In Saint-Gobain Building Distribution v HMRC [2019] UKFTT 314 (16 May 2019), the FTT found that the appellant could not rely on the GMAC decision [2017] STC 1247 or the subsequent Revenue and Customs Brief 1 (2017) to make a late
bad debt relief (BDR) claim, as BDR was already available to it prior to the GMAC decision.
In GMAC, the Court of Appeal had found that the condition contained in the UK provisions on BDR, that title to the goods must have passed to the purchaser (the ‘property condition’), was contrary to EU law.
Saint-Gobain had made a claim for bad debt relief as representative member of a VAT group, in relation to supplies of building materials. In RCC v MG Rover [2016] UKUT 434, the UT had found that Saint-Gobain was eligible to bring the claim on behalf
of the three companies which had made the supplies of building material. The claim period started three decades ago.
Relying on Fleming [2008] STC 324 and the cases that followed, the FTT observed that Saint-Gobain had the burden of proving that: there were historical bad debts; BDR had not been previously claimed; and the amount of the BDR claim could be reasonably
estimated. The FTT added that: ‘Practical difficulties may be encountered in attempting to substantiate historical claims, but the passage of time and consequent lack of records does not absolve the taxpayer from the obligation of proving the
above matters.’
Saint-Gobain contended that the goods had been sold subject to a retention of title clause, so that the property condition for BDR prior to the GMAC decision was not satisfied and a BDR claim could not have been made successfully. HMRC counter-argued
that property in the goods had passed to customers when the goods were incorporated into the customers’ building projects so that it was likely that BDR claims had been made, and even if they had not been made, they could have been made.
Agreeing with HMRC, the FTT found that the materials would have been consumed by being incorporated into other goods by the customers, within a short time of purchase. The FTT also considered that such incorporation was expected and permitted, notwithstanding
that the purchases had been on credit terms and the full price was still unpaid. Title to the goods therefore passed to the customers when they incorporated the goods into their building projects.
The FTT concluded that the reservation of title clauses did not prevent title passing to customers when the goods were incorporated into building projects, so that the property condition did not operate to deny eligibility for BDR claims, and claims could
have been made. The FTT also found that ‘everyone on the taxpayer’s side has simply assumed that no previous BDR claims could have been made (because of the property condition) and so were not made’. Saint-Gobain was now out of time
to submit them.
Why it matters: The claims stood at approximately £9.9m plus statutory interest. Saint-Gobain contended that the fact that, hypothetically, the claimant companies could have recovered BDR in the claim period, despite the property condition,
was irrelevant. The FTT disagreed. This is a rather long and complex decision which Saint-Gobain may decide to appeal.
In Saint-Gobain Building Distribution v HMRC [2019] UKFTT 314 (16 May 2019), the FTT found that the appellant could not rely on the GMAC decision [2017] STC 1247 or the subsequent Revenue and Customs Brief 1 (2017) to make a late
bad debt relief (BDR) claim, as BDR was already available to it prior to the GMAC decision.
In GMAC, the Court of Appeal had found that the condition contained in the UK provisions on BDR, that title to the goods must have passed to the purchaser (the ‘property condition’), was contrary to EU law.
Saint-Gobain had made a claim for bad debt relief as representative member of a VAT group, in relation to supplies of building materials. In RCC v MG Rover [2016] UKUT 434, the UT had found that Saint-Gobain was eligible to bring the claim on behalf
of the three companies which had made the supplies of building material. The claim period started three decades ago.
Relying on Fleming [2008] STC 324 and the cases that followed, the FTT observed that Saint-Gobain had the burden of proving that: there were historical bad debts; BDR had not been previously claimed; and the amount of the BDR claim could be reasonably
estimated. The FTT added that: ‘Practical difficulties may be encountered in attempting to substantiate historical claims, but the passage of time and consequent lack of records does not absolve the taxpayer from the obligation of proving the
above matters.’
Saint-Gobain contended that the goods had been sold subject to a retention of title clause, so that the property condition for BDR prior to the GMAC decision was not satisfied and a BDR claim could not have been made successfully. HMRC counter-argued
that property in the goods had passed to customers when the goods were incorporated into the customers’ building projects so that it was likely that BDR claims had been made, and even if they had not been made, they could have been made.
Agreeing with HMRC, the FTT found that the materials would have been consumed by being incorporated into other goods by the customers, within a short time of purchase. The FTT also considered that such incorporation was expected and permitted, notwithstanding
that the purchases had been on credit terms and the full price was still unpaid. Title to the goods therefore passed to the customers when they incorporated the goods into their building projects.
The FTT concluded that the reservation of title clauses did not prevent title passing to customers when the goods were incorporated into building projects, so that the property condition did not operate to deny eligibility for BDR claims, and claims could
have been made. The FTT also found that ‘everyone on the taxpayer’s side has simply assumed that no previous BDR claims could have been made (because of the property condition) and so were not made’. Saint-Gobain was now out of time
to submit them.
Why it matters: The claims stood at approximately £9.9m plus statutory interest. Saint-Gobain contended that the fact that, hypothetically, the claimant companies could have recovered BDR in the claim period, despite the property condition,
was irrelevant. The FTT disagreed. This is a rather long and complex decision which Saint-Gobain may decide to appeal.
