Trinity Term [2018] UKSC 35 On appeal from: [2016] CSIH 54

JUDGMENT
Commissioners for Her Majesty’s Revenue and
Customs (Appellant) v Taylor Clark Leisure Plc
(Respondent) (Scotland)
before
Lord Mance
Lord Reed
Lord Carnwath
Lord Hodge
Lord Briggs
JUDGMENT GIVEN ON
11 July 2018
Heard on 11 April 2018
Appellant Respondent
Andrew RW Young QC Philip Simpson QC
David M Thomson QC David Scorey QC
(Instructed by Office of
Advocate General
)
(Instructed by KPMG
LLP
)
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LORD HODGE: (with whom Lord Mance, Lord Reed, Lord Carnwath and
Lord Briggs agree)
1. This is an appeal concerning a claim for repayment of unduly levied Value
Added Tax (“VAT”) in the context of a VAT group of companies. The question is
whether Taylor Clark Leisure PLC (“TCL”) is to be treated as having made claims
for repayment within the time limit set by section 121 of the Finance Act 2008 (“FA
2008”), namely by 31 March 2009, when another company, which was formerly a
member of the VAT group, and not TCL made the relevant claims.
2. As I discuss below, the idea of a VAT group of companies was introduced to
simplify the collection of VAT (a) by ignoring intra-group transactions and (b) by
treating supplies by or to any member of the group in their dealings with entities
outside the group as transactions by a single taxable person.
3. Several companies have sought to intervene in this appeal because of
concerns that the determination of this appeal would affect their outstanding claims
which are due to be heard by the Court of Appeal in January 2019. This court has
declined to allow such intervention because this appeal is not directly concerned
with questions raised in those appeals as to which company has a right to claim
repayment of unduly levied VAT either when a company which has had the
economic burden of paying VAT has left a VAT group or where a VAT group has
been dissolved. I recognise that, nonetheless, my discussion of the nature of the
statutory regime in the United Kingdom (“UK”) in relation to an extant VAT group
will indirectly have a bearing on those issues.
Factual background
4. TCL is now a dormant company. It was initially incorporated as Caledonian
Associated Cinemas Ltd in 1935 and was reincorporated on change of name on two
occasions before it acquired its current name in 1995. Between 1973 and 2009 TCL
was the representative member of the Taylor Clark VAT Group (“the VAT Group”),
in accordance with legislation which I discuss under the heading “VAT legislation”
below. From 1973 until 28 February 2009, when the VAT Group was disbanded,
the VAT registration number (“VRN”) of the VAT Group was 265 7918 16.
5. On 16 November 2007, Carlton Clubs Ltd (“Carlton”) submitted four claims
to the Commissioners of HM Revenue and Customs (“HMRC”) under section 80 of
the Value Added Tax Act 1994 (“VATA”) for repayment of VAT output tax, which
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TCL as representative member of the VAT Group had accounted for in the years
between 1973 and 1998 using its VRN as representative member of the VAT Group.
TCL submits that it, as the representative member of the VAT Group, is entitled to
rely on Carlton’s claims because it asserts that those claims are to be regarded as
having been submitted on behalf of the VAT Group which EU law treats as a single
taxable person entitled to repayment of the unduly levied tax.
6. The dispute has arisen in the following way. In about 1990 TCL undertook a
group reorganisation. Part of that reorganisation involved the transfer of its bingo
business to Carlton, a member of the VAT Group which had been incorporated for
that purpose under the name Leisurebrite Ltd, with effect from 1 April 1990. The
transfer was effected by a letter dated 30 March 1990 (“the 1990 Asset Transfer
Agreement”). In 1998 Carlton was sold out of the Taylor Clark group of companies
and thus ceased to be part of the VAT Group. Thereafter Carlton accounted under
its own VRN for VAT in relation to its bingo hall and other leisure business
activities.
7. Until 2005 it had been wrongly assumed that income generated from bingo
and gaming machines was to be treated as subject to VAT at the standard rate. But
on 17 February 2005 the Court of Justice of the European Union (“CJEU”) ruled
that income from gaming machines was exempt from VAT, whether the machines
were operated privately or at licensed public casinos: Finanzamt Gladbeck v
Linneweber (Joined Cases C-453/02 and C-462/02) [2005] ECR I-1131; [2008] STC
1069. HMRC initially thought that the Linneweber decision did not apply in the UK
as it believed that the UK treatment of gaming machine income did not breach the
principle of fiscal neutrality. Nonetheless, HMRC invited claims for the repayment
of VAT on income from gaming machines and analogous activities.
8. In 2011 the CJEU decided that, as a result of the application of the principle
of fiscal neutrality, bingo was not subject to VAT in the UK: Rank Group PLC v
Revenue and Customs Comrs (Joined Cases C-259/10 and C-260/10) [2011] ECR I10947; [2012] STC 23. In response, HMRC issued a Revenue and Customs Brief
39/11 in which they accepted that claims for repayments relating to bingo would be
paid subject to verification. But HMRC, on their interpretation of the Rank Group
judgment, continued to contest claims relating to gaming machines.
9. On 23 January 2008 the House of Lords held that UK legislation which
imposed a shortened three-year time limit on claims for the refund of overpaid VAT
in the period from 1973 to 4 December 1996 without providing for an adequate
transitional period, which was fixed in advance, was contrary to European law:
Fleming (t/a Bodycraft) v Revenue and Customs Comrs [2008] 1 WLR 195. In
response to that judgment Parliament enacted section 121 of FA 2008, which
disapplied the three-year time limit for claims to be made for over-declared or
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overpaid VAT in respect of periods up to 4 December 1996, if a claim was made
before 1 April 2009.
10. In anticipation of the judgment of the House of Lords in Fleming, Carlton on
16 November 2007 submitted four protective claims for repayment of output VAT
which TCL as representative member of the VAT Group had overpaid in accounting
periods between 1973 and the first quarter of 1998. Carlton made the claims, which
related to overpaid VAT on (i) mechanised cash bingo takings, (ii) gaming machine
takings, (iii) participation fees, and (iv) added prize money and participation fees,
on its own letterhead but using the VAT Group’s VRN. In claims (i), (ii) and (iv)
Carlton headed the claim using TCL’s name but in claim (iii) it used its own name
in the heading. Carlton submitted the claims without informing TCL. On 8 January
2009 Carlton submitted a revised claim (iv) in which it quoted its own name and
VRN as well as TCL’s name and the VAT group VRN. In the revised claim, as
discussed below, it asserted a right to claim overpaid VAT back to 1973 (ie before
its incorporation in 1990) by relying on the 1990 Asset Transfer Agreement, which
it claimed had assigned to it the right to make such historic claims.
11. HMRC refused all of Carlton’s claims and Carlton appealed against the
refusal. HMRC then betrayed no little uncertainty as to how to proceed with the
claims. Initially, on 27 April 2009 HMRC wrote to TCL as representative member
of the VAT Group to confirm that they had processed a repayment of £667,069
together with interest. This was the sum claimed by Carlton in its revised claim (iv),
which HMRC paid to TCL on 12 May 2009. HMRC then changed their minds and
on 7 July 2009 notified TCL of an assessment for repayment of that sum and interest.
HMRC then changed their minds again and withdrew the assessment on 27 October
2009. Thereafter, on 4 May 2010 TCL’s advisers wrote to HMRC to assert its right
to receive repayment under the other claims. In a lengthy exchange of
correspondence, TCL accepted that it had not made the claims but asserted a right
to repayment because the claims had been made in respect of VAT for which it, as
representative member of the VAT Group, had incorrectly accounted.
12. In a decision letter dated 23 September 2010 HMRC (a) reversed their earlier
decision concerning claim (iv) by confirming the assessments which sought
repayment of the £667,069 and interest and (b) refused TCL’s claim for repayment
of the other claims. HMRC gave three reasons for their decision. First, they
contended that TCL had not submitted claims before the expiry of the time limit
imposed by section 121 of FA 2008. Secondly, HMRC stated that they had taken
legal advice and expressed the view that the claims predating 31 March 1990 had
been assigned to Carlton by the 1990 Asset Transfer Agreement. Thirdly, they
asserted that because the VAT Group had since been disbanded, the claim for overdeclared output tax must be made by the company whose activities gave rise to the
over-declaration and Carlton had made that claim. This third reason reflected
HMRC’s policy at that time; now HMRC assert that the right to repayment remains
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with the last representative member of a disbanded VAT group. TCL requested a
review of the decision and on review HMRC confirmed their decision and
maintained their assessments.
13. TCL and Carlton pursued rival appeals against HMRC’s refusal to repay the
outstanding claims. TCL’s appeals, which had been lodged in London, were
transferred to Edinburgh so that they could be heard together with Carlton’s appeals.
On 26 January 2012 Carlton withdrew two of its appeals and intimated to the Firsttier Tribunal (“FTT”) that HMRC had satisfied those claims. Carlton’s
representative also informed the FTT that Carlton had withdrawn another appeal
because HMRC had repaid the claim to Carlton. The remaining appeal remains
sisted (stayed). It thus appears that HMRC have paid to Carlton the sums claimed in
three of the four appeals.
The decisions of the Tribunals and the Inner House
14. The FTT (Judge Gordon Reid QC and Dr Heidi Poon) issued its
determination on 19 December 2012, in which it decided three main issues. First, it
held that the right to claim repayment of sums due from 1973 to 1990 had been
assigned to Carlton by the 1990 Asset Transfer Agreement (“the Assignation
Issue”). Secondly, it held (contrary to the submissions of both parties) that the right
to repayment for the claims relating to the period from 1990 to 1996 had been reinvested in Carlton when it left the VAT Group in 1998 (“the Entitlement Issue”).
Thirdly, it held that TCL had not made a claim under section 80 of VATA and could
not rely on the claims submitted by Carlton, which had not made the claims on
TCL’s behalf (“the Claimant Issue”).
15. TCL appealed to the Upper Tribunal (“UT”) on all three issues. The UT (Lord
Doherty) in a determination dated 8 September 2014 dismissed the appeal. On the
Claimant Issue he interpreted section 80 of VATA as requiring that the claim be
made by or on behalf of the taxpayer seeking repayment. TCL had not made a claim
and no claim had been made on its behalf before the end of the limitation period;
accordingly TCL’s claim was time-barred. On the Assignation Issue Lord Doherty
reversed the FTT’s decision, holding that TCL had not assigned the pre-1990 claims
to Carlton in the 1990 Asset Transfer Agreement. On the Entitlement Issue, he
recorded that it was common ground between HMRC and TCL that TCL was the
appropriate party to seek repayment of tax accounted for between 1990 and 1996,
even after the VAT Group had been disbanded on 28 February 2009.
16. TCL sought to appeal only in relation to the Claimant Issue. Lord Doherty
refused permission to appeal but on a renewed application to a single judge of the
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Inner House, Lady Clark of Calton gave permission to appeal on the Claimant Issue
by reference to the following question:
“Can the VAT Group, represented by [TCL], rely on the claims
for repayment of VAT overpaid by the VAT Group, when the
claims were made in time but were made by another member
of the same VAT group?”
HMRC did not cross-appeal on the Assignation or Entitlement Issues. Accordingly
the only issue which was before the Inner House and is now before this court is the
Claimant Issue.
17. The Extra Division of the Inner House in an opinion dated 14 July 2016
allowed TCL’s appeal. The court held that the representative member embodied the
VAT group which was a single taxable person, or “a quasi-persona”, so that the acts,
rights, powers and liabilities of the individual members of the group were ascribed
to the representative member as far as they related to VAT. The Inner House held
that, in the context of section 43 of VATA, a claim by an individual member of a
VAT group must normally be construed as a claim made on behalf of the
representative member embodying the group as otherwise the claims would have no
meaning. As a result, by adopting a purposive construction of the letters which
Carlton sent to HMRC, the claims made by Carlton fell to be regarded as claims
made by TCL as representative member of the VAT Group.
The parties’ contentions
18. HMRC’s principal argument is that the Inner House erred in holding that a
claim for repayment of VAT by an individual member of a VAT group must
normally be construed as a claim made on behalf of the representative member of
that group. Carlton’s claim was made on its own behalf and TCL cannot rely on it
to avoid the statutory time bar. TCL’s response, in summary, is that Carlton’s claims
sought to vindicate the rights of the single taxable person, which was the VAT
Group. Carlton in EU law had no individual fiscal personality in relation to those
rights. The claims must be treated as having been submitted on behalf of the VAT
Group, which was the only taxable person recognised by EU law, and TCL, as the
representative member of the VAT Group, was entitled to rely on those claims. In
any event, TCL submits that it validly ratified the claims which Carlton made on its
behalf.
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The VAT legislation
19. The starting point for consideration of the parties’ submissions is article 11
of the Principal VAT Directive, Council Directive 2006/112/EEC of 28 November
2006 (“the Principal Directive”) which provides:
“After consulting the advisory committee on value added tax
(hereafter, the “VAT committee”), each member state may
regard as a single taxable person any persons established in the
territory of that member state who, while legally independent,
are closely bound to one another by financial, economic and
organisational links.
A member state exercising the option provided for in the first
paragraph, may adopt any measures needed to prevent tax
evasion or avoidance through the use of this provision.”
Two points may be made about this provision. First, it is permissive. There is no
obligation on a member state to institute such a regime. Secondly, it is not
prescriptive. It does not lay down a template as to how a member state will treat a
group of persons as a single taxable person. It shares these characteristics with its
predecessor, article 4.4 of the Sixth Council Directive of 17 May 1977 (77/388/EEC)
(“the Sixth Directive”).
20. The UK took up the opportunity to establish VAT groups of companies,
initially in section 21 of the Finance Act 1972 and later in section 29 of the Value
Added Tax Act 1983 (“the 1983 Act”). The current provision is section 43 of VATA,
as amended, which provides, so far as relevant:
“(1) Where under sections 43A to 43D any bodies corporate
are treated as members of a group, any business carried on by
a member of the group shall be treated as carried on by the
representative member, and –
(a) any supply of goods or services by a member of
the group to another member of the group shall be
disregarded; and
(b) any supply which is a supply to which paragraph
(a) above does not apply and is a supply of goods or
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services by or to a member of the group shall be treated
as a supply by or to the representative member; …
and all members of the group shall be liable jointly and
severally for any VAT due from the representative
member.”
21. It is clear from the statutory words in section 43(1) of VATA that the UK
chose to achieve the end which the Directive authorised not by deeming the group
to be a quasi-person but by treating the representative member as the person which
supplied or received the supply of goods or services.
22. This point was clearly made by the House of Lords in Customs and Excise
Comrs v Thorn Materials Supply Ltd [1998] 1 WLR 1106 in their discussion of the
predecessor provisions, namely article 4.4 of the Sixth Directive and section 29 of
the 1983 Act. Lord Nolan, with whom Lord Browne-Wilkinson and Lord Lloyd of
Berwick agreed, stated (1113C-D) that those provisions were “designed to simplify
and facilitate the collection of tax by treating the representative member as if it were
carrying on all of the businesses of the other members as well as its own, and dealing
on behalf of them all with non-members”. I do not construe Lord Nolan’s reference
to “dealing on behalf of” the other members of the VAT group as a reference to an
agency relationship. Section 43 is not concerned with the intra-group legal
arrangements of group members. It is concerned with dealings in relation to VAT
with entities outside of the VAT group and with HMRC, including the disregard of
intra-group supplies in relation to liability for VAT. In its dealings with HMRC in
relation to VAT the representative member is treated as carrying on the businesses
of the other members of the group. Lord Clyde made the same point (1121H) stating
that in the UK the single taxable person for which provision was made in article 4.4
of the Directive was the representative member. Lord Hoffmann, while dissenting,
agreed on the effect of the provisions. He stated (1118A-B):
“Section 29 does produce a single taxable person, namely, the
representative member. But it does so, not by the crude method
of deeming all members to be a single person … but by the
much more limited and specific assumptions which the
subsection [now section 43(1)(a) and (b) of VATA] makes.”
Thus, the single taxable person is the representative member. The joint and several
liability of the other members of the group for VAT due by the representative
member is the means by which the UK has sought to counter tax evasion and
avoidance in accordance with the authority conferred by the second paragraph of
article 11 of the Principal Directive.
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23. In Ampliscientifica Srl v Ministero dell’ Economia e delle Finanze (Case C162/07) [2008] ECR I-4019; [2011] STC 566, the CJEU (paras 19 and 20) explained
that article 4.4 of the Sixth Directive, if implemented by a member state, had the
effect that companies in a VAT group were no longer treated as separate taxable
persons for the purpose of VAT but were to be treated as a single taxable person.
This precluded such companies from submitting VAT declarations separately “since
the single taxable person alone is authorised to submit such declarations”. It
followed that the national implementing legislation had to provide that “the taxable
person is a single taxable person and that a single VAT number be allocated to the
group”.
24. In the UK the model which achieves that result is that of the representative
member. The words in section 43(1) are clear beyond question: “any business
carried on by a member of the group shall be treated as carried on by the
representative member”. It has not been suggested that the UK failed to consult the
VAT committee before adopting this model (as required by Annex A of the Second
Council Directive of 11 April 1967 (67/228/EEC) and later by article 4.4 of the Sixth
Directive and now by article 11 of the Principal Directive) and no challenge has
been made to the effect that the model does not faithfully implement the option
which article 11 of the Principal Directive or its predecessor made available to
member states. There is no reason to doubt that the model which the UK has adopted
is consistent with the EU legislation.
25. Other models have been used to take up the option. Thus, in the Kingdom of
Sweden, national legislation, which exercised the option which article 4.4 of the
Sixth Directive gave, provided that a VAT group might be regarded as a single
operator and the activity in which companies within the group were engaged might
be regarded as a single activity. The result was that services supplied to a company
within such a VAT group in Sweden were regarded as services supplied to the VAT
group: Skandia America Corpn (USA), filial Sverige v Skatteverket (Case C-7/13)
[2015] STC 1163, paras 16 and 28-32.
26. Whatever may be the position in the legislation of other member states, there
is, in my view, no need to complicate matters by introducing a concept of the VAT
group as a quasi-persona in an analysis of the UK legislation. While one can, and
HMRC does, speak of the registration of a group giving rise to a “single taxable
person”, it is the appointment of a company as representative member of the group
which provides the legal person which is the taxable person.
27. The administration of VAT involves giving the representative member of a
VAT group a VRN and the establishment of a bank account in its name from which
VAT payments may be made to HMRC and into which repayments may be made.
A VAT group may change its representative member by applying to HMRC under
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section 43B(2)(c) of VATA (as inserted by section 16 of, and paragraph 2 of
Schedule 2 to, the Finance Act 1999) but the new representative member retains the
same VRN and bank account. In Revenue and Customs Comrs v MG Rover Group
Ltd [2016] UKUT 434 (TCC); [2017] STC 41, the Upper Tribunal (Warren J and
Hellier J) described the position of the representative member in these terms (para
171):
“[T]he representative member of section 43 must, in our view,
be understood as a continuing entity (perhaps akin to a
corporation sole whose role is fulfilled by whoever holds the
relevant office at any time). Thus actions, liabilities and rights
of an old representative member must be ascribed to the new
representative member on a change of representative member.”
In my view that analogy is apt. Section 43 of VATA does not make the group a
taxable person but treats the group’s supplies and liabilities as those of the
representative member for the time being.
28. Section 80 of VATA (as amended by section 3 of the Finance (No 2) Act
2005) provides (so far as relevant):
“(1) Where a person –
(a) has accounted to the Commissioners for VAT for
a prescribed accounting period (whenever ended), and
(b) in doing so, has brought into account as output
tax an amount that was not output tax due,
the Commissioners shall be liable to credit the person
with that amount. …
(2) The Commissioners shall only be liable to credit or
repay an amount under this section on a claim being made for
the purpose.”
29. It is clear from the words of section 80(1) that HMRC’s liability to credit or
repay the overpaid output tax is owed to the person who accounted to them for VAT
in the relevant accounting period or periods. It is also clear from the concluding
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words in subsection (2) (“for the purpose”) that a claim must be made for the credit
or repayment to that person before HMRC come under any liability to credit or
repay. Other subsections support this view. Section 80(3), which provides HMRC
with the defence of unjust enrichment against a claim under subsection (1) or (1A),
refers to the enrichment of the claimant and appears to assume that the claimant is
the person who has accounted for the VAT. Subsection (4), which imposes a time
limit on claims, also is drafted on the basis that the claim will result in the giving of
a credit or repayment to the person who accounted for or paid the VAT in the first
place. It therefore follows from the operation of section 43 of VATA that where
there have been overpayments of VAT by the representative member of a VAT
group, the person entitled to submit a claim during the currency of a VAT group,
unless the claim has been assigned, is either the current representative member of
the VAT group or a person acting as agent of that representative member.
30. I therefore agree with the Extra Division in para 24 of their opinion that it is
only the representative member who has any interest in making the claim. My
disagreement is simply that one does not need the complication of viewing the group
as a quasi-persona to reach that conclusion.
31. In this regard I agree with the impressive analysis of the single taxable person
in the context of a subsisting VAT group by the FTT (Judge Roger Berner and Mr
Nigel Collard) in paras 73 -75 of the decision in Standard Chartered plc v Revenue
and Customs Comrs [2014] UKFTT 316 (TC); [2014] SFTD 1270. In particular, as
Judge Berner stated (para 73): “Under UK law, as set out in section 43 VATA, the
concept of the single taxable person is properly implemented through the
representative member. … The representative member is not the agent or trustee of
the constituent members of the group. It is … the domestic law embodiment of the
single taxable person”.
32. Mr Scorey on behalf of TCL submits that the only taxable person is the VAT
group, which alone has fiscal personality, and that any company within the VAT
group can claim repayment of unduly levied VAT on behalf of the group. For the
reasons set out above, I do not accept that submission. Nor do I see any basis for the
assertion by the Extra Division (para 27) that a claim by an individual member of a
VAT group must normally be construed as a claim made on behalf of the
representative member, as otherwise the claim would have no meaning. An assignee
of the representative member may make a valid claim in its own right (as Carlton
purported to do in this case). Alternatively, a party may make a claim to which it is
not entitled.
33. I therefore approach the construction of Carlton’s claims without any such
preconception. I also have regard to the limitation of an appeal from the UT to errors
of law.
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Applying the law to the facts: Carlton’s claims
34. The FTT concluded (para 78) that it was clear from the text of each of
Carlton’s letters that it was claiming, in its own right, repayment of sums alleged to
have been overpaid by way of VAT, and (para 86) that Carlton did not make the
claims in 2007 and the revised claim in 2009 on behalf of TCL.
35. In my view, for the following four reasons, the FTT did not err in law in so
holding.
36. First, when Carlton sent the letters to HMRC under its own letterhead, it had
long ceased to be a member of the VAT group. This would have been known to
HMRC. Even if Carlton had remained a member of the VAT Group, I would not
have construed its letter as one on behalf of TCL, in the absence of an assertion that
it was acting as TCL’s agent, because the statutory scheme, which it was invoking,
envisaged that HMRC would deal only with the representative member. Secondly,
it appears from the four letters dated 16 November 2007 that Carlton had already
presented claims in respect of each of claims (i) – (iv) in relation to its own business
activities in the period after it had left the VAT Group and it presented the new
claims as serving “to extend the scope of the previous disclosure”. Thirdly, the use
of the VAT Group’s VRN was necessary in order to identify the original source of
the allegedly overpaid VAT. The use of the VRN did not disclose who was entitled
to the repayment as it was possible (and later clarified) that Carlton was claiming as
assignee. Fourthly, in each of the claims submitted on 16 November 2007, Carlton
was claiming repayment of sums paid from 1973, long before its incorporation in
1990, as well as in the period after 1990 when it was a member of the VAT Group.
It clarified the basis on which it made those claims in its letter of 8 January 2009 in
which it revised its claim (iv) in respect of cash bingo participation fees. In that letter
it founded on the 1990 Asset Transfer Agreement and on a decision of the London
VAT Tribunal in Triad Timber Components Ltd v Customs and Excise Comrs [1993]
VATTR 384 in support of its right to be paid the overpaid VAT. In relation to the
former Carlton claimed that it had obtained legal opinion that TCL had transferred
to it the right under section 80 of VATA to claim output tax previously overdeclared. The Triad decision, on which Carlton relied for its post-1990 claim, was
that a trading company had the right, after it left a VAT group and that group’s
registration had ceased, to reclaim VAT which had been overpaid on its supplies
whilst it was a member of that group. Carlton claimed that that decision entitled it
to claim overpaid output tax for the period that it had been a member of the VAT
Group. HMRC at that time also accepted the Triad decision, as their policy then, in
relation to claims after a group registration had ceased, was to repay the trading
entity which had suffered the economic burden of the overpaid VAT. Both parties
would have readily understood Carlton to be claiming repayment in its own interest.
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37. TCL sought to neutralise the effect of the letter of 8 January 2009 by arguing
that one could not use a subsequent writing to assist in the construction of the earlier
letters. I do not accept that submission in the context of these letters. The four letters
of 16 November 2007 were in substantially similar terms. The letter of 8 January
2009 expressly revised the earlier claim for overpaid output tax on cash bingo
participation fees, thereby superseding the earlier claim to that extent, and expanded
on the reasoning behind that claim. That explanation, contained under the heading
“The right to deduct”, applied equally to the other claims made on 16 November
2007, most obviously in relation to the periods in each claim which pre-dated
Carlton’s incorporation. In so far as there was any doubt as to the basis on which
Carlton was making the claims in the four letters of 16 November 2007, the
clarification provided by the latter letter is admissible and relevant evidence of the
nature of Carlton’s claims. To hold otherwise, and have regard to the letter of 9
January 2009 only to the extent that it revised the earlier claim, would in my view
be wholly artificial.
38. I am also satisfied that TCL’s case of agency cannot get off the ground.
Carlton had no actual authority to send the letters on TCL’s behalf. The FTT’s
findings of fact, which were not challenged, destroyed any such assertion. The FTT
held (para 55) that TCL “neither instructed nor authorised” Carlton to submit any of
the claims and (para 57) that TCL was unaware that it had a potential claim under
section 80 of VATA and that HMRC’s payment of £667,069 to it on 27 April 2009
“came out of the blue”. Similarly, there is no basis for an argument that TCL ratified
Carlton’s claims which had been made on its behalf, thereby conferring
retrospective authority. First, Carlton’s letters to HMRC did not purport to be written
as agent of TCL. On the contrary, they were claims which Carlton pursued for its
own benefit. That is fatal to the claim of ratification: Keighley, Maxsted & Co v
Durant [1901] AC 240, especially Earl of Halsbury LC 243-244 and Lord
Macnaghten 246-247. Secondly, there are no findings of fact that TCL ratified
Carlton’s actions as its agent. This is unsurprising as TCL’s case before the FTT and
UT had not been based on Carlton having acted as its agent.
39. Further, TCL’s counsel in addressing the UT acknowledged that Carlton had
submitted the letters on its own behalf and not on behalf of TCL. Instead she based
her case on an interpretation of section 80 of VATA which allowed TCL to take
over Carlton’s claims. The UT decided the appeal on that basis. As an appeal from
the UT to the Inner House or to this court is available only on a point of law arising
from the decision of the UT (Tribunals, Courts and Enforcement Act 2007 sections
13-14C (as inserted by section 64 of the Criminal Justice and Courts Act 2015)), it
is not open to the appellate courts to find that there was an agency relationship
between Carlton and TCL.
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Further submissions
40. After the court had released this judgment in draft to counsel to enable them
to point out any typographical errors and minor inaccuracies in accordance with
Practice Directions 6.8.3 and 6.8.4, TCL’s counsel applied to the court to make a
reference to the CJEU under article 267 of the Treaty on the Functioning of the
European Union. The suggested reference would raise the question whether the
interpretation of section 43 of the VATA which I favour is compatible with the
concept of the single taxable person in article 11 of the Principal Directive.
41. I am satisfied that it is neither necessary nor appropriate to make such a
reference because a ruling by the CJEU on the nature of the single taxable person is
not necessary for the determination of this appeal: Srl CILFIT v Ministry of Health
(Case C-283/81) [1982] ECR 3415. Whether in United Kingdom law the
representative member is seen as the single taxable person or as the representative
of a quasi-person which is the aggregate of the companies in the VAT group and
which itself is to be recognised in domestic law, the outcome of this appeal would
be the same. This is because Carlton made its claims in its own interest and not on
behalf of either the representative member or the extant VAT group of which it had
ceased to be a member. A ruling by the CJEU that a member of a VAT group is a
member of a single taxable person would not alter that conclusion.
42. TCL also suggested that Schedule 1 to the VATA, which implements the
second paragraph of article 11 of the Principal Directive by creating a single taxable
person to counter tax avoidance, was inconsistent with the interpretation of section
43 which I favour. I disagree. Paragraphs 1A and 2 of Schedule 1 implement this
part of article 11 by empowering HMRC to make a direction that the persons named
in that direction are to be treated as a single taxable person, which is registered in
respect of taxable supplies. Paragraph 2 provides that on the making of the direction
(i) the persons affected by the direction are to give a name in which the taxable
person is to be registered, (ii) provisions which are equivalent to section 43(1)(b)
and (c), and the tailpiece of section 43(1) imposing joint and several liability on the
constituent members, are applied, (iii) a failure by the taxable person to comply with
a requirement imposed by of under the VATA is treated as a failure by each of the
members severally and (iv) subject to the foregoing, the constituent members are
treated as a partnership carrying on the business of the taxable person. Thus
paragraph 2 of Schedule 1 implements the second paragraph of article 11 by treating
the persons who are named in the direction as members of a partnership carrying on
the business of the taxable person. In other words, in domestic law the partnership
is the mechanism by which the persons subjected to the direction are treated as a
single taxable person and no separate quasi person is required. I see no inconsistency
between these provisions in Schedule 1 and the interpretation of section 43 which I
favour.
Page 15
Conclusion
43. I would therefore allow the appeal.