One way or the other, the CJEU has had a say in tax claims totalling £49bn which HMRC is now facing. Some people are critical of the companies which are legitimately claiming these amounts. But is that fair? And, after Brexit, will these claims be rejected?
I remember, as a child, being taken to see The Sound of Music. So allow me now to share with you a few of my favourite things. Legitimately claiming tax relief for the purposes intended by Parliament. Using tax reliefs to boost giving to charities. Claiming a tax refund to which you are entitled.
All very simple and straightforward, you might have thought. Unfortunately, as is often the way with taxes nowadays, something which should produce a satisfying feel-good factor is actually a dark, dangerous world from which it’s difficult to escape. Alien: Covenant comes to mind.
HMRC’s accounts for the year ended 31 March 2016 illustrate this. The tax authority explains that it is in the nature of its business (sic) that some claims against it may be subject to litigation and may take years to settle. Specifically, when those accounts were prepared, HMRC had 23 cases where the amount of tax at stake was over £100m. These cover a range of taxes paid by companies, including corporation tax, VAT, income tax and other duties. At 31 March 2016, HMRC estimated that the maximum amount it might be required to pay out (and I emphasise maximum) was £49.1bn. This was an increase of £13.5bn (38%) over the preceding year, reflecting court decisions announced during the year and other factors.
So are all of these claims the result of artificial tax avoidance schemes? Definitely not. The case of Littlewoods, the catalogue company, illustrates this. Littlewoods was entitled to a VAT refund for the years from 1973 to 2004, when VAT was wrongly charged on commissions paid to its catalogue agents. After a ruling from the CJEU, the VAT was repaid, along with £250m of simple interest. Littlewoods is adamant that it’s entitled to compound interest for all the years in question, meaning that £1.2bn is still in dispute. The case will be heard in court again in June 2017. In the meantime, the government has tried to reduce the potential cost to the exchequer by imposing an unprecedented 45% rate of corporation tax on restitution interest after 21 October 2015.
Tax avoidance might not be a common factor in these cases, but the EU dimension certainly is. The franked investment income group litigation order illustrates this. A number of companies got together to challenge the way HMRC taxed dividends received by them in the UK from subsidiaries based in the EU. With some claims going back as far as 1973, following the twists and turns of the various CJEU and UK court decisions is not for the faint hearted. On 24 November 2016, the UK Court of Appeal handed down its judgment, which was largely in favour of the taxpayer companies. It remains to be seen whether HMRC will be allowed to appeal to the UK Supreme Court.
Despite a long run of court decisions against HMRC, one can understand why the department is reluctant to make repayments when the public finances are in a difficult state. But that does not justify the glacial rate of progress in these cases. Making these repayments could provide a useful boost to the UK economy. Of course, some tax repayments would find their way through to shareholders as dividends, but in our view that’s not a good reason for not paying out the amounts due. Those shareholders will include not only non-residents, but also UK-resident shareholders and pension schemes.
Nor is it just or fair for critics to argue that the amounts claimed should not be repaid in accordance with the law of the land, instead being used to fund the NHS.
So HMRC is faced with a block of tax claims totalling some £49bn, mainly relating to VAT and corporate taxes in their widest sense, going back to 1973. While some tax inspectors might be rather hoping that, after Brexit, CJEU decisions can be quietly ignored, with the result that the value of these outstanding claims might tumble, we believe that the decisions of the CJEU will be impacting the UK tax system for many years to come. Unless, of course, the party which wins the 8 June general election decides to rewrite the Great Repeal Bill White Paper.
The Sound of Music? Alien: Covenant? House of Cards? You decide.
Home >Articles > Don’t vilify companies claiming tax refunds
Don’t vilify companies claiming tax refunds
One way or the other, the CJEU has had a say in tax claims totalling £49bn which HMRC is now facing. Some people are critical of the companies which are legitimately claiming these amounts. But is that fair? And, after Brexit, will these claims be rejected?
I remember, as a child, being taken to see The Sound of Music. So allow me now to share with you a few of my favourite things. Legitimately claiming tax relief for the purposes intended by Parliament. Using tax reliefs to boost giving to charities. Claiming a tax refund to which you are entitled.
All very simple and straightforward, you might have thought. Unfortunately, as is often the way with taxes nowadays, something which should produce a satisfying feel-good factor is actually a dark, dangerous world from which it’s difficult to escape. Alien: Covenant comes to mind.
HMRC’s accounts for the year ended 31 March 2016 illustrate this. The tax authority explains that it is in the nature of its business (sic) that some claims against it may be subject to litigation and may take years to settle. Specifically, when those accounts were prepared, HMRC had 23 cases where the amount of tax at stake was over £100m. These cover a range of taxes paid by companies, including corporation tax, VAT, income tax and other duties. At 31 March 2016, HMRC estimated that the maximum amount it might be required to pay out (and I emphasise maximum) was £49.1bn. This was an increase of £13.5bn (38%) over the preceding year, reflecting court decisions announced during the year and other factors.
So are all of these claims the result of artificial tax avoidance schemes? Definitely not. The case of Littlewoods, the catalogue company, illustrates this. Littlewoods was entitled to a VAT refund for the years from 1973 to 2004, when VAT was wrongly charged on commissions paid to its catalogue agents. After a ruling from the CJEU, the VAT was repaid, along with £250m of simple interest. Littlewoods is adamant that it’s entitled to compound interest for all the years in question, meaning that £1.2bn is still in dispute. The case will be heard in court again in June 2017. In the meantime, the government has tried to reduce the potential cost to the exchequer by imposing an unprecedented 45% rate of corporation tax on restitution interest after 21 October 2015.
Tax avoidance might not be a common factor in these cases, but the EU dimension certainly is. The franked investment income group litigation order illustrates this. A number of companies got together to challenge the way HMRC taxed dividends received by them in the UK from subsidiaries based in the EU. With some claims going back as far as 1973, following the twists and turns of the various CJEU and UK court decisions is not for the faint hearted. On 24 November 2016, the UK Court of Appeal handed down its judgment, which was largely in favour of the taxpayer companies. It remains to be seen whether HMRC will be allowed to appeal to the UK Supreme Court.
Despite a long run of court decisions against HMRC, one can understand why the department is reluctant to make repayments when the public finances are in a difficult state. But that does not justify the glacial rate of progress in these cases. Making these repayments could provide a useful boost to the UK economy. Of course, some tax repayments would find their way through to shareholders as dividends, but in our view that’s not a good reason for not paying out the amounts due. Those shareholders will include not only non-residents, but also UK-resident shareholders and pension schemes.
Nor is it just or fair for critics to argue that the amounts claimed should not be repaid in accordance with the law of the land, instead being used to fund the NHS.
So HMRC is faced with a block of tax claims totalling some £49bn, mainly relating to VAT and corporate taxes in their widest sense, going back to 1973. While some tax inspectors might be rather hoping that, after Brexit, CJEU decisions can be quietly ignored, with the result that the value of these outstanding claims might tumble, we believe that the decisions of the CJEU will be impacting the UK tax system for many years to come. Unless, of course, the party which wins the 8 June general election decides to rewrite the Great Repeal Bill White Paper.
The Sound of Music? Alien: Covenant? House of Cards? You decide.
