether the Tribunal erred in law in its determination that on 28th November 2003 Mr Hall and Mr Pernavas reached a binding agreement to amend the BRS.  Although Mr Hall (but not Mr Pernavas) gave evidence before the Tribunal, the agreement relied upon was alleged to be contained in Mr Pernavas’s letter of 28th November.  It was not alleged to have been made orally between the two men.  All the exchanges leading up to the critical letter are contained in the correspondence between them.  Mr Hall’s own witness statement sets out extracts from this correspondence culminating in Mr Pernavas’s letter of 28th November.  He does not rely upon any other communications between them.  What he says (in paragraph 41) about the November letter is that:
“On 28 November 2003 I received a letter from Alf Pernavas confirming that Boots could account for VAT in relation to Voupons in accordance with the meaning that I had attributed to paragraph 7.18 and that accordingly, Boots would be repaid after the figures had been verified.  The letter stated:
“I have consulted with my colleagues in headquarters and it appears that you are right.  The recent budget provision was made to correct (emphasis added) the treatment to that which I applied in my earlier responses to you”.
28.	There are two other matters which are, I think, relevant to the context in which the agreement relied on was allegedly made and, in particular, to a consideration of the Tribunal’s treatment of the documentary evidence.  They are its own decisions on the questions whether the repayment was made on the correct view of the law and, if not, whether it was in accordance with the method of valuation set out in paragraph 7.18 of Notice 727/4.  Although the Tribunal’s decisions on these issues (see paras 16 and 17 above) are not challenged on this appeal, they are relevant by way of background to the treatment later in its decision of the agreement issue. 
29.	The Tribunal accepted that, in accordance with Article 11A of the Sixth Directive (77/388/EEC) and Schedule 6 of VATA 1994, the value to be placed on the qualifying goods was not to be reduced or apportioned by reference to the face value of the voupons which the customer received on the purchase.  Their conclusions are set out in paragraph 66 of the Decision as follows: 
“In our view the essential features of the transaction which gives rise to the grant of the voupon is that a customer wishes to purchase goods of a value of at least £15. That is what the customer wants and that is what he pays for. It is relevant that the £15 paid by the customer would include value added tax on the standard-rated items purchased. After payment for those goods the customer is given, whether he wants it or not, a free voupon. The Appellant is supplying the customer with the goods he wants for the normal price for those goods. That is a single supply of goods. The gift of a free voupon is not a supply for which the customer pays any consideration.”
30.	They therefore concluded that the repayment of VAT could not be justified on the correct application of the relevant provisions of VATA 1994.  In relation to the second issue as to whether the repayment was in accordance with paragraph 7.18 of Notice 727/4, two matters were raised for decision: the first was the proper meaning to be given to the words in the fourth box in paragraph 7.18 (set out in paragraph 11 above); the second was whether Boots were in fact entitled to rely on paragraph 7.18 at all given that paragraph 1.3 of the Notice expressly states that a business with an annual turnover in excess of £100 million cannot use a standard scheme but must agree a BRS.
31.	The Tribunal decided both issues against Boots.  They interpreted the relevant box in paragraph 7.18 as being intended to reflect the meaning of paragraph 5 of Schedule 6 to VATA 1994 which provides that:
“5. Where a right to receive goods or services for an amount stated on any token stamp or voucher is granted for a consideration the consideration shall be disregarded for the purposes of this Act except to the extent (if any) that it exceeds that amount.” 
	Consistently with their decision on issue 1, it applies only to vouchers issued for consideration which the voupons were not.  
32.	But they also decided that Notice 727/4 had no application to retailers such as Boots.  Its operation was restricted to retailers entitled to use the standard schemes.  From this they concluded:
“The Appellant must account for value added tax in accordance with its bespoke retail scheme. Of course, it would be possible for Customs and the Appellant to agree that the Appellant's bespoke retail scheme should be amended to incorporate part of any Notice but the Appellant's entitlement would then be to use the bespoke retail scheme as so amended by agreement.”
33.	Mr Hall, of course, recognised in his evidence that the BRS agreed for Boots pre-dated and therefore made no provision for voupons.  Nor did it incorporate paragraph 7.18 of Notice 727/4.  His correspondence with Mr Pernavas did not therefore involve any reliance on the BRS but was directed to Boots’ ability to take advantage of paragraph 7.18.  Although, as the Tribunal observed in the passage quoted above, it was open to the parties to have amended the BRS by the incorporation of specific parts of any Notice, the incorporation of paragraph 7.18 in its published form would not assist Boots.  To justify the repayment made the amendment to the BRS would have to prescribe a method of valuation similar in outcome to the fourth box of paragraph 7.18 but one which applied to promotions such as the voupon where no consideration was given for its issue.  It is, of course, for this reason that HMRC contend that any such agreement would have involved a derogation from VATA 1994 and the Sixth Schedule and so was not authorised under the 1995 Regulations.  But the first question is whether any such agreement was in fact made.
34.	As explained earlier, the relevant material is all contained in the correspondence which really began with Mr Hall’s letter of 16th April 2003 to Mr Pernavas dealing with another quite separate promotion called Meal Deals.  In that case Mr Hall was also seeking to make a retrospective claim for a repayment of tax on the basis that Boots could have used a more favourable method of apportionment.  This had led to a debate within HMRC as to whether or not the method used was the one prescribed by the BRS.  Mr Hall contended in his letter that the method in fact used was not part of the scheme and could be resiled from.  Mr Pernavas took the opposite view.  This dispute is only relevant to what followed because of the reference by Mr Pernavas (in his reply of 28th May 2003) to Boots not being at liberty to change retrospectively its choice to account for the VAT in question by reference to an agreed retail scheme.  
35.	On 25th June 2003 Mr Hall made the claim for repayment of VAT in relation to the voupon promotions operated in 2002 and 2003.  Boots had already accounted for this tax in the way described earlier in paragraph 6 so that the claim was again entirely retrospective.  In his letter Mr Hall said:
“In my view we have incorrectly accounted for VAT on these promotions because the payment received on issue of the voucher should have been apportioned between the goods and the voucher and the voucher should then have acted as a payment on redemption.  Customs Retail Scheme notice 727/4 section 7.18 (which has the force of law) states “if you include vouchers with other products for a single charge the supply of goods and voucher is treated as a multiple supply.  You should omit from your DGT that part of the payment which relates to the gift voucher, usually the face value.  But you must include in your DGT the face value of the voucher when redeemed by the customer.” 
	Mr Pernavas was asked to treat the letter as a voluntary disclosure.
36.	He replied on 3rd July rejecting the claim.  He said (correctly) that paragraph 7.18 had to be read in conjunction with Schedule 6, paragraph 5 of VATA 1994 which required there to be consideration for the supply of the voucher.  In this case the voupons, he said, were given away free of charge.
37.	Mr Hall said that he would provide additional information about the voupon promotions to support the claim and this additional information was contained in his letter of 7th October.  The first part of his letter is taken up with further submissions about the proper construction of paragraph 7.18.  Mr Hall’s argument (rejected subsequently by the Tribunal) was that it had to be construed in effect as a free-standing provision with a specified accounting treatment which applied regardless of the basic principles set out in Schedule 6.  
“… The use of the word “treated” also demonstrates that the intention was to set out an accounting treatment for retailers where vouchers are included with a main supply, regardless of what the supply position may be under basic principles.”
38.	The position had, he said, been changed following the April 2003 budget by the provisions of Schedule 10A to VATA 1994.  
“This change introduced in the budget was clearly intended to impact upon business promotions that are similar to Boots’ Voupons promotions, and the treatment as previously set out in the Notices.  The position post the budget is that the voucher is treated as supplied for no consideration.  In your analysis this would have also been the position prior to the budget.  I question why Customs choose to expressly include this situation in the Information Sheet if the budget had not altered the position.  I stress that our claim is seeking to put Boots in the same position as other retailers prior to the budget on 9 April 2003.”
39.	His letter concluded:
“It remains our firm view that Boots are entitled to rely on section 7.18 of the Notice up to 9 April 2003 and reduce DGT by the value of the face value vouchers provided in our Voupons promotions,.  This treatment accords not only with the wording of the legislation, but also with Customs’ intention when drafting the tertiary legislation and further with the industry practice.”
40.	Following receipt of this letter Mr Pernavas consulted the Retail Unit of Expertise within HMRC.  The evidence before the Tribunal included an inquiry record which sets out the advice which Mr Pernavas received.  Mr Hall had contended that the opening sentence of paragraph 7.18 (see paragraph 11 above) “treated” a supply of the qualifying goods and the voupon as a multiple supply regardless of what the position would have been under Schedule 6 paragraph 5.  The Retail Unit took the view that this was correct and that it accorded with both the wording of paragraph 7.18 and the intention at the time it was drafted.
41.	The internal e-mails also indicate that Mr Pernavas had himself come to the same view following Mr Hall’s letter of 7th October.  In these circumstances, he then wrote the letter of 28th November which is relied on as constituting the agreement to amend the BRS.  He said:
“I refer to your letter dated 07 October 2003.
I have consulted with my colleagues in headquarters and it appears that you are right.  The recent budget provision was made to correct the treatment to that which I applied in my earlier responses to you.
We will process the Voluntary Disclosure as soon as possible after Simon has verified the figures next week”.
42.	Following an audit visit on 2nd December 2003, the amount of the claim was reduced to £3,354,435 and a repayment of VAT in this sum was made on 11th December 2003.  On 13th September 2004 Mr Hall wrote to Mr Pernavas asking for his agreement to apply the same accounting treatment to promotions operated after 9th April 2003.  The terms of his letter are, I think, instructive.  He said:
“You will recall that I wrote to you on 7th October 2003 regarding the VAT treatment of promotions that involve the issue of face value vouchers with qualifying purchases.  Following this correspondence you agreed to the repayment of the voluntary disclosure submitted on 25th June 2003 on the basis that Boots was entitled to rely on the VAT accounting treatment contained in paragraph 7.18 of Notice 727/4 [my emphasis] which has force of law.  I am now writing to obtain your agreement to the effect that Boots should be entitled to rely on the same VAT accounting treatment for promotions operated after 9th April 2003, and until such time as a fresh notice is issued, or this part of the Notice is either amended or withdrawn.
The basis on which I believe that Boots should be entitled to apply the same VAT accounting treatment to face value coupon promotions since 9 April 2003 is simply that paragraph 7.18 of Notice 727/4 continues to have legally binding effect.”
43.	By then doubts had already been expressed within HMRC as to the correctness of the earlier repayment.  There was no agreement to continue the same accounting treatment for post-April 2003 promotions and on 13th December 2004 Mr Pernavas told Mr Hall that a claim would be made for the recovery of the £3.354 million.  The formal request for its repayment was contained in a letter of 10th January 2005 from Mr Pernavas in which he said:
“As explained at our meeting, the Commissioners’ position is that Public Notice 727/4 paragraph 7.18 has not been changed because the 2003 Budget did not change the Commissioners’ policy in relation to such promotions.  The Budget measures were only a clarification of this department’s policy which remains unchanged to this day.
This means that the rejection of your Voluntary Disclosure in my letter dated 03 July 2003 was in fact the correct response to the claim.  My letter dated 28 November 2003, which agreed the arguments made in your letter of 07 October 2003, contains a misdirection and is hereby withdrawn.  As you know, your Voluntary Disclosure claim of £3,574,250 was repaid in December 2003 in accordance with this misdirection.”
44.	An assessment to recover the tax was issued on 23rd March 2005.
45.	As mentioned earlier, Mr Hall gave evidence to the Tribunal which is summarised in paragraph 50 of the Decision:
“In evidence to us Mr Hall accepted that his letter of 25 June 2003 did not state specifically that it was an application to amend the bespoke retail scheme; nor was there any difficulty in accounting for value added tax on the voupons. That letter, and his letter of 7 October 2003 with the voluntary disclosure, relied upon the legal effect of paragraph 7.18 of Notice 727/4 and were written on the basis that the Appellant's interpretation of the paragraph was correct and that the Appellant was entitled to rely upon that interpretation of the paragraph.”
46.	On the basis of this evidence the Tribunal concluded that there had been a binding agreement reached on 28th November 2003 to effect an amendment to the BRS so as to permit Boots to account for VAT on the voupon promotions in the manner contended for by Mr Hall.  Their reasons begin with a statement of the factors which point in favour of and against such a conclusion:
“93. Factors which support the conclusion that an agreement was reached include: the fact that Mr Hall's first letter of 25 June 2003 spoke of an accounting treatment and referred to box 4 of paragraph 7.18 of Notice 727/4 which itself referred to the way in which daily gross takings should be calculated; the fact that Mr Pernavas's letter of 28 November 2003 said that Mr Hall was "right"; the fact that the repayment was made; and the fact that other amendments to the bespoke retail scheme (dealing with meal deals, pre-till thefts of cash and advantage card purchases costing more than £50) were made in an informal way. 
94. We have also identified a number of factors which could point to the conclusion that a binding agreement to amend the retail scheme was not reached. First, none of the contemporary correspondence specifically indicates that it was the intention of the parties to agree a binding amendment. However, the whole course of dealing between Customs and the Appellant was relatively informal. The retail scheme agreement itself consisted of an Agreement in Principle made in 1998 and Draft 4 of another agreement of 1998 together with various amendments agreed in subsequent correspondence from time to time. Accordingly, we do not regard the wording of the contemporary correspondence as conclusive. Next, we agree that the request in Mr Hall's letter of 7 October 2003 was based on a perceived entitlement rather than being a request for a simplified treatment. However, although Mr Hall thought he was entitled to the treatment he claimed, he was in fact seeking the agreement of Customs to it and he received that agreement. Thirdly, we agree that Mr Pernavas's internal enquiries were made on the basis that he was seeking guidance about the law rather than about an accounting treatment but the fact is that Mr Pernavas's letter of 28 November 2003 amounted to an agreement that the Appellant's proposal was "right" for the accounting periods prior to the Budget of 2003.”
47.	They discounted the relevance of the fact that Mr Hall sought agreement for similar promotions after April 2003 (rather than relying on what is claimed to have been a binding amendment of the BRS) on the basis that Mr Pernavas had agreed the position only “up to 9th April 2003”.  They also attached no weight to the fact that Mr Pernavas had refused to permit a retrospective amendment of the BRS in respect of the Meal Deals promotion and that Boots had not relied in their notice of appeal to the Tribunal that there had been a binding amendment to the scheme.  As recorded in the Decision, this point was taken for the first time during the hearing.
48.	In relation to Mr Hall’s evidence, they said this:
“97. Finally we have considered the oral evidence of Mr Hall, which we accept, that his initial claims were made on the basis that the Appellant was entitled to rely upon the law and Notice 727/4. As will be clear from our decisions on issues (1) and (2) Mr Hall was mistaken in his views about the law and about the Notice but so was Mr Pernavas and so was Customs' Retail Unit of Expertise. That does not alter the fact that they reached an agreement which was, in the terms of paragraph 2(6) of Schedule 11, an agreement permitting the value of the supplies of qualifying goods and redemption goods accompanied by a voupon to be determined by an agreed method. The agreement was not to apply paragraph 7.18 in its correct interpretation; the agreement was that the Appellant could account for value added tax on the reduced value of the qualifying goods, and the full value of redemption goods purchased with a voupon, for the accounting periods ending in April 2003. The agreement was only for the period up to 9 April 2003, the date specifically mentioned in Mr Hall's letter of 7 October 2003 and impliedly accepted by Mr Pernavas in his letter of 28 November 2003 when he said that the recent Budget had changed the treatment. 
98.  Finally we note that we did not receive any evidence from Mr Pernavas as to his intentions at the time the agreement was reached and the repayment made. 
99.  From all these factors we conclude that there was a meeting of minds in November 2003 and that the parties agreed a binding amendment to the bespoke retail scheme for a period which started in 2002 and ended with the Budget of 2003.” 
49.	As part of her submissions Mrs Hall placed great emphasis on the informal nature of many bespoke schemes and how their existence may be derived from an exchange of correspondence or the parties’ conduct as a whole.  An example of this can be found in the decision of the Court of Appeal in GUS Merchandise Corp Ltd v Customs and Excise Commissioners (No 2) [1995] STC 279 where an agreement was inferred from the correspondence between GUS and the Commissioners looked at in the light of the relevant surrounding circumstances.  The existence of an agreement was, said Steyn LJ:
“.. simply an issue of fact rather than law which is to be resolved in the light of the correspondence read in context”.
50.	But the outcome of this appeal does not depend on the degree of informality with which an agreement to amend the existing BRS could have been achieved.  It turns on whether there was in this case evidence from which the Tribunal could reasonably have inferred that such an agreement must have been reached.  The conclusion that there was such an agreement is, I think, a surprising one given that neither Mr Hall nor Mr Pernavas was in fact seeking to negotiate an amendment to the BRS and Mr Hall does not appear to have thought one necessary given his view that Boots was entitled to rely on paragraph 7.18 of Notice 727/4.
51.	The factors which the Tribunal identified in paragraph 94 of its Decision as pointing against there having been an agreement are, in my view, compelling.  It is worth repeating that the alleged agreement arose, if at all, solely out of the correspondence between Mr Hall and Mr Pernavas.  Mr Hall’s letter of 25th June which initiated the correspondence was in terms a request for the recovery of tax already paid on the basis that the sale of the qualifying goods should have been treated as a multiple supply in accordance with paragraph 7.18.  Nowhere in this or his other letters did Mr Hall suggest that the accounting treatment prescribed by Notice 727/4 should be adopted for the voupon promotions regardless of whether he was right in his interpretation of paragraph 7.18.  If that had been his position then Mr Pernavas would have been faced with a quite different request: i.e. to extend to Boots retrospectively a more favourable accounting treatment than the law currently permitted.  There is no obvious reason why HMRC should have acceded to such a request.  As Mr Thomas pointed out, a purely retrospective agreement of the kind alleged would not simplify the accounting position of Boots and it was certainly not what Mr Pernavas was asked to consider.  The only issue raised by the letter of 25th June was whether paragraph 7.18 applied to the voupon promotions and Mr Pernavas replied on 3rd July setting out his reasons why he considered that it did not.  It is impossible to read this letter as anything other than his response to the issue of law raised by Mr Hall.
52.	Mr Hall’s second attempt to persuade Mr Pernavas was also based on his construction of paragraph 7.18.  It had been left that Mr Hall would supply Mr Pernavas with additional evidence as to whether any consideration was given for the issue of the voupons.  This was the critical issue for Mr Pernavas having regard to Schedule 6 paragraph 5 of VATA 1994.  The letter of 7th October did not in fact provide any such evidence.  What it did was to set out again (but in more detail) the factors which Mr Hall said supported his view of the meaning of paragraph 7.18.  This included the reference to the discussions between HMRC and retailers leading up to the publication of Notice 727/4 and the change in tax treatment following the April 2003 budget.  It is clear from the concluding part of that letter quoted above that Mr Hall was not seeking any special kind of discretionary treatment for Boots.  He was seeking to enforce what he believed was their entitlement to rely on paragraph 7.18 and, unless Mr Pernavas was prepared to concede that he was right, there was to be an appeal to the Tribunal.  This in itself confirms that the issue between them was simply the applicability to the voupon promotions of paragraph 7.18.  
53.	Against that background, Mr Pernavas took advice and then wrote the letter of 28th November.  The evidence of the internal discussions within HMRC confirms that the only issue under consideration was the correctness or otherwise of Mr Hall’s reliance on paragraph 7.18.  The view of the Retail Unit that Mr Hall was in fact right about the meaning of the Notice led directly to Mr Pernavas’s letter of 28th November.  In terms it states that he now accepted that Mr Hall was correct about paragraph 7.18 and that steps would therefore be taken to process the voluntary disclosure.  No other basis for the repayment is suggested.
54.	Although the Tribunal took note of many of these points, none of them is properly reflected in their conclusions.  They say in paragraph 94 that they did not regard the wording of the correspondence as conclusive but no reasons are given for going behind what both Mr Hall and Mr Pernavas were obviously discussing.  In the same paragraph they accept that Mr Hall’s letter of 7th October was based on a perceived entitlement rather than a request for simplified treatment but they then proceed to treat this as somehow neutered by the fact that what Mr Hall was in fact seeking the agreement of HMRC to, was what he obtained.  The conclusion is considered without regard to the process which led up to it.  As mentioned earlier, this entirely ignores the fact that a request for simplified treatment would have involved HMRC agreeing to refund tax which had been paid on a correct legal basis and to which Boots had no entitlement.  
55.	This approach to the evidence leads, of course, to the position that Boots and HMRC are to be taken to have agreed a method of accounting for VAT on the voupons which paragraph 7.18 did not in fact permit.  Faced with this difficulty, the Tribunal (in paragraph 97) decided that the agreement was not in fact one to apply paragraph 7.18 in its correct interpretation but rather to account for VAT on the voupon promotions in a way which corresponded to paragraph 7.18 had it in fact applied.  In their Respondents’ Notice, Boots seek to finesse this conclusion by contending that the Tribunal’s decision can be treated as a finding that the parties had agreed to apply a particular accounting method to the voupons independent of (and presumably regardless of the meaning and effect of) paragraph 7.18.  There is no evidence to support this view of the agreement.  The parties were throughout concentrated on the meaning of paragraph 7.18 but the treatment of their correspondence as reaching a conclusion that is somehow divorced from the proper application of paragraph 7.18 was the only way of avoiding a finding that the parties had agreed to adopt a formula which did not in fact apply.  
56.	This difficulty is the direct consequence in my judgment of the Tribunal’s failure to base their conclusions on the evidence.  Indeed, it is not an exaggeration in this case to say that the decision was reached almost despite it.  It is obvious that the only issue between Mr Hall and Mr Pernavas was whether paragraph 7.18 applied.  Mr Hall (as he admitted in evidence) was not asking in terms to amend the BRS because he did not believe it was necessary to do so.  Throughout the correspondence he continued to believe that Boots was entitled to rely on paragraph 7.18 and that was the only point he was seeking to establish.  The Tribunal’s treatment of the correspondence completely mischaracterises the matter in issue and transforms it into a process of negotiation which it never was.  The correct explanation for the letter of 28th November which the Tribunal established by its earlier rulings on the correct tax treatment of voupons both under Schedule 6 and Notice 727/4 was that by then both Mr Hall and Mr Pernavas were wrong about the meaning of paragraph 7.18.  It is not possible in my view to convert what began as a claim under section 80 VATA for the recovery of overpaid tax based on a mutual but mistaken view of the law into an agreement to apply that tax treatment regardless of whether it is otherwise legally justified.  On the evidence before the Tribunal it is clear that Mr Pernavas and HMRC would not have sanctioned the repayment had they adhered to the correct view of paragraph 7.18 and this is confirmed by the fact that they sought to recover the tax once they realised that their concession had been wrongly made.  
57.	This is not therefore a case where the finding of the Tribunal is one possible conclusion to be drawn from the evidence.  It seems to me that the Tribunal fundamentally misconstrued the correspondence and made a finding unsupported by any of the evidence.  The decision is therefore one which no reasonable tribunal should have come to and, for this reason, the appeal will be allowed.  
The other grounds of appeal
58.	Given my decision that there was no agreement to amend the BRS either as contended for by Boots in their Respondents’ Notice or (if different) as found by the Tribunal in paragraph 99 of their Decision, it is not, I think, either necessary or appropriate to consider whether such an agreement would have been ultra vires the powers of HMRC under regulation 67 of the 1995 Regulations or one which the Commissioners would be entitled to resile from on the basis that it was made under a mistake of law.  These questions must depend upon the precise terms and basis of the agreement reached and it seems to me undesirable to attempt to answer them in this case on a purely hypothetical basis.  
59.	The same consideration also applies to Mr Thomas’s new argument that the power contained in regulation 68 to refuse to permit the value of taxable supplies to be determined in accordance with a scheme can be exercised not merely at the time when a regulation 67 scheme is first proposed but also retrospectively during its operation as a power of revocation.
60.	This argument runs contrary to the position taken by the Commissioners before the Tribunal in Tesco Plc (VTD 12740) and the decision of the Tribunal in that case that a retail scheme in the form of a method agreement cannot be resiled from by either party unless it can be shown to have been obtained by misrepresentation or fraud.  
61.	There are significant issues about whether the regulation 68 power can be exercised at all once a retail scheme has been approved.  On one view it is simply the opposite side to the regulation 67 coin setting out the grounds upon which permission to use a scheme may be refused.  Even if it can be exercised later in time (as Mrs Hall is minded to concede) there is then the issue as to whether it operates retrospectively as well as prospectively.  But, on any view, it has to be exercised on the grounds set out in regulation 68 and there is likely to be an issue in this case as to whether the power has yet been validly exercised given the basis on which the alleged method agreement was made.  Given my decision that the factual basis for the exercise of the power does not exist in this case, I prefer not to attempt to resolve this issue on assumed facts.  I therefore propose to base my decision on the first ground of appeal.  
Conclusion
62.	The appeal will therefore be allowed and the assessment of 23rd March 2005 confirmed.