In Investment Trust Companies v HMRC ([2015] EWCA Civ 82 – 12 February 2015), the Court of Appeal found that the final consumer had a claim for restitution up to the amount of tax actually received by HMRC.
The claimants were all closed-end investment trusts who had obtained investment management services from management companies (‘the managers’) and had paid VAT on the fees. Under VATA 1994, these services were subject to VAT at the standard rate – although from 1990 there was an exemption for investment management services supplied to authorised unit trust.
In June 2007, the ECJ had ruled that the exemption should apply to closed-end investment funds (JP Morgan Fleming Claverhouse C-363/05). This meant that between 1990 and 2008, the UK had failed to transpose the Sixth Directive art 13B(d)(6) into national legislation and that the managers who had supplied the services and accounted for the output tax on them were entitled to make claims for repayment under VATA 1994 s 80.
The Court of Appeal pointed out that regard must be had to the economic and commercial reality. The required ‘close causal connection’ for a mistake-based restitution claim was established, giving rise to a claim by the claimants who had suffered the VAT but not accounted for it.
The claimants had submitted diagrams based on a notional VAT payment to the managers of £100. A second issue was whether HMRC have been enriched to the extent of the full £100 or only to the extent of the £75 actually paid to HMRC after deduction by the managers of input tax.
The Court of Appeal found that the managers should be placed in the position they would have been in had the domestic legislation properly implemented the provisions of the Sixth Directive. No output tax would have been payable and no recovery could have been made in respect of the £25 input tax. The claimants had no better right than the managers to the recovery of the £25.
Why it matters: The case focuses on the notion of ‘unjust enrichment’. It confirms (1) that the final consumer who bears the VAT has a sufficient connection with HMRC to claim that HMRC has been enriched at his expense and (2) that VATA 1994 s 80 limitations cannot apply to him as he never was accountable for the tax and never paid it.
In Investment Trust Companies v HMRC ([2015] EWCA Civ 82 – 12 February 2015), the Court of Appeal found that the final consumer had a claim for restitution up to the amount of tax actually received by HMRC.
The claimants were all closed-end investment trusts who had obtained investment management services from management companies (‘the managers’) and had paid VAT on the fees. Under VATA 1994, these services were subject to VAT at the standard rate – although from 1990 there was an exemption for investment management services supplied to authorised unit trust.
In June 2007, the ECJ had ruled that the exemption should apply to closed-end investment funds (JP Morgan Fleming Claverhouse C-363/05). This meant that between 1990 and 2008, the UK had failed to transpose the Sixth Directive art 13B(d)(6) into national legislation and that the managers who had supplied the services and accounted for the output tax on them were entitled to make claims for repayment under VATA 1994 s 80.
The Court of Appeal pointed out that regard must be had to the economic and commercial reality. The required ‘close causal connection’ for a mistake-based restitution claim was established, giving rise to a claim by the claimants who had suffered the VAT but not accounted for it.
The claimants had submitted diagrams based on a notional VAT payment to the managers of £100. A second issue was whether HMRC have been enriched to the extent of the full £100 or only to the extent of the £75 actually paid to HMRC after deduction by the managers of input tax.
The Court of Appeal found that the managers should be placed in the position they would have been in had the domestic legislation properly implemented the provisions of the Sixth Directive. No output tax would have been payable and no recovery could have been made in respect of the £25 input tax. The claimants had no better right than the managers to the recovery of the £25.
Why it matters: The case focuses on the notion of ‘unjust enrichment’. It confirms (1) that the final consumer who bears the VAT has a sufficient connection with HMRC to claim that HMRC has been enriched at his expense and (2) that VATA 1994 s 80 limitations cannot apply to him as he never was accountable for the tax and never paid it.
