On 6 October 2015, the First-tier Tribunal held6 that overpaid VAT repayments (and related interest) are brought within the charge to corporation tax on receipt. This was not surprising given the earlier decision in Shop Direct Group v HMRC7, but the latest decision should put the issue beyond doubt.
The appellant in this case tried to distinguish Shop Direct on the grounds that the effect of EU law had not previously been considered. However, dismissing the appeal the Tribunal held that the relevant VAT repayment rules provided for a means of recovery by the appellant that was governed wholly by UK statute and that as a result EU law was not relevant here. The decision in Shop Direct therefore applied.
Even were this not the case, the Tribunal determined that if the appellant’s claim had been one of mistake-based restitution, the effect of the appellant having incorrectly accounted for VAT would have been that it had paid corporation tax on a lower amount of taxable profits (than it would have done had it not accounted for the VAT). The state would not benefit from unjust enrichment in requiring corporation tax to be paid on the VAT repayment.
As regards the interest, it was also held that this is properly subject to corporation tax (whether simple or compound interest).
The decision can be found here.