In Lloyds Banking Group Plc and others v HMRC, the Court of Appeal has held that the VAT grouping model outlined in sections 43 and 44, Value Added Tax Act 1994 is compliant with article 11, Directive 2006/112 (PVD). Only the representative member of the VAT group which accounted for the group’s VAT to HMRC can bring a claim for repayment of VAT.
The proceedings involved a number of conjoined cases for the recovery of overpaid VAT from HMRC pursuant to section 80, Value Added Tax Act 1994. The taxpayers relied on the San Giorgio right to claim reimbursement of VAT which was levied unlawfully due to HMRC’s misinterpretation of the law.
Pursuant to article 11, PVD and sections 43 and 44, Value Added Tax Act 1994, where a number of companies join together to create a VAT group, that group appoints a representative member. The representative member deals with all the VAT payments in respect of the other members of the VAT group.
The issue was who has a right to claim back the tax in a situation where the goods or services on which the tax was wrongly levied were supplied by a company which belonged to a VAT group (so that the input tax was accounted for by the representative member) and the real world supplier has left the VAT group at the time the claim is made.
HMRC had accepted the claims for the refund of overpayments made by the representative member but had refused claims by real world suppliers that had left the VAT group.
The taxpayers appealed to the First-tier Tribunal (FTT).
In each of the appeals, the FTT upheld HMRC’s interpretation of the law that, in accordance with article 11, PVD and sections 43 and 44, Value Added Tax Act 1994, only the representative member of the VAT group, not the real world supplier, is entitled to the San Giorgio right. Where a VAT group has dissolved, the San Giorgio right rests with the last representative member. Additionally, the FTT held that in a situation where a real world supplier left the VAT group to join a different VAT group, the real world supplier could assert accrued section 80 rights.
The taxpayers appealed to the Upper Tribunal (UT).
The UT dismissed the appeals and upheld HMRC’s interpretation. Its decision was strengthened by the recent Supreme Court decision in HMRC v Taylor Clark Leisure Plc v HMRC3 . Although the taxpayers accepted that the Supreme Court’s decision in Taylor Clark was binding, they contended that sections 43 and 80, Value Added Tax Act 1994, infringed EU law (an issue not considered by the Supreme Court) and should therefore be construed to bring them in compliance with EU law (applying Marleasing SA v La Comercial International de Alimentaciou SA C-106/89).
The taxpayers appealed to the Court of Appeal.
Court of Appeal judgment
The appeals were dismissed.
The Court held that article 11, PVD, does not provide that the single taxable person created by the VAT grouping provisions operates in such a way that any San Giorgio rights are held by the real-world suppliers, so that those suppliers take the rights with them when they leave the VAT group. Sections 43 to 44, which provide that only the representative member can make a section 80 claim, therefore comply with article 11. It said that a court may need to consider a claim brought against a representative member by a real-world supplier that has reimbursed the VAT to its own customers and seeks a remedy against the representative member that accounted for that VAT to HMRC. However, none of the taxpayers were in that position.
The Court confirmed that in circumstances where the group has been dissolved, the last representative member can bring a claim, whether or not it is the same legal entity as fulfilled that role at the time of the supplies and whether or not it is still a taxable person.
This judgment confirms that, where collective companies sit within a VAT group, it is only the representative member which is entitled to the San Giorgio right to make a claim for repayment of overpaid tax pursuant to section 80, Value Added Tax Act 1994. This is the case even if the real world supplier leaves the VAT group. The real world supplier cannot take the San Giorgio right with it. Where a VAT group is dissolved, the last representative member is the only entity which can seek recovery of overpaid VAT.
A copy of the judgment can be viewed here.