24 November 2020

Project Blue Ltd v HMRC (No 2); FTT

The First-tier Tribunal has allowed the appeal of Project Blue Ltd (PBL) against the refusal of HMRC to allow its claim for repayment of £11.64 million SDLT in respect of contingent consideration which it never paid on the acquisition of Chelsea Barracks.

Readers will be familiar with the earlier part of the story in which the Supreme Court allowed the Commissioners’ appeal, deciding that PBL was liable for SDLT under section 75A Finance Act 2003 on the basis that the anti-avoidance section was engaged because the manner in which PBL had acquired the property and financed its acquisition would otherwise have attracted both sub-sale relief and alternative finance relief; and that could not have been the intention of Parliament.

However, in arriving at the conclusion that PBL was liable to SDLT on chargeable consideration of £1.25 billion, the Supreme Court decided that part of the consideration potentially payable to PBL under the sharia finance arrangements was contingent consideration and thus chargeable under section 51 Finance Act 2003 – but ‘subject to the right of PBL [under section 80] to a refund for that part of the consideration which was never paid’.

Since the claim had been made by PBL as soon as possible after the original First-tier Tribunal decision, it was expected that HMRC would refund the difference in accordance with the decision of the Supreme Court.  Instead, the Commissioners rejected the claim on the ground that the sums were not ‘section 51 contingent’, whatever the Supreme Court might have thought or decided.

The First-tier Tribunal allowed PBL’s appeal, deciding, first, that the Commissioners’ argument as to the meaning of ‘contingent’ under section 51 was ‘unduly restrictive’ and unjustified by the statutory language.  Secondly, the Tribunal decided that the Commissioners were estopped from denying that the sums were section 51 contingent, having regard to the prior appeal to the Supreme Court. Thirdly, the First-tier Tribunal decided that the conclusion of the Supreme Court that the sums were indeed section 51 contingent was binding precedent, so far as all courts below the Supreme Court were concerned.

The decision is important not only for its rejection of the Commissioners’ analysis of sections 51 and 80 but also in demonstrating that there are cases in which issue estoppel applies in a tax appeal.

Historically, issue estoppel has been held to be unavailable in tax appeals: Caffoor v Income Tax Commissioner, Colombo [1961] AC 584: a decision on whether something is taxable (or exempt from tax) in one year is not binding in arriving at the taxpayer’s income tax liability in the following year.  However, SDLT does not operate by reference to years of assessment and, in this case, the First-tier Tribunal was considering precisely the same tax liability in relation to the same land transaction; but now with the benefit of a claim for relief made by the taxpayer.  Issue estoppel could, and did, therefore lie.

Roger Thomas QC was instructed by Clifford Chance LLP for the Appellant, Project Blue Limited.

Sadiya Choudhury was instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents.

You can read the full decision here.