Supreme Court allows HMRC appeal in VAT repayment claim

Claims for VAT repayment by a former member of a group of companies, relating to a time when it had been a member of the group, had been made on its own behalf and could not be relied on by the company heading the group to overcome a statutory time bar, the UK Supreme Court ruled today.

Lord Mance, Lord Reed, Lord Carnwath, Lord Hodge and Lord Briggs unanimously allowed an appeal by HM Revenue & Customs against a decision of the Inner House of the Court of Session, holding that claims by Carlton Clubs Ltd fell to be construed as claims on behalf of Taylor Clark Leisure plc (“TCL"), the representative member of the Taylor Clark VAT Group in terms of article 11 of the Principal VAT Directive 2006/112/EEC and its predecessor. Carlton ceased to be part of the VAT group in 1998.

The claims related to 1996 and earlier years, and followed a House of Lords ruling in 2008 that UK legislation that imposed a shortened three-year time limit on claims for the refund of overpaid VAT in that period without providing for an adequate transitional period, which was fixed in advance, was contrary to European law. In response, the UK Parliament enacted s 121 of the Finance Act 2008, which provided an extended time limit but required such a claim to be made before 1 April 2009.

Carlton submitted four claims in November 2007 without notifying TCL. After initially refusing all the claims, HMRC paid one claim to TCL (as representative member of the VAT group) on 12 May 2009. It subsequently confirmed to TCL an assessment for repayment of the sum paid and refused TCL’s claim for repayment of the other claims for reasons including that they were out of time. TCL and Carlton pursued rival appeals against HMRC’s decision. The First-tier Tribunal and Upper Tribunal held that TCL had not made a claim and could not rely on Carlton’s claims. TCL’s further appeal to the Inner House on this issue was successful, the court holding that the representative member embodied the VAT group which was a single taxable person, and Carlton’s claims fell to be construed as claims on behalf of TCL.

Lord Hodge, with whom the other Justices agreed, noted that article 11 was permissive and not prescriptive; it did not lay down a template as to how a member state would treat a group of persons as a single taxable person. It was clear from s 43(1) of the Value Added Tax Act 1994 that the UK chose to achieve this not by deeming the group to be a quasi-person, as the Inner House held, but by treating the representative member as the person which supplied or received the supply of goods or services. Section 43 did not make the group a taxable person but treated the group’s supplies and liabilities as those of the representative member for the time being. Unless the claim had been assigned, the person entitled to make the claim was either the current representative member of the VAT group or a person acting as that member’s agent.

The FTT correctly found that Carlton did not make the claims on behalf of TCL: it had long ceased to be a member of the VAT group, had already presented claims in relation to its own subsequent business activities, its use of the group’s VAT registration number was necessary to identify the original source of the allegedly overpaid VAT but did not disclose who was entitled to the repayment, and following clarification with HMRC of the basis on which it made its claims, both it and HMRC would have readily understood it to be claiming repayment in its own interest.

Carlton had no actual authority to claim on TCL’s behalf. In any case, where the Upper Tribunal made its decision on the basis that Carlton had submitted the claims on its own behalf, it was not open to an appellate court to find that there was an agency relationship between Carlton and TCL. There is also no basis for an argument that TCL ratified Carlton’s claims, thereby conferring retrospective authority.

It was also neither necessary nor appropriate to make a reference to the Court of Justice of the European Union.

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