On 17 February 2016, the Supreme Court in Shop Direct Group v HMRC1 held that VAT repayments (including statutory interest) are subject to corporation tax. The decision upholds those of the Tribunals and Court of Appeal.
It is well established that VAT repayments are subject to corporation tax (see here for a recent decision on this very issue). However this particular decision confirms, conclusively, that this is the case even where there have been transfers of trade, changes to VAT groups and other business changes between the date of VAT overpayment and the date of the VAT refund.
In this particular case the appellant received a large VAT repayment of nearly £125m. This mostly related to VAT overpaid by trading companies in the appellant’s VAT group and by the time
of receipt the various trades had been permanently discontinued. The Supreme Court held that the relevant legislation (which charges to tax any amounts received which arise from a discontinued trade) contained no requirement that, in order for a corporation tax charge to arise, the receipt must be by the original trader. Rather, the legislation was concerned with the original source of the repayment (being the discontinued trade).
The decision can be viewed here: