In G4S Corporate Services Ltd v HMRC, the First-tier Tribunal (FTT) has held that interest assessed under sections 74 and 75, VATA 1994, on late-paid VAT, is default interest intended to reflect the time value of money withheld from HMRC and is not commercial interest.
This case comprised of two separate appeals. In each appeal, the appellant was the
representative member of a separate VAT group which was assessed to VAT under section 73, VATA 1994, on supplies by group members to the Home Office. The appellants had both mistakenly treated the supplies as exempt from VAT. The appellants did not appeal against these assessments and that VAT due was paid, albeit late.
HMRC subsequently raised interest assessments in respect of the late-paid VAT under sections 74 and 76, VATA 1994, rejecting the appellants’ request for a statutory review. This was rejected on the basis that the decision was not an appealable matter and there was no legal basis to perform a review. A review is only available where a right of appeal exists under section 83, VATA 1994.
The appellants appealed to the FTT, arguing that they should not have to pay any interest. The appellants’ case was that where there is a late payment of VAT to one part of the Crown (HMRC), but for the entire period of the delay the same amount of money is retained by another part of the Crown (the Home Office, being the appellants’ client), the deprivation to the Crown is nil. The appellants submitted that section 74, VATA 1994, should be interpreted purposively so that interest is calculated by reference to the amount of loss caused to the Crown due to the default of the taxpayer.
The appeals were dismissed.
The FTT noted that the appellants’ appeals were made under section 83(1)(q), VATA 1994, which gives the taxpayer a right of appeal to the FTT in respect of the amount of interest specified in an assessment that HMRC has made under section 76, VATA 1994, but there is no right of appeal to the FTT in relation to a decision by HMRC to raise an assessment under section 76. The appellants’ appeal rights and the FTT’s jurisdiction in this case was therefore limited to consideration of the amount of interest specified in the assessments. The exercise of HMRC’s discretion to assess the interest could only be challenged by way of judicial review proceedings.
Whilst the FTT accepted that HMRC collected tax on behalf of the Crown, it rejected the appellants’ argument that the purpose of sections 74 and 76 was to compensate for deprivation of funds and that, interpreted purposively, the sections allowed interest to be charged only where the Crown had been deprived of its money.
The FTT held that section 74 provided for default interest, intended to facilitate the collection of the right amount of tax where tax was paid late, reflecting the time value of the money, rather than commercial interest. It noted that this was consistent with the EU principle of fiscal neutrality, as it ensured that all taxpayers were treated in the same way, regardless of their status.
The FTT also noted, without needing to decide the point, that section 74, provides that VATA 1994 applies to taxable supplies by the Crown in the same way as it applies to taxable persons and this suggests that the Exchequer should not be treated as the same entity as other government departments for VAT purposes.
Whilst the appellants raised some interesting arguments in this case, the FTT concluded that there was no justification for an interpretive limitation to section 74, VATA 1994, and that the status of the appellants’ client (the Home Office) was irrelevant to the calculation of interest.