MBNA Europe Bank Limited v Her Majesty's Revenue & Customs

Facts

MBNA Europe Bank Ltd is a "monoline" credit card bank and a partially exempt trader, its core business consisting of exempt supplies of credit falling within Group 5 of Schedule 9 to the Value Added Tax Act 1994. It raises working capital by securitisation: it nominates customers' accounts and equitably assigns the existing and future receivables on them to Credit Card Securitisation Europe Limited, a Jersey receivables trustee which holds them on a bare trust for Jersey investor beneficiaries, of which Deva One Limited issues loan notes on the security of its interest in the trust; MBNA continues to service the designated accounts for a servicer fee. By letter of 19 November 1999 the Commissioners agreed a combined partial exemption special method under regulation 102 of the Value Added Tax Regulations 1995 and an agreement under regulation 103 of the Value Added Tax Regulations 1995 ("the Agreed Method"), which excluded from the turnover fraction sums receivable from the assignment of receivables and from cardholders whose accounts were "at that particular time" the subject of securitisation arrangements. Concluding that the method was flawed, the Commissioners withdrew it with effect from 1 July 2003, inhibited MBNA's repayment claims, rejected a voluntary disclosure of 31 July 2003 claiming £8,964,427 of input tax for April 2000 to March 2003, and on 2 June 2005 raised 18 assessments totalling some £3.3 million for July 2003 to December 2004. MBNA appealed against all four decisions.