In Oxfam v HM Revenue & Customs [2009] EWHC 3078 (Ch) the Court (Sales J) held that the statutory jurisdiction of the VAT & Duties Tribunal (the Tribunal) could extend to public law issues, such that it was not necessary for Oxfam to bring separate judicial review proceedings to raise a challenge based on substantive legitimate expectation.

Key points

  • Until this question is ruled upon by a higher Court, taxpayers wishing to challenge HM Revenue & Customs on public law grounds ought to act prudently by raising such grounds in the course of an appeal to the Tribunal whilst at the same time issuing a protective judicial review claim in the Administrative Court.
  • Detrimental reliance will only exceptionally be irrelevant to a judicial review claim based on substantive legitimate expectation, particularly where there is no abuse of process by a public authority.


Where a company engages in business and non-business activities for VAT purposes, it will not always be clear whether supplies made to it are attributable to the business or non-business activities. The attribution of supplies is significant since it governs the extent to which VAT paid on those supplies may be recoverable.

Oxfam raises money by (amongst other means) engaging organisations which provide personnel who stop people in the street to persuade them to make donations. Oxfam pays fees to these organisations ('fundraising expenditure'), which are subject to VAT. However, any donations received as a result were, until the decision in Church of England Children's Society v HMRC [2005] EWHC 1692 (Ch) ('CECS'), treated as non-business income for VAT purposes so that the VAT incurred on the fundraising expenditure was irrecoverable.

However the Court held in CECS that VAT incurred on fundraising expenditure was recoverable in part. This had a knock-on effect on the method according to which the level of Oxfam's recoverability of input tax had been calculated since 2000 (the 'Approved Method'). When the calculations underlying the Approved Method were adjusted to reflect the position post-CECS, the effect was that Oxfam could recover more VAT. It therefore made a claim to recover VAT paid in previous years.

HM Revenue & Customs (HMRC) refused to repay the VAT, contending that the impact of CECS was to stop the 'Approved Method' formula from producing a fair and reasonable result. HMRC then withdrew its approval of the 'Approved Method' formula. Oxfam accepted that HMRC were entitled to do this prospectively after CECS, but argued that HMRC were not entitled to renege on their approval retrospectively.

Oxfam appealed to the Tribunal on the basis that there was a binding agreement between it and HMRC as to the Approved Method. In parallel, Oxfam commenced judicial review proceedings in the High Court, claiming the doctrine of substantive legitimate expectation had the same effect. Sales J considered Oxfam's appeal from the Tribunal's decision and the judicial review application together.


Sales J found against Oxfam. The three key issues were:

  • the Tribunal's jurisdiction to deal with public law issues;
  • whether the Tribunal had erred in finding that there was no binding agreement; and
  • whether, alternatively, Oxfam could rely on the doctrine of substantive legitimate expectation.

Issue 1: The Tribunal's jurisdiction

Departing from a widely-held view, Sales J decided that the Tribunal had jurisdiction to deal with the public law issues insofar as they were capable of being determinative of a matter before the Tribunal. However, recognising that this would trigger a sea change in the established approach, he cautioned that "until this question is decided at a higher level, a taxpayer should include any such public law grounds in the course of an appeal to the Tribunal, but at the same time issue a protective judicial review claim in the High Court".

The Judge's conclusion was based on the construction of section 83(1)(c) of the Value Added Tax Act 1994, which provides that an appeal lies to the Tribunal "with respect to" the amount of any input tax which may be credited to a person. The Judge considered that "with respect to" was wide enough to cover any legal question capable of being determinative of the matter at stake. He noted that it happens regularly elsewhere that public law issues are raised before independent and impartial courts or tribunals in connection with the resolution of substantive proceedings (for example, where a defendant defends a claim brought by a public authority on the basis that the public authority has acted in breach of its public law obligations). The Tribunal as a specialist tribunal was particularly well-positioned to make judgments about the fair treatment of taxpayers by HMRC. Such a wide interpretation also avoided the cost, delay, potential injustice and confusion associated with parallel proceedings.

Issue 2: Binding agreement

The Judge dismissed Oxfam's appeal, holding that there had been a sufficient evidential basis on which the Tribunal could conclude that the parties had no intention to create any binding contract.

Issue 3: Alternative claim: substantive legitimate expectation

The judge rejected Oxfam's argument based on legitimate expectation.

Oxfam's claim was based on what it regarded as an express assurance given to it by HMRC in 2000 that its recoverable input tax would be calculated by reference to the 'Approved Method' formula. Sales J analysed the law on substantive legitimate expectation, highlighting the following points.

  • This was a case involving an assurance given specifically to Oxfam, not a general statement of policy. In such cases, unfairness resulting from the frustration of the expectation is key. Only exceptionally might it be unnecessary to show detrimental reliance. The lack of detrimental reliance by Oxfam in this case was fatal, given that HMRC had not acted irrationally.
  • Public authorities must not fetter their discretion, so that in cases involving policies applicable to large numbers of people, they may disapply policies which favour an individual having regard to the particular circumstances of that individual's case, even though the general policy remains. This is subject to the need for the public authority to act fairly and rationally in doing so. Detrimental reliance is particularly relevant in such cases, since where it has occurred, the requirements of fairness will be more demanding.
  • At the other end of the spectrum, detrimental reliance may be irrelevant insofar as one is dealing with a general statement of policy and there is no question of a public authority changing that policy. Public law will prevent arbitrary and capricious action such that the public authority would be unable to disapply the policy in an individual case where there is no rational basis for distinguishing that case from the general run of cases covered by the policy. Even without detrimental reliance, an individual with a like case will have a good claim to be entitled to the benefit of the policy.

Sales J considered that Oxfam's case would have failed for an additional three reasons: (1) the assurance was not directed at approving the 'Approved Method' formula as modified by the clarification of the law in CECS; (2) CECS had falsified the common assumption of HMRC and Oxfam as to how the 'Approved Method' formula would operate – there was no abuse of power where the mistake corrected was a reasonable one made by both parties; and (3) HMRC had acted properly and for a powerful overriding public interest in correcting the formula as it did.


Sales J's decision in relation to the Tribunal's jurisdiction is important. Although it is unsatisfactory that the judgment does not eliminate the need for parallel proceedings where a public law ground is capable of determining a matter substantively, it is an encouraging step forward (subject to any appeal). Furthermore, Sales J's analysis is likely, in principle, to apply in respect of the jurisdiction of other tribunals (although the wording of their powers may differ and would need to be construed in their own contexts). However, the judge's analysis probably does not extend to those grounds of judicial review which are focused on procedure, which would still need to be raised in judicial review proceedings in the Administrative Court. As the Judge observed, it will not often be that public law grounds will determine a substantive outcome. Substantive legitimate expectation is unusual in this regard.

The judgment is also interesting for its review of substantive legitimate expectation and its potential use as an alternative ground to a private law claim in contract. Strategically, this might be advantageous in an appropriate case. However, as Oxfam illustrates, substantive legitimate expectation is not easy to establish and there is no universal formula for its application.