In Taylor Clark Leisure Plc v HMRC7, the Scottish Court of Session (SCS) overturned the decisions of the First-tier Tribunal (FTT) and the Upper Tribunal (UT) in finding 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 group as embodied in the representative member.

Background

Taylor Clark Leisure Plc (the Appellant) was engaged in a range of trading activities in the leisure sector, including bingo and other related businesses. Following the introduction of VAT in 1973, the Appellant charged VAT on its relevant supplies and established a VAT group of which it became the representative member. The VAT group continued in existence until 2009, when it was dissolved.

In 1990, Carlton Clubs Ltd (Carlton) was incorporated as a wholly-owned subsidiary of the Appellant. The Appellant transferred its bingo and related businesses to Carlton, including the operation of gaming machines and mechanised cash bingo. Carlton became a member of the Appellant’s VAT group, and remained so until 1998, when it was sold to outside shareholders.

A series of decisions by the CJEU and UK courts later established that income from bingo, gaming machines and other analogous activities was not subject to VAT. On 16 November 2007 and 8 January 2009, Carlton submitted claims to HMRC in respect of VAT that was said to have been overpaid in respect of bingo services in accounting periods from 1973 to 1998. The claims were phrased in the first person plural and signed by Carlton’s finance director. The VAT registration number quoted, however, was that of the Appellant’s VAT group. No timeous claim was made by the Appellant itself, whether in its capacity as representative member of the VAT group, or as an entity in its own right.

In April 2011, the Appellant asserted that it was entitled to repayment of the claims that had been submitted by Carlton. This was rejected by HMRC. Both the FTT and the UT found for HMRC and the Appellant appealed to the SCS.

SCS’s decision

The issue to be determined by the SCS was whether the VAT group, embodied in the Appellant as representative member, could rely on claims for repayment of VAT overpaid by the group which had been made by Carlton rather than by the Appellant.

The SCS considered section 43 of the Value Added Tax Act 1994, which allowed the members of a VAT group to be treated as a single taxable person for the purposes of VAT. All supplies made by and to the individual members were to be treated as made by and to the VAT group. Equally, any liability of HMRC to repay VAT was to be treated as owed to the group. In so far as VAT was concerned, the individual members had no independent existence, they functioned as part of the VAT group as embodied in the representative member.

On this basis, the SCS decided that a claim which related to the activities of an individual member must be treated as having been made by or on behalf of the VAT group. That did not, however, mean that such a claim needed to be advanced by the group itself. There was no reason why an individual member should not be entitled to make a claim on behalf of and as agent for the group.

Further, an individual member leaving the group had no effect on the transactions that took place whilst the individual member was part of the group. Carlton had left the Appellant’s group in 1998 and the Appellant had applied for deregistration from VAT in 2009. The SCS concluded that neither of these events was relevant to the status of the Appellant as representative member, and any entitlement to a repayment of VAT in respect of activities during that period remained that of the Appellant.

The SCS concluded that the claims made by Carlton were made on behalf of the Appellant as representative member of the group. Carlton had been a member of the group for a substantial part of the period to which the claim related, and during that period it had no independent existence for VAT purposes. Carlton could not, therefore, make the claim on its own behalf. All  it could do was to make the claim on behalf of the Appellant as representative member. This was notwithstanding the fact that the claims were phrased in the first person, they referred directly to the Appellant and quoted the reference number of the Appellant’s VAT group.

Comment

The SCS considered the full legislative context and adopted a purposive approach in finding that the claims ought to be treated as having been made on behalf of the Appellant rather than by Carlton as an individual entity. Although this decision is of persuasive authority only, representative members may now be able to rely on claims made by another member where they relate to activities during a period in which that member was part of the VAT group.

A copy of the judgment can be found here.