Neutral Citation Number: [2009] EWCA Civ 1396
Case No: A3 2009/0740
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PATTEN 
[2009] EWHC 487 (Ch)
ON APPEAL FROM THE VALUE ADDED TAX AND DUTIES TRIBUNAL
[2008] UKVAT V20644 
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 17 December 2009
Before:

THE CHANCELLOR OF THE HIGH COURT
LORD JUSTICE LLOYD
and
LORD JUSTICE HUGHES

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Between:

	THE BOOTS COMPANY PLC	Appellant	
	- and -		
	COMMISSIONERS FOR HER MAJESTY’S 
REVENUE & CUSTOMS	Respondent	
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(Transcript of the Handed Down Judgment of
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A Merrill Communications Company
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Melanie Hall Q.C. and Tim Ward (instructed by KPMG LLP) for the Appellant
Owain Thomas and Andrea Lindsay Strugo (instructed by the Solicitor for 
HM Revenue and Customs) for the Respondent

Hearing dates: 25-26 November 2009
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Judgment
Lord Justice Lloyd: 
Introduction
1.	The Boots group, for which the appellant (“Boots”) is the representative member for VAT purposes, has a large annual retail turnover.  It has to account to the respondent, HMRC, for VAT.  (I will refer to the relevant body as HMRC even though at the time the Inland Revenue and the Customs & Excise were separate organisations.)  The present appeal is about the treatment for VAT of five sales promotions which Boots undertook in 2002 and 2003.  These promotions involved giving to any customer who spent £15 or more at any one time on the purchase of certain goods (referred to as qualifying goods) a document (referred to as a voupon) entitling her or him to £5 off the cost of a future purchase of specified goods from Boots within a limited time.  The question was how to treat the issue of the voupon and its redemption for VAT.  The VAT and Duties Tribunal held that the correct treatment was not to take account of it at all at the stage of issue, because it was not issued for consideration, but to account for VAT, if and when it was redeemed, on the supply of the purchased goods at the discounted price.  That is the opposite of the treatment for which Boots contended.  It has not appealed against that decision.
2.	Notwithstanding that conclusion, the Tribunal held that, as between Boots and HMRC, VAT was to be accounted for differently, because of a variation, which they held had been agreed between HMRC and Boots, to the particular basis on which Boots accounted for VAT.  The different treatment for which Boots contended and contends, and which the Tribunal upheld, would attribute the price paid on the occasion when the voupon was issued in part to the goods and in part to the voupon, and would ignore the voupon at the stage of redemption.  The effect of this is not just a matter of cash flow.  It gives Boots a benefit in relation to voupons which are issued but not redeemed, which represented a substantial proportion of those issued.  On HMRC’s appeal, Patten J held that this was not correct.  Boots appeals with permission granted by Moses LJ.
VAT on retail operations
3.	The supply of goods or services by a retailer which is registered for VAT is a taxable supply for VAT purposes.  The application of the VAT legislation to retailers, however, is and has always been capable of giving rise to practical problems.  Article 27 of the Sixth VAT Directive (Directive 77/388/EEC) therefore allows for special measures “for derogation from the provisions of this Directive, in order to simplify the procedure for charging tax” or for certain other purposes.  Such measures may not affect the overall amount of the tax revenue of the relevant Member State collected at the stage of final consumption except to a negligible extent.
4.	Pursuant to that provision, UK legislation, now the Value Added Tax Act 1994, provides in paragraph 2(6) of Schedule 11 for regulations to:
“make special provision for such taxable supplies by retailers of any goods or of any description of goods or of services or any description of services 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;”
5.	Under that provision, the Value Added Tax Regulations 1995 contain regulations 67 and 68 on which attention was focussed in this appeal.
“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.”
6.	Under regulation 67(1) HMRC published various notices including Notice 727/2/02, “Bespoke retail schemes”, and Notice 727/4, “Retail schemes: how to work the apportionment schemes”.
7.	Regulation 67 allows a retailer to use either a method described in a notice published by HMRC or a method agreed with HMRC.  However, each of Notice 727/2/02 and Notice 727/04 states that retailers with an annual tax exclusive turnover exceeding £100 million may not use a method described in a published notice and must agree a bespoke scheme with HMRC.  Boots did use a bespoke scheme agreed with HMRC.  It did not, however, provide for the treatment of a promotion such as the voupons.
8.	When the issue was raised by Boots with HMRC in 2003, it was by reference to paragraph 7.18 of Notice 727/4.  This is headed “Gift, book and record vouchers” and sets out a table with a number of boxes.  The first three deal with the sale of gift vouchers.  The fourth and fifth were as follows:
If you	then	
…	…	
include gift vouchers with other products for a single charge	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.	
issue gift vouchers free of charge	no VAT is due on the issue.  When the voucher is redeemed for goods no VAT is due unless the cost of the goods exceeds £50.  If the cost exceeds £50 VAT is due on the full amount. …	
9.	The Tribunal held that, if paragraph 7.18 had been applicable, Boots’ voupon scheme would have fallen within the fifth, not the fourth, category, because the voupons were issued free of charge rather than for a consideration.  It also held that because paragraph 7.18 applied to the operation of two standard schemes described in the notice, and because Boots, as a large retailer, was not entitled to rely on a standard scheme, the paragraph did not apply in any event.  Neither of these conclusions is challenged.
10.	The Tribunal then addressed the question whether, on the facts, HMRC and Boots had agreed a variation of Boots’ Bespoke Retail Scheme (BRS) under which Boots was entitled to the tax treatment which it claimed.
11.	If it had been necessary to consider the generally applicable VAT legislation as regards vouchers and the like, the relevant provision would have been paragraph 5 of Schedule 6 to the 1994 Act, which provided:
“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.”
12.	With effect from 9 April 2003 this was repealed and replaced by a new Schedule 10A dealing with face value vouchers, namely “a token, stamp or voucher (whether in physical or electronic form) that represents a right to receive goods or services to the value of an amount stated on it or recorded in it”.  Paragraph 7 of this Schedule is as follows:
“Where
(a)	a face-value voucher (other than a postage stamp) and other goods or services are supplied to the same person in a composite transaction, and
(b)	the total consideration for the supplies is no different, or not significantly different, from what it would be if the voucher were not supplied,
the supply of the voucher shall be treated as being made for no consideration.”
13.	The application of that new provision as from 9 April 2003 explains why the correspondence between the parties was originally limited to the earlier promotions, although this did not prevent Boots from mounting a claim in 2004 for similar treatment on a continuing basis, which it only abandoned in the course of the proceedings before the Tribunal.
Repayment of VAT overpaid and recovery of sums wrongly repaid
14.	The other aspect of the VAT legislation which it is necessary to bear in mind is that under which tax may be repaid and, if wrongly repaid, can be recovered.  This is governed by section 80 of the 1994 Act.  At the time the relevant provisions of this section were as follows:
“80(1)	Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
…
(4A)	Where—
(a)	any amount has been paid, at any time on or after 18th July 1996, to any person by way of a repayment under this section, and
(b)	the amount paid exceeded the Commissioners’ repayment liability to that person at that time,
the Commissioners may, to the best of their judgement, assess the excess paid to that person and notify it to him.”
15.	The procedure for a claim is dealt with in rather general terms by regulation 37:
“Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that amount was calculated.”
16.	There are time limits for an assessment under s 80(4A), which were complied with by HMRC.  Separately, there are also constraints as a matter of public law, as discussed in R v Commissioners of Inland Revenue, ex parte MFK Underwriting Agencies [1990] 1 WLR 1545, and a constraint in practice by way of what has come to be referred to as the Sheldon doctrine, derived from a statement by Mr Robert Sheldon MP, as Financial Secretary to the Treasury, in 1978, later enshrined in an Extra-Statutory Concession.  None of those matters is in issue in these proceedings, but Boots has also launched a judicial review claim against HMRC, which is currently stayed pending the outcome of these proceedings.  
17.	The effect of Boots’ argument that the repayments were made pursuant to a binding agreement under regulation 67, if it were correct, would be to impose an obstacle to recovery which would not exist if the repayment had been made under section 80.  By its Respondent’s Notice in this court HMRC raised the question whether it could withdraw its agreement, and therefore recover money, with retrospective effect under regulation 68.  In the event, we did not find it necessary to consider that question.  
Boots’ Bespoke Retail Scheme
18.	The Tribunal recorded that an agreement had been reached in principle between Boots and HMRC in June 1998 in respect of a BRS, but this specifically excluded “sales of gift vouchers” from the agreed method of calculation, so that this had to be dealt with separately.  No formal agreement was ever entered into pursuant to this agreement in principle, although a draft agreement exists, dating from 1998, which appears to have been treated as part of the BRS and as the basis on which Boots was to account for VAT in respect of matters covered within it.
19.	Nothing turns on the agreement in principle or the draft agreement in themselves, but Mrs Hall Q.C. for Boots relied before us, as below, on the fact that the general agreement had been supplemented in relation to three specific points by further agreements reached ad hoc and in an informal manner.  These related to, first, “3 for 2 Meal Deals”, secondly, pre-till thefts of cash (following a Tribunal decision in relation to WH Smith), and thirdly Boots’ Advantage card.  In each case the particular point was one which was not covered by the existing BRS and when the point was raised an agreement was come to, in an informal manner, as to how it should be dealt with.  In the case of the Meal Deals the change was only prospective.  In the case of pre-till thefts it covered the past three years as well as future years.  The change in treatment for the Advantage card was also both retrospective and prospective.  In none of these cases was the BRS documentation, such as it was, altered.  The Tribunal said at paragraph 28:
“These three examples indicate that there was a continuing full and frank exchange of views between the Appellant and Customs whenever it appeared that the Appellant’s bespoke retail scheme did not deal with some new development.”
Boots’ voupon promotional scheme: the relevant facts
20.	Boots’ relevant voupon promotions were undertaken on five occasions in 2002 and early 2003.  (There have been others since then, but these are not relevant to this appeal.)  It is unnecessary to say more about the promotions than I have said in paragraph [1] above.  Mr Mike Hall, Boots’ Group VAT Manager (who had joined Boots in June 2002) negotiated the change in the treatment of Meal Deals with Mr Pernavas, of HMRC, in March 2003 (though he continued, unsuccessfully, to press for this to be applied retrospectively until at least September 2003).  The other two specific arrangements already discussed were reached between March and May 2003. 
21.	On 25 June 2003 Mr Hall wrote to Mr Pernavas making a claim for the repayment of overpaid tax arising from the voupon promotions.  The tax treatment of this promotion had not been taken up with HMRC before this date.  The letter accompanied a schedule “detailing a claim for the repayment of overpaid output tax” and asked that the letter and the schedules be taken as notice of voluntary disclosure.  It is not in dispute that this can be a valid way of making a claim for the repayment of overpaid tax.  In the letter Mr Hall described the promotions, and he enclosed some of the relevant documents.  After that description, he continued as follows:
“In my view we have incorrectly accounted for VAT on these promotions because the payment received on the 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”.”
That is a quotation from the fourth box in section 7.18.  Later references to section 7.18 were, implicitly, to that part of it.  He then referred to a spreadsheet showing the relevant figures, and concluded:
“Should you require any further information regarding this claim, please do not hesitate to contact me, otherwise I look forward to receiving payment in respect of this voluntary disclosure at your earliest convenience.”
22.	Mr Pernavas replied on 3 July 2003 rejecting the claim.  He said that there had to be consideration for the supply of the voucher if that consideration was to be ignored at the time of issue.  He said he could not see that there was any and he asked Mr Hall to give details if he contended otherwise.  His point was that the voucher could only be left out of account, in the sense of being treated as a taxable supply separate from that of the supply of the qualifying goods, if it was supplied for a consideration which would require it to be treated separately for VAT purposes.
23.	Mr Hall acknowledged this on 7 August and said he would be writing with additional material to support “our claim that VAT has been overpaid under the voupons promotions”.  His substantive reply was sent on 7 October 2003.  He took issue with Mr Pernavas as to the need for consideration and said it was sufficient that the voucher be included with other products for a single charge.  In the course of his second paragraph he said this:
“I cannot agree with this analysis.  In my view this remains a simple case of whether Boots’ Voupons promotions fall within section 7.18 of the Notice.  If they do, then Boots is entitled to deduct the value of the vouchers from its DGT when they are issued, and instead account for VAT on redemption.”
24.	He referred to having consulted not only Boots’ professional advisers but also the British Retail Consortium, and argued that his analysis was not only correct but also that which had been intended by HMRC when the notice was issued, and that other retailers had treated similar promotions in the same way for tax purposes before the Budget date, 9 April 2003, when changes were announced which were given effect in the Finance Act 2003.  He concluded his letter as follows:
“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.
In the event that you are still unable to agree our voluntary disclosure in the light of the additional information provided, I would be grateful if you would issue a full decision in order that we can consider lodging the relevant appeal forms to the VAT Tribunal.”
25.	Mr Pernavas consulted others within HMRC.  Eventually he replied, on 28 November 2003, as follows:
“I refer to your letter dated 7 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 …”
26.	The figures were then checked and the claim was approved in the sum of £3,354,435.  That sum was paid to Boots on 11 December 2003.
27.	Notwithstanding the acceptance of the claim, Boots’ till accounting treatment of such promotions was not changed.  In September 2004 Mr Hall wrote to Mr Pernavas again, asking that the same accounting treatment should be applied to promotions since 9 April 2003 as had been accepted in response to the voluntary disclosure in 2003.  However, Mr Pernavas did not agree to that, and at a meeting in December 2004 he told Mr Hall that he would be writing to seek repayment of the sum paid to Boots in December 2003.  He did so on 10 January 2005 and on 7 February 2005 Boots appealed to the Tribunal.
The appeal to the Tribunal
28.	Several issues were raised before the Tribunal.  They identified four questions to be decided: 
i)	whether the repayment was made on the correct view of the law; if not 
ii)	whether the repayment was in accordance with paragraph 7.18 of Notice 727/4 and whether the Appellant was entitled to rely on that paragraph; if not 
iii)	whether HMRC had agreed a binding amendment to the Appellant’s retail scheme; and if not  
iv)	whether the assessment was validly made.    
29.	They decided the first two questions in favour of HMRC, and the third in favour of Boots, so the fourth did not arise, though they said they would have decided it in favour of HMRC if it had arisen.  It was argued that the effect of HMRC’s letter of 28 November 2003 and the payment made thereafter was to constitute an agreement between Boots and HMRC to amend the BRS retrospectively, from which HMRC could not resile.  With guidance from the decision of the Court of Appeal in GUS Merchandise Corp v. Commissioners of Customs and Excise [1995] STC 279, they examined the correspondence between, and the conduct of, the parties to see whether, taken as a whole, they evidenced a binding agreement to amend Boots’ BRS.  They said that there was certainly an agreement, namely to accept Boots’ claim to repayment, but the issue was whether it went further.  They identified various factors pointing either way.  Those which they considered supported the proposition that the agreement did amend the BRS were set out at their paragraph 93 as follows:
“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.”
30.	As regards pointers in the other direction, they noted the absence of any indication in the correspondence of an intention to amend the BRS, but they did not find that persuasive because of the informality of the dealings as regards the other three points on which the BRS had been amended.  On another point they said this, in paragraph 94:
“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.”
31.	They also had regard to the nature of Mr Pernavas’ internal enquiries within HMRC, to Mr Hall’s evidence as to his understanding and intention, and to the fact that Boots did not alter its till accounting treatment, and they noted the absence of any evidence from Mr Pernavas as to his intention.  They stated their conclusion in paragraphs 97 and 99:
“97.	… 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.”
“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.”
The appeal to the High Court
32.	HMRC appealed against this decision.  The appeal was heard by Patten J.  He concluded that the Tribunal’s decision was one which could not properly have been reached on the undisputed relevant evidence – it had “fundamentally misconstrued the correspondence and made a finding unsupported by any of the evidence”: paragraph 57.
33.	Boots advanced an alternative argument before the judge by way of a Respondent’s Notice, namely that the Tribunal’s decision should be upheld on the further ground that, pursuant to regulation 67, HMRC permitted the value, to be taken as the value of the supplies in relation to the voupon promotion, to be determined by a method agreed with Boots or by a method described in a notice published for the purpose, namely paragraph 7.18.  The judge did not refer in terms to that alternative argument.  However, it does not turn on any material different from that relevant to the principal argument as to the nature of the agreement reached between the parties in November 2003, and it does not seem to me that a different conclusion could be reached whether one approaches the matter as one of agreement or, as Mrs Hall submitted was correct, of agreement as to a method of valuation followed by permission granted by HMRC to the taxable person to use that agreed method.
34.	She pointed out that regulation 67 does not speak of agreement as to a method of valuation between HMRC and the retailer, but rather of permission granted by HMRC to use such an agreed method.  She reminded us that, in relation to Meal Deals the method of valuation was agreed, but Boots was only permitted to use it prospectively.  This emphasised the difference between bilateral agreement as to a method, requiring consensus, and unilateral grant of permission by HMRC to use it, and the potential significance of that distinction.  That is a fair point as far as it goes, but the fact is that the difference will hardly ever matter, because the method will be agreed, and the agreement will normally carry with it the permission to use it.  Only rarely, I imagine, will a point arise on which HMRC are not prepared to allow the retailer to use the method, once it has been agreed, for the periods for which it wants to do so.  In relation to voupons there was no such issue, because it is clear that, from the start, Mr Hall sought the change of treatment in question as regards only the five promotions which had already been undertaken, not least because of the new legislation announced in the Budget in April 2003.  It was not sought on a continuing basis, for any future period.
The issues on the appeal to this court
35.	Having lost before Patten J, Boots appealed, articulating nine separate grounds of appeal.  Essentially these turned on the contention that the judge was wrong to find that the Tribunal’s conclusion was one which no reasonable tribunal could have reached on the evidence before it.  
36.	HMRC served a Respondent’s Notice raising two separate points, of general importance.  One is that HMRC would have been acting ultra vires if they had entered into the agreement which the Tribunal held that they had reached.  The other is that by making their decision on 10 January 2005 to claim the recovery of the payment made in December 2003, HMRC was acting under regulation 68.  This raises the question whether permission can be withdrawn retrospectively under that regulation.
37.	Having heard argument on the issues raised by the Appellant’s Notice, we were not persuaded of their substance, despite Mrs Hall’s sustained advocacy.  We therefore did not need to hear argument on the issues raised by the Respondent’s Notice.  We announced our decision at the conclusion of the hearing.  My reasons for dismissing the appeal are set out hereafter.
Discussion
38.	Whether one is to consider the issue on the basis of agreement between the parties or of unilateral permission by HMRC to use a method agreed between the parties, the starting point is the relevant communications between them.  In the present case there are, at most, five such letters: from Mr Hall dated 25 June 2003, from Mr Pernavas dated 3 July 2003, from Mr Hall dated 7 August 2003, again from Mr Hall dated 7 October 2003 and from Mr Pernavas dated 28 November 2003.  The 7 August letter adds nothing of any particular substance.
39.	Mrs Hall sought to rely on other material, all intended, she said, to cast light on what Mr Pernavas meant, and to what he referred, when he said in his final letter “it appears that you are right”.  The first category was the internal communications between Mr Pernavas and others in HMRC in 2003 before he sent his final letter.  The second was later internal communications within HMRC involving Mr Pernavas, and the third was later communications between Mr Pernavas and Mr Hall.  Some of this material was obtained by Boots under the Freedom of Information Act.
40.	It seems to me that, on principle, the true effect of an agreement between two parties reached by way of an exchange of correspondence must be determined by reference to the terms of the correspondence, in the light, of course, of any relevant surrounding circumstances known to both parties, but not by reference to matters only known to one or other party, nor to later communications.  The subjective intention of the writer of any of the relevant letters is irrelevant and inadmissible.
41.	The Tribunal said at paragraph 91 that it was agreed between the parties that the legal nature of a retail scheme agreement was that of a binding agreement from which one party cannot resile.  I agree that the same principles should be applied in determining whether a retail scheme agreement has been reached, and if so what its terms are, as would be applied in relation to a contract under the general law, apart from there being no requirement for consideration in the former case.  The same would be true if the question were as to whether, and if so in what terms and with what effect, a body such as HMRC gave a unilateral permission by way of a document such as the letter dated 28 November 2003
42.	This is consistent with the decision of this court in GUS Merchandise Corp Ltd v Customs & Excise Commissioners already mentioned.  That seems to have been the only previous case in this court about a retail scheme for VAT, the issue being whether a binding agreement had been concluded as to how a particular aspect of the taxpayer’s accountability for VAT should be dealt with.  Steyn LJ said at page 282 that this question “is on examination simply an issue of fact rather than law which is to be resolved in the light of the correspondence read in context”.  He upheld the judge’s judgment to the effect that there was such a binding agreement, reversing the decision of the tribunal in that case.  He warned against excessive reference to particular words, such as “agree” or “concession”, and said: “I would eschew a purely linguistic approach and pay close attention to the objectives of both parties”.  
43.	Despite Steyn LJ’s comment that the issue in that case was one of fact, it seems to me that in the present case, at least, it is a mixed question of fact and law.  The first possible factual issue is what the material is from which any agreement is to be gathered.  In the present case that is common ground: it begins and ends with the five letters already mentioned.  What meaning those letters are capable of bearing is a question of law.  A second factual issue may arise, if the letters, or parts of them, are capable of bearing more than one meaning, namely which of those meanings is correct.  In general, an issue of construction of a contract is classified as a question of law so that, for example, it was always a matter for the judge rather than the jury.  It seems to me that the same applies as regards an agreement in the present context, although not amounting to a contract under the general law, and it would also apply if the question were whether HMRC had granted a unilateral permission to use an agreed method.
44.	Since the issue turns on the correspondence, read in the context in which it was written, so far as it was known to both parties, I do not see on what basis it can be relevant to examine either HMRC’s internal communications and thought processes before the final letter was written, or the state of mind of Mr Pernavas (or, for that matter, that of Mr Hall) at the time of that letter or at any other time, or for that matter what happened thereafter, either internally within HMRC or as between the parties.  No such matter could possibly be relevant in relation to a question about a contract under the general law, or in construing, for example, a licence granted unilaterally by a landlord to a tenant.
45.	I should say that Mr Thomas, for HMRC, did not submit to us that this material was not admissible, but he did argue that none of it formed any part of whatever agreement had been reached between the parties, and that it could hardly be relevant even on the question of a unilateral permission given by HMRC to use an agreed method.  He was content to deal with this material on its merits.  No doubt that will often be the appropriate course forensically for the parties, and practically for the Tribunal, to take.  But it seems to me that it does risk expanding the ambit of the enquiry and the hearing into areas which do not in the end assist the Tribunal to decide the question before them.  It may also tend to divert attention from what is the real issue especially if, as here, that issue comes down to the proper reading of a small number of letters between the parties within the four corners of which any agreement is to be found and construed.
46.	Mrs Hall referred us to rule 28(1) of the Value Added Tax Tribunal Rules 1986 (since repealed) which was in the following terms:
“(1)	Subject to paragraph (4) and (5) of rule 21 and to rule 21A a tribunal may direct or allow evidence of any fact to be given in any manner it may think fit and shall not refuse evidence tendered to it on the grounds only that such evidence would be inadmissible in a court of law.”
47.	It is sensible that there should be a degree of latitude as to how matters of fact are proved before a body such as the Tribunal.  However, it does not seem to me that this rule allows or requires the Tribunal to take into account material which is strictly inadmissible (because it is irrelevant) as a matter of law on an issue such as the present.  If the Tribunal had to have regard, for example, to the internal musings of HMRC before 28 November 2003, because of rule 28(1), an unsatisfactory result would arise in which the material before the Tribunal would be more extensive than that which the court would be able to take into account on an appeal on the point.
48.	Material of this kind could be relevant to a claim by a taxpayer for a public law remedy against HMRC.  But it seems to me that none of it is relevant to the issue the Tribunal had to decide.  Accordingly I do not propose to spend time on the effect of this material, beyond saying that, first, Mr Pernavas was evidently embarrassed by the position in which he had been put, in relation to Mr Hall, by the volte-face within HMRC as to whether Boots’ claim should be accepted and, secondly, even if the internal communications within HMRC before 28 November 2003 were admissible, they do not seem to me to indicate that anyone in HMRC was doing other than consider whether Boots were entitled to the treatment they sought; there is no sign that they were addressing the different question whether, if Boots were not entitled to it, HMRC ought nevertheless to give permission for it.
49.	Accordingly, the question for consideration is whether the Tribunal’s reading of the correspondence to which I have referred, concluding with HMRC’s letter dated 28 November 2003, as amounting not only to an acceptance of the claim by way of voluntary disclosure but also to an amendment of the BRS, can stand.  Patten J approached it by considering whether the reading was one to which a reasonable tribunal could have come, a formulation which goes back to Edwards v Bairstow [1956] AC 14.  If, as I suggested above, the question is more directly an issue of law, as a question of the construction of a contract would be, it may be legitimate to ask more directly whether the Tribunal’s conclusion was or was not correct as a matter of law.  Nothing turns on that distinction in the present case, as I see it.  It was not the subject of submissions to us and my decision does not depend on it.
50.	I approach the question with the benefit of Steyn LJ’s observations, and therefore taking as a guide the objectives of the parties.  Starting with the opening letter, on 26 June 2003, Boots sought repayment of VAT which they said had been overpaid, in relation to five promotions, all of which had already occurred.  Mr Hall sought repayment of the sum said to have been overpaid.  That was his manifest and stated objective.  In his reply in July Mr Pernavas dealt with the request as a claim for repayment, and referred to what was by then superseded legislation (which had been relevant at the time of the five promotions) in order to rebut the claim.  Mr Hall’s immediate response in August indicated that he would pursue the claim that tax had been overpaid.
51.	In his further letter of 7 October 2003, Mr Hall developed his arguments.  He said that it was a case of whether the promotions fell within section 7.18 of Notice 727/4, and that if they did then Boots was entitled to the more favourable treatment.  He also made it clear that he was only dealing with the past, in that he referred more than once to the position as it had been up to budget day on 9 April 2003.  He was not seeking to change Boots’ tax treatment for the future or on a continuing basis.  This is all the more clear from the fact that part of his argument was that the treatment which Mr Pernavas favoured was the same as would apply under the new legislation, and he commented that published information in relation to the new legislation would not have been necessary if no change had been effected by the new provisions.
52.	As Mrs Hall pointed out, he developed his argument not only by reference to section 7.18 but also with assertions both as to the intention of HMRC when the Notice was drafted and as to the comparable treatment of other retailers.  I have quoted at paragraph [24] above his penultimate paragraph in which he summarised his contention.  She submitted that his reliance on these three strands of argument showed that he was not merely arguing a claim based on strict entitlement but was approaching the matter more widely, and inviting Mr Pernavas to agree to the proposed treatment on any or all of these bases.
53.	Mr Pernavas’ letter of 28 November 2003 is succinct.  It accepts that Mr Hall is “right”, and says that the recent budget provision was made in order to change the position to that which he had previously maintained.  The most important aspect of the letter, for Mr Hall, must have been the agreement to pay in accordance with the Voluntary Disclosure, subject to the figures being checked.
54.	Mrs Hall submitted that this letter agreed to everything that had been asserted by Mr Hall in his previous letter.  I do not accept that submission.  The essence of Mr Hall’s previous correspondence had been the claim for the repayment of some £3.5 million VAT said to have been overpaid.  The essence of Mr Pernavas’ ultimate reply was to accept that claim.  So far as there is any reasoning in his last letter, it is that the legislative position before the 2003 budget had been different from that which would apply thereafter.  That meant, as Mr Pernavas then understood it, that Boots was entitled to the more favourable treatment which it sought in relation to the pre-2003 budget schemes.  I can see nothing in this exchange of correspondence which, on any fair reading, could show that Boots had any objective other than obtaining repayment of tax overpaid in the past, in a situation which would not recur because of the change in the legislation, or that HMRC had any objective of doing more than agreeing to such repayment, doing so expressly on the basis that the law had changed.
55.	The other three points on which Mr Hall and Mr Pernavas reached agreement in 2003, to which I have referred, all related, at least in part, to the way in which Boots would account for VAT in future.  Accordingly each of those had to be regarded as doing more than asserting, and accepting, a claim for repayment for the past.  They had to be regarded as amending or supplementing the BRS on a continuing basis.  That is not so as regards the voupons promotions, for which only the past was relevant.  Thus, from HMRC’s point of view, all that was being sought and acceded to could properly and effectively be accomplished by no more than acceptance of the claim to repayment of tax previously overpaid.  It had no implications for the future.  The BRS did not need to be changed.  Indeed, because of the change in the law, the BRS was not to be changed for the future, because the treatment which had in fact been applied in the past was that which would be correct for the future even if (as HMRC thought in November 2003) it had not been correct in the past.
56.	The Tribunal accepted that there was an agreement to accept the claim to repayment.  They had to decide whether the agreement went further, and amounted to a binding agreement to change the BRS.  They did not ask themselves why, if an acceptance of the claim to repayment was sufficient for the parties at the time, it was right to construe the agreement as going further than that, by implication.  Their view that the agreement did have that further effect was supported, as they saw it, by a number of factors mentioned in their paragraph 93, which I have quoted at paragraph [29] above.  So far as those factors are concerned it seems to me that for Mr Pernavas to say that Mr Hall was right was, at best, ambivalent.  The question is: “right” as to what?  The letter goes on to indicate that it means right as to the legal basis of the claim.  The fact that payment was made must be neutral, because it is wholly consistent with the agreement being no more than an acceptance of a claim on the basis of entitlement.  The informal nature of other dealings between the parties which did amend the BRS is relevant, but it does not by itself show that the dealings relating to voupons had the same effect.  Nor do I regard the references to accounting treatment or to section 7.18 as pointing to a BRS amendment rather than to the identification of the basis of the repayment claim under regulation 37.
57.	In paragraph 94 the Tribunal mentioned some factors pointing the other way, but gave reasons for discounting them.  I have quoted some of this at paragraph [30] above.  They accepted that the correspondence does not show any intention to agree a binding amendment to the BRS.  In the light of Steyn LJ’s comments, that should have been a powerful indication of a limited intention.  They disregarded that because of the relatively informal pattern of dealing between Boots and HMRC, because of which they did not regard the contemporary correspondence as conclusive.  No doubt the context needed to be considered, and in relation to matters which were part of the agreed basis for ongoing accounting for tax on the part of Boots, the lack of formality was not to be taken as an obstacle in working out what the agreement was.  In relation to a distinct matter which did not need to be part of that ongoing agreed basis, and where there was no apparent intention that it should be, it does not seem to me that the informality of other dealings overcomes the need to focus on the intention demonstrated by the relevant exchanges of correspondence. 
58.	The Tribunal also accepted that Mr Hall used the language of entitlement, but said that he sought agreement to the more favourable treatment and he got it.  But that is no more than to say that he asserted an entitlement to the repayment of tax, which he argued had been overpaid, and HMRC accepted the claim.  It seems to me that it cannot carry any wider implication.  The third factor in paragraph 94 referred to Mr Pernavas’ internal enquiries.  Since I regard those as irrelevant I do not propose to refer to what was said about them.  The Tribunal’s conclusion was that the letter of 28 November amounted to an agreement that Mr Hall’s “proposal was ‘right’ for the accounting periods prior to the budget of 2003”.  That depends on construing the letter in the context of the earlier letters in the exchange, not, as I see it, in the light of HMRC’s internal communications.  To read Mr Hall’s letters as a proposal, rather than as a claim to entitlement backed up by supporting arguments in favour of the claim for the past by way of Voluntary Disclosure, seems to me to disregard the language of the letter, and the intention manifested by that language, to an unwarranted degree.  Similarly, I do not see that Mr Pernavas’ letter can fairly be read as doing more than agreeing to the assertion that tax had been overpaid.
59.	The Tribunal mentioned at paragraph 95 and 96 the fact that the agreement related only to the past.  They rejected that as a pointer away from an amendment of the BRS on the basis that two of the other special arrangements were in part retrospective.  As to that, they were both retrospective and prospective.  At least in part, therefore, they had to be seen as an amendment to the BRS in order to have effect as the parties intended.  That is not so as regards the voupons promotions, as I have mentioned.  It was not necessary that the agreement about voupons should take effect by way of an amendment to the BRS in order that it should have the full effect apparently intended by the parties.  That effect was fully achieved by HMRC being treated as doing no more than admitting and accepting Boots’ claim to have overpaid tax and to be entitled to have it paid back under section 80.  As it seems to me, that is the most powerful factor in favour of giving the relevant exchange a limited meaning and effect.  No wider effect could be regarded as consistent with the objective of HMRC, at any rate, nor was it part of what Boots, overtly at least, sought from HMRC.
60.	The Tribunal also referred to Mr Hall’s evidence and to the absence of evidence from Mr Pernavas.  I regard Mr Hall’s evidence as to his subjective intention when writing his letters and reading those which he received as being irrelevant and inadmissible.  I do not see what relevant evidence Mr Pernavas could have given.
61.	There is an additional difficulty in the way of Boots’ arguments.  On the face of the correspondence Mr Hall sought to rely on section 7.18 of the notice, claiming that it applied, or should be applied, to Boots and that it entitled Boots to the more favourable treatment.  However, as the Tribunal held, not only did it not apply, but if it had applied it would not have provided for the advantageous treatment which Boots sought.  Therefore, for Boots to succeed, they had to show not only that there was a binding agreement that the BRS should be varied retrospectively (and not for the future) as regards the voupon promotions, but also that this variation was to apply section 7.18 in accordance with Boots’ contention, rather than in accordance with its true meaning and effect.
62.	Patten J dealt with this point tellingly at paragraph 51 of his judgment:
“Nowhere in this [i.e. the 25 June letter] 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.”
63.	He made a similar point in relation to the later exchange of letters at paragraphs 54 and 55:
“54.	… In the same paragraph [paragraph 94] 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.”
64.	He then said this in paragraph 56:
“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.”
65.	Having said that, he expressed his conclusion at paragraph 57 from which I have already quoted, at paragraph [32] above.
66.	In argument before us, Mrs Hall laid particular emphasis on a number of points.  She pointed out that there was no reference to any statutory provision in any of the relevant correspondence, so that it was necessary to draw an inference as to the basis on which the parties were proceeding.  That is a fair point.  In the search for the correct inference in a situation such as this it is all the more important to have proper regard to the guidance given by Steyn LJ in GUS.  She argued that both the use of a Voluntary Disclosure and reference to a method of treatment were neutral, since the same procedure could and would be used in any case involving a claim for the repayment of tax, and a method had to be used to work out the correct treatment, whichever of the possible legal bases was relevant.  I agree, but this shows that the Tribunal was wrong to treat these references as supporting the BRS amendment case.  She made some critical reference to HMRC having failed, until a very late stage below, to identify the statutory provision under which they contended that the agreement had been reached.  She submitted that only an agreement under regulation 67 could make sense as the basis for an agreement as to the use of the method of treatment and valuation which was proposed in Mr Hall’s letter of 25 June and its enclosures, though she did accept that the voupon promotion claim could have been dealt with either by way of a claim for the repayment of tax wrongly paid under regulation 37 or, under regulation 67, as an amendment to the BRS.
67.	She also relied heavily on Edwards v Bairstow, supplemented (not, as she seemed inclined to put it, superseded) by HMRC v Procter & Gamble [2009] EWCA Civ 407 (the case about whether Pringles are similar to potato crisps) as to the limitations on the power of an appellate court to interfere with a Tribunal’s decision in this type of appeal, unless a misdirection of law is demonstrated.  She prayed in aid the fact that the Tribunal is an expert body, and in particular that Dr Brice, a member of the Tribunal in this case, had also been a member of the Tribunal which decided a major case about retail schemes in 1994, Tesco (VAT Decision 12740).  
68.	The issue in the present case is a very different one from that which arose in either Edwards v Bairstow or Procter & Gamble.  Of course the proper resolution of the issue is assisted by an understanding of the way in which VAT is treated and accounted for in the business of retailers, and especially that of very large retailers.  But the actual issue concerns the proper construction of a sequence of no more than five letters between the parties.  That is not the sort of value judgment that the Tribunal had undertaken in relation to Pringles.  It does not seem to me that an appellate court needs to exercise the same degree of caution in approaching this question.  The task of the appellate court is to be carried out within the constraints explained by Viscount Radcliffe in Edwards v Bairstow, but, even if I am wrong to think that the question of the interpretation of the letters is a question of law as such, that is what Patten J did, as he was entitled to do, when he concluded that the decision had been one which no reasonable tribunal could have reached.  In effect, he held that the reading which the Tribunal placed on the sequence of letters was not one which the letters were capable in law of bearing.  I agree with him on that, largely for the same reasons as he gave.  
69.	I do not accept Mrs Hall’s point that only by way of an agreement under regulation 67 can sense be made of HMRC having agreed to the treatment sought by Mr Hall and set out in the enclosures to his letter dated 25 June.  In practice, HMRC were willing to agree that tax had been overpaid and to make a consequential repayment, but it is not necessary to explain that by reference to an agreement under regulation 67 as opposed to having taken a different view of the law.  Her submission that the agreement had to be regarded as taking effect under regulation 67 was based largely on the fact that Boots did not, and had never been expected to, account for VAT in accordance with the rules generally applicable under the Act.  That is true, in some senses, as it is of any retailer.  Retailers account for VAT by reference, for example, to daily gross takings, rather than to each individual transaction.  They do not have to issue VAT invoices.  So, she argued, it is wrong to think of VAT as being due, or not due, under the principles generally applicable, rather than under the relevant BRS (or, for a smaller retailer, under a published scheme), and if a change is made as to the basis on which tax is to be paid or accounted for, it must be by way of a modification of the relevant scheme, whether bespoke or general.  She pointed out that, even as regards the transactions to which the voupon scheme was relevant, Boots did account under its BRS rather than under the general law, to the extent that it dealt with them by reference to daily gross takings and did not issue VAT invoices.  I do not underestimate the significance of administrative matters of that kind, but I cannot accept that it follows that, if it is asserted and accepted, on a purely retrospective basis, that tax has been overpaid on a point which is not covered by the terms of the relevant scheme, that can only be given effect as a permission under regulation 67(1) to use a method which justifies the repayment.  The consequence of Mrs Hall’s argument would be that section 80(4A) would never apply as between HMRC and a retailer, or not unless it were shown that the repayment under section 80 had been incorrect, by inadvertence, in terms of the then prevailing scheme, because the retailer would be able to say that the repayment showed that the scheme had been modified, albeit silently, to the extent necessary to justify the repayment.  That cannot be correct.  Although in practice the voupon promotions had been handled within the terms of the BRS as regards administration, the issue was as to their substantive treatment for tax purposes.  That was not covered in Boots’ BRS – so much is common ground – so their tax treatment remained to be dealt with as a matter of general principle.  That is how it was dealt with, by reference to what the parties contended was the general law.
70.	Accordingly, nothing in the legislative framework compels the result for which Boots contends, and it is a matter of the proper reading of the letters in their context, from which, as I have said, it seems to me that the opposite inference, namely that HMRC did not agree to or permit a different treatment under regulation 67, is the only one that can properly be drawn.  HMRC did no more than accept that the law had been otherwise than had at first been asserted (in the 3 July letter) and that therefore repayment should follow.  
71.	In the course of submissions in reply which ranged a good deal wider than would normally have been permitted or appropriate, including reference to a number of additional authorities, Mrs Hall made some further points.  Among other things she criticised paragraph 55 of Patten J’s judgment by reference to the decision of the ECJ in Finanzamt Sulingen v Walter Sudholz, Case C-17/01 [2004] ECR I-04243.  That case related to a German rule which limited to 50% the right to deduct VAT on expenditure on vehicles not used exclusively for business purposes.  Mr Sudholz asserted that he used his vehicle as to 70% for business purposes and challenged the rule as inconsistent with the general rules as regards VAT treatment.  I do not find that case to be of assistance to us, in that it related to an entirely general rule, applying across the board, whereas the subject matter of the present case is an ad hoc arrangement as between HMRC and a single taxpayer, relating to past transactions and accounting periods.
72.	Looking at the matter more generally, she argued that the previous course of dealing showed that it would be unrealistic to expect any clear indication of an intention to grant permission to use a method which turned out to be in fact incorrect.  She asked rhetorically why HMRC should not be expected to make clear the basis on which it was proceeding.  As to that, it seems to go back to the point that the dealings between the parties had been informal, but the dealings relevant to the present case, even if not formal, were at least contained in a short sequence of correspondence, so that the answer is to be found in the proper reading of those letters, in their context, which is the point to which both the Tribunal and Patten J addressed themselves.
73.	In my judgment, Patten J was right to conclude that the Tribunal had reached a conclusion which simply was not open to them on a proper reading of the relevant letters.  The exchange of correspondence cannot bear the meaning which they attributed to it.  For the reasons given above, the only justifiable reading of the exchange is that Boots put forward a claim to the repayment of sums wrongly paid as tax which, if it had been correctly analysed, arose under section 80, and HMRC ultimately acceded to that request.  It follows that it was open to HMRC to claim the return of the money under section 80(4A), as it did, and that the Tribunal should not have allowed Boots’ appeal against the assessment made for that purpose.
74.	Those are my reasons for dismissing this appeal.
Lord Justice Hughes
75.	I agree.
The Chancellor of the High Court
76.	I also agree.