In Totel Limited v HMRC3 , the Court of Appeal held that the VAT prepayment rule in section 84(3), VATA, does not breach the EU law principle of equivalence.


Totel Limited (the Appellant) is a VAT-registered trader. HMRC determined that it was liable to pay sums amounting to £1,474,351.38, said to have been wrongly treated as input VAT in its VAT Returns. The Appellant wished to appeal HMRC’s assessment to the FTT, however, VAT appeals are, pursuant to section 84(3), VATA, subject to a “prepayment rule” which means that before the taxpayer can appeal, it must first pay the VAT in issue.

Before the Court of Appeal, the Appellant sought to argue that the prepayment rule for VAT appeals infringed the EU law principle of equivalence. Based on long-standing jurisprudence in the Court of Justice of the European Union (CJEU), the principle of equivalence “requires that the rules regulating the right to recover taxes levied in breach of EU law must be no less favourable than those governing similar domestic actions” (no most favourable treatment)4 .

The Appellant argued that the prepayment rule breached the equivalence principle because VAT appeals are not treated the same as income tax appeals and some domestic indirect tax appeals, such as stamp duty land tax.

The Appellant did not rely on the “equivalence principle” before the UT, and so the UT did not consider it in its decision, from which the instant appeal was brought. However, the UT gave permission to appeal on this point because, being a properly arguable point of EU law, the question was one which the Court of Appeal could properly consider.

Court of Appeal’s decision

The Court of Appeal dismissed the Appellant’s appeal.

The Court noted that the application of the equivalence principle involves the following twostage process:

1. identify the similar domestic action

2. if that domestic action is governed by different procedural rules, examine the justification for the difference.

The Court held that the “no most favourable treatment” proviso was an established feature of the “equivalence principle”, which meant that a Member State would not be required to extend its most favourable rules to actions to enforce EU rights, provided it did not single out EU-derived claims for the most unfavourable treatment. Accordingly, it was open to a Member State to apply any available set of rules, which were already applied to similar claims, to an EUderived claim provided than an EU-derived claim was not selected for less favourable treatment.

Furthermore, given the lack of harmonisation at EU level of the remedies for overpayment of taxes, and the diversity in the procedural rules set by Member States, there had to be some flexibility in the application of the “equivalence principle”. VAT appeals were no different from a range of other appeals, and there was therefore no need for HMRC to justify the different treatment of other appeals.

Notwithstanding the fact that the Court concluded that the appeal would have failed on the “no most favourable treatment” proviso alone, the Court went on to consider whether a taxpayer’s remedies for overpaid VAT could be treated as “similar” to the remedies for other unpaid taxes. In the Court’s view they could not. CJEU jurisprudence did not make clear how a national court should determine whether an action was “similar” to some other action, and what constituted “similarity” was therefore a matter for national courts. In the UK’s case, VAT was a very different tax from income tax or stamp duty land tax. It was levied on the ultimate consumer but accounted for by a trader. The fact that all appeals were in the first instance determined by the FTT was not sufficient.


This judgment provides an interesting discussion on the EU law principle of equivalence and provides practitioners with a helpful summary of its application. It would be surprising if this case progressed to the Supreme Court.

A copy of the judgment can be found here.