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| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 November 2015 |
| Neutral Citation | [2016] UKFTT 402 (TC) |
| Date | 25 November 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Christopher McNall, Miss Susan Stott FCA CTA
The appellant was represented
Mrs Spence, an Officer of HMRC, appeared for the respondents
Value added tax – Returns not filed in time – Statutory assessments made by HMRC – Amounts so assessed paid by taxpayer – Returns filed by taxpayer more than 4 years after due dates – Returns show that significant overpayment had been made – Claim for repayment – Claim refused as outside 4 year statutory time limit – Value Added Tax Act 1994 (“VATA 1994”), s. 80(4) – Application to strike-out the appeal – The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(3)(c) – Consideration of art. 1 Protocol 1 – Application allowed – Appeal struck-out.
[1] This is our decision in relation to HMRC's application dated 9 March 2015 to strike out this appeal under rule 8(3)(c) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273). Of our own initiative, we also, pursuant to rule 14(b) make an order anonymising this Decision prior to publication so as to preserve the anonymity of the Appellant.
[2] The underlying appeal is made by way of a Notice of Appeal dated 2 January 2015.
[3] The appellant was and is a self-employed barrister in independent practice. He failed to submit his VAT returns on time for the periods 05/09, 08/09, 11/09 and 02/10. Those were the only four periods in dispute before us. HMRC's decision in relation to a late return for the period 02/09 had not been notified to the Appellant at the time of the hearing.
[4] The VAT for those periods in dispute was assessed by HMRC, pursuant to section 73(1) of the Value Added Tax Act 1994 (“the 1994 Act”), which reads as follows:
(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.
[5] The amounts assessed came to £47,548.
[6] Payments were subsequently made by the appellant.
[7] On 29 July 2014 the appellant filed VAT returns for those periods, showing much reduced amounts of VAT due.
[8] In summary, the position was this:
Period |
Date of HMRC assessment |
VAT assessed by HMRC £ |
Appellant's return £ |
05/09 |
17/07/09 |
11,141.06 |
669.94 claim |
08/09 |
16/10/09 |
10,677.26 |
1,168.74 |
11/09 |
15/01/10 |
11,994.00 |
316.29 claim |
02/10 |
16/04/10 |
9,608.62 |
2,288.38 |
[9] An overpayment of approximately £43,000 had been made by the appellant in relation to those four periods.
[10] The appellant requested that the overpayment be used to pay the actual VAT liability for later periods, and that any surplus should be repaid to him.
[11] On 8 August 2014, HMRC refused to do so, on the basis that section 80(4) of the 1994 Act prevented it from doing so.
[12] Insofar as material, section 80 of the 1994 Act reads as follows:
(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him.
(2) The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.
(3) It shall be a defence, in relation to a claim under this section, that repayment of an amount would unjustly enrich the claimant.
[…]
(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than four years before the making of the claim.
[13] HMRC's decision was that the appellant's claim should not be allowed, as out of time.
[14] Following a statutory review, HMRC concluded on 5 December 2014 that the original decision should be upheld. The reason given was that the amounts relating to the four VAT periods had been “capped correctly in accordance with section 80(4) of the VAT Act 1994”.
[15] Rule 8(3)(c) reads:
The Tribunal may strike out the whole or a part of the proceedings if – (c) the Tribunal considers there is no reasonable prospect of the appellant's case, or part of it, succeeding
[16] Striking-out under rule 8(3)(c) is discretionary.
[17] The application was made only on that footing. Although HMRC invited the Tribunal, at the hearing, to consider striking out the whole or part of proceedings under rule 8(2) (which is a mandatory provision) we decline to deal with the application on that footing. We were not given any reason as to why the application had been framed in the limited way that it was. We considered that it was not fair to require the appellant's representatives to have to deal with a re-framing or a re-formulation of the application made in the face of the Tribunal, and at the hearing.
[18] HMRC argued that the appellant was subject to a legal obligation to submit his returns, together with any payments due, by the due dates. His failure to do so entitled HMRC to make assessments, under section 73 of the 1994 Act, as the means of establishing a VAT debt in relation to the prescribed accounting periods where the appellant's returns were missing. It was said that the assessments had been made to best judgment based on centrally stored data and information held concerning the appellant's business.
[19] HMRC's assessments were withdrawn upon receipt of the appellant's VAT returns for the disputed periods on 29 July 2014.
[20] However, given that the appellant had chosen to pay HMRC's assessments instead of submitting his returns on time, he consequently could only recover any amounts overpaid by making a claim under section 80 of the 1994 Act.
[21] The legislation prescribes that such a claim must be made within four years of the end of the accounting period in which the assessment was made. Therefore, the appellant had submitted his claim outside the statutory time limit.
[22] HMRC acknowledged that the appellant's VAT returns were submitted late due to illness, and that the amount in dispute was substantial, and expressed considerable sympathy for the appellant's circumstances. We were told that HMRC had afforded the appellant special relief under Schedule 1AB of the Taxes Management Act 1970 in relation to his income tax returns (similarly late), and in the exercise of its care and management powers.
[23] Nonetheless, HMRC considered that the 1994 Act afforded it no discretion, and, as such, it was obliged to strictly apply the time limit in section 80(4). It was submitted that there was no legal basis in domestic legislation upon which either HMRC or this Tribunal could extend that time limit.
[24] In short, HMRC's position was that any claim made more than four years after the end of the accounting period in which the assessment was made was capped, irrespective of the circumstances.
[25] It drew support for its arguments from the decision of the First-tier Tribunal (Judge Rachel Short and Mrs Sheila Cheesman) in Brent Newsagent TAX[2015] TC 04245. In that case, the Tribunal, striking out an appeal under rule 8(3)(c), held that the four year time limit in section 80(4) was lawful and proportionate.
[26] The appellant had been suffering from poor health, with a fragile mental state, and had been barely functioning professionally.
[27] The appellant had made the payments in good faith. He had sent in an amount which he knew would be greater than the true liability “hoping to give an indication that he did not intend to deprive HMRC of their proper portion”.
[28] The assessments were unreasonably excessive and punitive, and had no basis in or connection with the real financial position.
[29] The correct reading of the legislation was a purposive one. Read as such, Parliament had intended to ensure that the Commissioners could not be held liable in law for any unjust or unmerited enrichment which would accrue to them by virtue of overpayments. Parliament did not prevent the Commissioners from looking at a case and “despite the letter of the law being firmly on the side of the Commissioners” nonetheless “determining that it would be just to credit or repay the amount”.
[30] The Commissioners had applied the legislation in an “algorithmic” manner, and had therefore failed to take account of the equity of the case.
[31] It was neither proportionate nor consonant with the basic principle of fairness that HMRC should be entitled to retain the overpayment.
[32] The language of section 80(4) of the 1994 Act is clear and unambiguous. The expression “shall not be liable” is ordinary...
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