In HMRC v Taylor Clark Leisure Plc [2018] UKSC 35, the Supreme Court has held that a company which claimed recovery of VAT is not to be considered to have made a claim for repayment, where another company, which had formerly been a member of its VAT Group, had made the relevant claims. The other company had claimed repayment in its own right and not on behalf of the first company.

Background

Taylor Clark Leisure Plc (TLC) was the representative member of the Taylor Clark VAT Group for the years 1973 to 2009, when the Group was disbanded. In 1990, TLC transferred its bingo business to Carlton Clubs Ltd (Carlton), a newly incorporated subsidiary entity. The transfer was effected by a letter dated 30 March 1990 (the Asset Transfer Agreement). Carlton was a member of the VAT Group from 1990 until 1998, when it was sold.

In November 2007, Carlton submitted four claims for repayment of VAT which TLC had overpaid in the period 1973 to 1998. The claims related to the VAT treatment of bingo. Following the CJEU’s decision in Rank Group PLC v HMRC (Joined Cases C-259/10 and C-260/10) [2011] ECR I-10947; [2012] STC 23, HMRC issued Revenue and Customs Brief 39/11, which accepted that repayment would be due (subject to verification).

The claims issued by Carlton used the TLC Clark VAT Group registration number but they had not been authorised by the Group. TLC maintained that it was able to rely on Carlton’s claims because it was the representative member of the VAT Group at the time the supplies were made.

HMRC rejected the claims on the following basis:

1. that the claims had not been made before the expiry of the time limit (because no claims had been made by TLC itself)

2. the claims predating 31 March 1990 had been assigned to Carlton by the Asset Transfer Agreement, and 

3. because the VAT Group had since been disbanded, the claim for over-declared output tax must be made by the company whose activities gave rise to the over-declaration and Carlton had made that claim1 .

Carlton and TLC initially pursued rival appeals, however, Carlton withdrew three of its four appeals because HMRC had paid them. The remaining appeal was stayed. TLC maintained its appeals.

FTT decision

The appeal was dismissed.

The FTT found that:

1. the right to claim repayment for periods prior to 1990 had been assigned to Carlton under the Asset Transfer Agreement

2. the right to claim had been passed back to Carlton from the VAT Group when it left the VAT Group in 1998, and

3. TLC had not, itself, made a claim under section 80, VATA and could not rely on Carlton’s claims; it was therefore out of time to make a fresh claim.

TLC appealed all three issues.

UT decision

The UT reversed the decision of the FTT in relation to issue 1. The UT found that the right to claim had not been transferred to Carlton. The UT also found that it was only TLC who could make a claim for repayment because it was the representative member of the VAT Group at the time.

With regard to issue 3, the UT agreed with the FTT that TLC had not made a valid claim under section 80, VATA, and accordingly, did not have a valid claim and was time-barred from issuing a new claim.

TLC appealed to the Inner House on issue 3.

Inner House judgment

The question for the Inner House was:

“Can the VAT Group, represented by [Taylor Clark], rely on the claims for repayment of VAT overpaid by the VAT Group, when the claims were made in time but were made by another member of the same VAT Group?”

The Inner House took the view that the actions of individual members of a VAT Group could be ascribed to the representative member of a Group where they related to VAT. By adopting a purposive interpretation of the relevant legislation, the Inner House concluded that the claims made by Carlton were deemed to have been made by TLC as the representative member.

HMRC appealed. 

Supreme Court judgment

The appeal was allowed.

The Supreme Court reversed the judgment of the Inner House. It did not accept that Carlton’s claims had been made by or on behalf of TLC.

Firstly, they were made after Carlton had left the VAT Group. Secondly, the use of the Group VAT registration number was not determinative since it was necessary to use that number in order to identify the relevant VAT payments. Thirdly it was clear that Carlton was not acting as TLC’s agent. Carlton had asserted its own belief that claims which existed before its incorporation in 1990 and related to periods going back to 1973, had been assigned to it in 1990 under the Asset Transfer Agreement.

Carlton relied on the case of Triad Timber Components Ltd v HMRC [1993] VATTR 384, which supported its position that it had the right to make a reclaim in relation to a period when it was in a VAT Group, when it left the Group and the Group ceased to exist. This position also reflected HMRC’s policy at the time.

Comment

The position can become complicated when entities join and leave existing VAT Groups or the Group as a whole ceases to exist.

The effect of the Supreme Court’s judgment is that where there has been an overpayment of VAT from a VAT Group, the entity entitled to make a claim for recovery is the Representative Member, or a person acting as agent for the Representative Member, unless the claim has been assigned.

In circumstances where corporates are intending to issue claims which relate to VAT Groups it is important that appropriate advice is sought at an early stage in the process so as to avoid the possibility that a claim which is valid on the issue of substance is not lost due to a deficiency in form.

A copy of the judgment can be viewed here.