In Investment Trust Companies, the High Court held that persons who are wrongly charged VAT may have a direct claim against HMRC for that VAT if they are unable to recover it from their supplier. In Shop Direct Group the FTT determined that VAT repayments paid by HMRC were subject to corporation tax. In Purple Parking the CJEU determined that the provision of parking and transport services constituted a single complex supply in which the parking predominated. HMRC published amendments to its VAT Finance Manual, including views on a number of financial services following recent case law.
Claims against HMRC by persons wrongly charged VATOn 2 March, the High Court gave judgment in Investment Trust Companies v HMRC [2012] EWHC 458 (Ch). The claimants were investment trust companies (ITCs) who, in consequence of the CJEU judgment in JP Morgan Claverhouse (C-363/05), had wrongly been charged VAT by their investment managers. Those managers had recovered the overpaid VAT from HMRC under VATA 1994 s 80 to the maximum extent permitted and repaid this to the ITCs. However, the ITCs had not been repaid all the VAT they were wrongly charged because:
The ITCs brought common law restitutionary claims against HMRC for the overpaid VAT that the managers were unable to recover. Henderson J held that the ITCs were not entitled, as a matter of UK domestic law, to recover those amounts from HMRC (because s 80(7) excluded the claims). However, as a matter of EU law, applying the recent CJEU judgment in Sauer-Danfoss (see the VAT briefing for November), the ITCs were entitled to a direct remedy against HMRC for the amounts within 2 above, because they had borne the economic burden of the unlawful VAT and could not recover those amounts from the managers.
The ITCs argued that because they had brought their claims in restitution, the relevant limitation period was six years from when they discovered the mistake that caused them to pay the unlawfully imposed VAT. However, Henderson J thought that HMRC should be entitled to limitation defences analogous to those which would apply to claims by the managers under s 80 (ie, now a four-year cap, but taking into account the extended time limit for Fleming claims). But he decided to defer his decision until after the judgments of the CJEU in Littlewoods and the Supreme Court in the FII GLO (which address the remedies available under UK domestic law to enable taxpayers to vindicate their EU law rights).
Why it matters: This complex case is of wide-ranging application, and is relevant not only to investment trusts but to any person who has been wrongly charged VAT and is not able to recover all that VAT from their supplier.
While the High Court has not yet made a final judgment and any decision in favour of the taxpayer will no doubt be appealed by HMRC, given the potential applicability of a four year cap to claims, businesses affected by the issues in this case would be advised to consider making protective claims to the High Court now. There is also the possibility that the ITCs will succeed in their argument that a longer limitation period should apply, but that legislation will be introduced to curtail this in the future for those who have not already made claims, giving further impetus to take action now.
On 14 February, the First-tier Tribunal issued its decision in Shop Direct Group v HMRC [2012] UKFTT 128 (TC), holding that repayments of VAT constituted, for corporation tax (CT) purposes, taxable trading receipts (or post-cessation receipts where the trade had ceased) on the basis that such repayments were intended to restore amounts which would have been brought in as trading profits if the VAT had not been overpaid. The companies were also subject to CT on the statutory interest paid by HMRC on the repayments.
The repayments had been made by HMRC to the representative members of the appellants’ VAT groups, who had paid them to the appellants (who had made the underlying supplies on which the VAT had been accounted for). The Tribunal held, on the facts, that the appellants were beneficially entitled to the relevant amounts from the representative members even though there were no express arrangements to this effect, and that the payments were not therefore gifts.
Why it matters: The case is significant in that it provides authority for the long-held opinion of HMRC that VAT repayments should be subject to direct taxation. A number of further issues remain to be resolved, however. The case does not consider the impact of the requirement under VATA 1994 s 80(3) that taxpayers will normally need to pass on any repaid VAT to their customers in order that they are not unjustly enriched. Assuming they do this, would they be entitled to a deduction against their profits for CT purposes for such payments? If so, then they should not effectively be subject to tax on the repaid VAT; if not, then this would mean they are taxable on amounts they are not actually entitled to retain.
The CJEU issued a reasoned order in the case of Purple Parking v HMRC (Case C-117/11), determining on the basis of existing case law (eg, Levob, Case C-41/04 and RLRE Tellmer Property, Case C-572/07) that the provision by the taxpayers of parking services and transit services at UK airports were part of the same single complex supply in which the parking services were predominant. Accordingly VAT was chargeable at the standard rate on the entire service operation.
One of the reasons given by the CJEU for its decision was that the price was exclusively calculated on the basis of the period for which the vehicle was parked, not the number of passengers, reflecting the fact that the customer sought, first and foremost, secure parking at an advantageous price (with the transport services only offered to enable the car park operator to compete with parking nearer the airport).
On the question of whether there was a breach of fiscal neutrality, the CJEU said that treating several services as a single supply necessarily leads to a VAT treatment that is different from that which applies if they are supplied separately. Accordingly, a single supply consisting of several elements is not necessarily similar to (and so cannot be compared with) the supply of those elements separately (such as stand-alone transport services).
Why it matters: This case is interesting in that it makes it clear that the relative cost of elements of a single supply will not necessarily define whether or not one element is ancillary to another. On the facts, the cost of the transport services were found to amount to approximately 80% of the total cost of one operator’s business. This was not, however, held to change the analysis on the basis that the customer’s primary goal would, in either case, be to seek parking at an advantageous price. This affirms the importance of considering what is supplied from the perspective of the consumer, and in particular whether an element of the service constitutes an end in itself or a means of better enjoying the principal service supplied.
On 21 February, HMRC published amendments to its VAT Finance Manual, including revised views on the treatment of a number of financial services. These include bill and internet payment services, outsourced loan arrangement, debt collection, fund management, and IFA and insolvency practitioner services.
Why it matters: The amendments are helpful because they clarify HMRC's view on the application of recent case law. In particular, the following changes have been made following the CJEU judgment in AXA (C-175/09):
A number of interesting references to the CJEU have been published recently:
Lee Squires, Senior Associate, Hogan Lovells
Fiona Bantock, Associate, Hogan Lovells
