In Rank Group plc v HMRC [2018] UKFTT 0251 (TC), the FTT has decided that there was no valid claim under section 80(1B) Value Added Tax Act 1994 (VATA) and that the “set off” provisions of sections 81(3) and 81(3A) VATA, did not result in the taxpayer making a “payment” to HMRC.
Background
Rank operates a number of bingo clubs, making supplies of mechanised and cash bingo to members of the public. Until 2009, in accordance with HMRC’s then practice, Rank treated its supplies of bingo as taxable. However, following the decision of the CJEU in the joined cases of Linneweber (C-453/02) and Savva Akriditis (C-462/02), it was established that Rank’s supplies should have been treated as exempt for VAT purposes.
Rank made claims under section 80, VATA, for the repayment of overpaid VAT. HMRC paid three of those claims (Claims (i) to (iii)) and in doing so, required Rank to take into account both the VAT that it wrongly paid and also input tax for which it was wrongly given credit. HMRC rejected the fourth claim as being out of time.
Rank complained to HMRC on the grounds that HMRC had deducted too much by way of over-credited input tax when dealing with Claims (i) to (iii). HMRC rejected that claim (The “Birmingham Hippodrome claim”). Rank appealed against that decision but was unsuccessful in that litigation.
The current appeal proceeded on the basis that HMRC was correct to reject the fourth claim on the grounds that it was out of time.
In the current appeal, Rank argued that it had made a valid claim under section 80(1B) and that it was entitled to the amount claimed applying the relevant statutory conditions and the principles set out in Birmingham Hippodrome Theatre Trust v HMRC [2014] EWCA Civ 648. That case established that where HMRC relies on section 81(3A), it must take into account all of the consequences of the same mistake and, in particular, must take into account all other over and under-declarations.
HMRC argued that there was no valid claim under section 80(1B) and in any event Rank was not entitled to the sum claimed.
FTT decision
The appeal was dismissed.
The FTT confirmed that section 80, as worded at the relevant time, envisaged a gross claim for credit of output tax which is then diminished by operation of sections 81(3) and 81(3A).
With regard to section 81(3), the FTT observed that there are two pre-conditions that must be satisfied in order for this provision to apply, namely, an amount must be due from HMRC and that person must be liable to pay a sum by way of VAT, penalty interest or surcharge. In the instant case, the FTT held that HMRC was out of time to recover over-credited input tax by way of assessment under section 73 in relation to Claims (i) to (iii), and therefore the second condition in section 81(3) was not satisfied.
The FTT did consider that the conditions referred to in section 81(3A), namely, HMRC have a liability to pay an amount to a person, the amount falls to be paid or repaid in consequence of a mistake and, by reason of that mistake a liability to pay was not assessed, had been satisfied when Claims (i) to (iii) were made. Accordingly, any limitation on the time within which HMRC was entitled to take any steps for the recovery of the amount of over-credited input tax should be disregarded in determining whether that sum is required by section 81(3) to be set against the gross output tax.
Applying the guidance provided by the Upper Tribunal in Birmingham Hippodrome [2013] UKUT 57 (TCC) (which was not disturbed by the Court of Appeal), for the purposes of section 81(3), the input tax which Rank over claimed in the periods that were relevant to Claims (i) to (iii), was to be treated as if it was “VAT due” to HMRC even though HMRC had not assessed Rank as being liable to repay the over claimed input tax and even though HMRC was, at the time Claims (i) to (iii) were made, out of time to assess Rank.
What was crucial was whether Rank had made a “payment” to HMRC for the purpose of section 80(1B). In the view of the FTT, Rank had not made a payment to HMRC.
In the view of the FTT, as section 80(2A) envisaged that Claims (i)-(iii) would be settled by the making of a single net payment, Parliament could not have intended that single net payment to be disaggregated into multiple payments when determining whether a further claim could be made under section 80(1B).
In arriving at its decision, the FTT was influenced by the potential impact on time limits. If the process of settling over-claimed input tax in relation to Claims (i)-(iii) involved Rank making a “payment” to HMRC, that could introduce further claims under section 80(1B) which could lead to taxpayers re-opening claims long after all relevant deadlines had passed. In the view of the FTT, such a result would not be consistent with the VAT legislation, which provides that claims can be made no later than 4 years after the end of the relevant accounting period.
Although the FTT acknowledged that the decision in the Birmingham Hippodrome case was released after Rank’s claims and as a result, Rank could not have known of possible arguments linked to that case, the FTT held that in making the Birmingham Hippodrome claim, Rank was either seeking to amend Claims (i)-(iii), or to appeal against HMRC’s decisions on those claims. Rank was not in time to take either of those steps and this was another reason why the FTT held the appeal must fail.
Comment
Each case must of course be decided on its own particular facts and although in the circumstances of this case, the FTT concluded that Rank had not made a “payment” for the purposes of the legislation, it will not always be the case that the operation of the set off provisions of sections 81(3) and 81(3A) will result in the taxpayer not making a payment.
A copy of the FTT’s decision is available to view here.
