The Upper Tribunal (UT) has upheld the decision of the First-tier Tribunal (FTT) that repayments of overpaid VAT and statutory interest thereon are chargeable to corporation tax as trading profits, even where there have been changes both in the ownership of the trade and the VAT group to which the recipient belonged – see Shop Direct Group (and Others) v HMRC4.

The appellant taxpayers argued that sums passed from the representative member to other members of the VAT group represented gifts, but the tribunal held that there was a legal entitlement, which represented a money debt on which interest was payable.

The fact that repayments of VAT are subject to corporation tax is well established and it is perhaps unsurprising that the UT, like the FTT, has extended this treatment to cover transferees of trades from which overpayments arise. While obviously not sufficient to deter VAT repayment claims, those making such claims should be aware of the direct tax consequences of those claims being successful.

For the judgment, click here.