On 14 July 2016, in Taylor Clark Leisure plc v HMRC2, the Scottish Court of Session held that claims made by a former member of a VAT group under section 80 VATA 1994 (overpaid VAT) were treated as made by the representative member of the VAT group.
The appellant in this case was the VAT group representative member. The group made supplies of gaming machines and bingo. A one-time member of the VAT group (C) left the group and subsequently, following a review of the UK’s historic treatment of the VAT liability of supplies of gaming machines and bingo, made a number of claims for repayment of overpaid VAT. Although C made these claims within applicable time limits, the appellant (the representative member) failed to do so.
HMRC made certain repayments direct to the appellant (where C had made the claims in the appellant’s name), before changing its mind and seeking recovery of the repayments. HMRC refused to make other repayments. The appellant appealed HMRC’s attempts to recover and refusals to pay.
The Court held that C’s claims should for section 80 VATA purposes be treated as having been made on behalf of the appellant as representative member. The Court considered that the VAT grouping rules created the “fiction” of a single taxable person, existing only for VAT purposes.
All liabilities of HMRC to make repayments were, in the Court’s view, owed to the representative member. The individual group members had no independent existence, for the purposes of VAT. This remained the case even after the individual group member (C) had left the group, and the group as it was had ceased to exist. Adopting this reasoning the Court held that the claims by C had to be construed as having been made by (or rather on behalf of) the appellant.
As HMRC highlighted a number of practical issues that, under HMRC’s argument, supported their case, these were addressed by the Court briefly as follows:
- HMRC should be required to inform any former VAT group member making a section 80 claim that their claim would be considered by HMRC as being made on behalf of the representative member
- the representative member could, if it wished, “override” any purported section 80 claim made by a former VAT group member (for example if the representative member wished to maintain the VAT group’s partial exemption calculation)
- if a section 80 claim made by a former VAT group member is rejected, HMRC should inform the representative member of that fact.
The law with regards to claims for VAT repayments in the context of VAT groups remains uncertain. This decision reflects the general trend of recent decisions (that it is the representative member who is responsible for/entitled to VAT (re)payments) but will be persuasive only as far as other, ongoing, cases are concerned. It would be helpful if HMRC were to comment on this issue as part of the current consultation into VAT groups following the Skandia and Larentia + Minerva decisions. Pending any such clarification, the best practical advice for VAT groups making repayment claims would be for the representative member to take control of the process (even, if at all possible, in cases where the group member concerned has since left the VAT group).