British Telecommunications Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 June 2020 |
| Neutral Citation | [2020] UKFTT 278 (TC) |
| Date | 29 June 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 278 (TC)
Judge Harriet Morgan
Value added tax – Whether this appeal should be struck out on the basis that it has no reasonable prospect of success – Yes – Appeal struck-out.
[1] The hearing was to consider HMRC's application made on 16 June 2016 for this appeal to be struck out on the basis that it has no reasonable prospect of success pursuant to rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”).
[2] On 30 March 2009, British Telecommunications plc (“BT”) wrote to HMRC making a claim for the repayment to it of VAT it had accounted for in respect of its supplies made to customers in the period from 1 January 1978 to 31 March 1989 where the customer had failed to pay BT either in part or at all for the supplies (“the BT claims”). HMRC refused the BT claims and BT appealed against that decision to this tribunal on 29 April 2010.
[3] By a direction released on 26 January 2012, three preliminary issues (as set out in [7] below) (“the BT issues”) were transferred to the Upper Tribunal (Tax and Chancery Chamber) (“the UT”) for determination under rule 28 of the Rules. Following this:
- The BT issues were heard by the UT in February 2012, together with an appeal by HMRC against a decision of the tribunal allowing an appeal by GMAC UK Plc (GMAC) against HMRC's refusal of GMAC's claim for VAT bad debt relief in relation to supplies of cars made on hire-purchase terms between 1978 and 1997. Following this hearing, the UT essentially decided the first two BT issues in favour of BT and the third in favour of HMRC (R & C Commrs v GMAC UK plc (formerly General Motors Acceptance Corp (UK) plc); British Telecommunications plc v R & C Commrs [2012] BVC 1,939 (GMAC/BT UT)).
- HMRC appealed to the Court of Appeal against the UT's decision in GMAC/BT UT and BT made a cross-appeal. The Court of Appeal released its decision on 11 April 2014 (R & C Commrs v British Telecommunications plc [2014] BVC 24 (BT CoA)) in terms which, as HMRC argued, have effectively decided the appeal in favour of HMRC.
- BT's application for permission to appeal against the Court of Appeal's decision in BT CoA was rejected by the Supreme Court on 11 December 2014. Details of the decisions in GMAC/BT UT and BT CoA are set out in Part B.
[4] In the Court of Appeal decision in BT CoA, Rimmer LJ, who gave the leading judgement with which the other members of the panel in the Court of Appeal agreed, gave an overview of the issues before that court, at [2], as follows:
- At the relevant time the domestic legislation relating to claims for VAT bad debt relief in respect of supplies made during the period to 31 March 1989 was contained in s 22 of the Value Added Tax Act 1983 ((s 22 and VATA 1983), which (in materially identical terms) replaced s 12 of the Finance Act 1978 (together the Old Scheme). This required particular conditions to be satisfied before a claim could be made, including a condition that the customer was insolvent (the Insolvency Condition).
- The BT claims were for relief in respect of cases where the Insolvency Condition was not satisfied on the basis that BT had a directly enforceable European Union law right to relief in such cases (an EU right), with which the s 22 conditions, in particular the Insolvency Condition, were said to be incompatible. The EU right was said to arise under article 11(C)(1) of the Sixth VAT Directive 77/388/EC (article 11(C)(1) and the Directive) which contained the provisions which the UK rules in the Old Scheme were intended to implement.
- Section 39(5) of the Finance Act 1997 (s 39(5)), which came into force on 19 March 1997, had finally precluded the making of bad debt relief claims under s 22 in respect of supplies made before 1 April 1989, but BT seemed to assert that s 39(5) should be disapplied as denying BT its EU right, leaving it free to make the BT claims in 2009, 12 years after that provision came into force.
[5] The Court of Appeal also dealt with BT's argument that its EU right was to be given effect (and was made) under s 80 of the Value added Tax Act 1994 (“s 80” and “VATA 1994”) and not under the Old Scheme and that the BT claims were made within the extended time limits for the making of such claims under s 121 of the Finance Act 2008 (“s 121” and “FA 2008”). BT emphasised at this hearing that this was its primary argument and that, all along, it had regarded s 80 as the correct route for it to obtain relief for its EU right and considered that the BT claims were made under that provision. It said that the argument that s 39(5) should be disapplied was made in response to the approach taken by HMRC in refusing the BT claims.
[6] Rule 28 provides as follows:
28.–(1) If a case has been allocated as a Complex case the Tribunal may, with the consent of the parties, refer a case or a preliminary issue to the President of the Tax Chamber of the First-tier Tribunal with a request that the case or issue be considered for transfer to the Upper Tribunal.
(2) If a case or issue has been referred by the Tribunal under paragraph (1), the President of the Tax Chamber may, with the concurrence of the President of the Tax and Chancery Chamber of the Upper Tribunal, direct that the case or issue be transferred to and determined by the Upper Tribunal.
[7] The formulation of the BT issues, as agreed between the parties, and which President of this tribunal, with the concurrence of the President of the UT, directed were to be transferred to the UT and determined by the UT, was as follows:
- Issue 1: On the assumption that BT could otherwise have relied on an EU law right to bad debt relief, in respect of bad debts allegedly arising in the prescribed accounting periods running from 1 January 1978 to 31 March 1989, by virtue of article 11(C)(1) of the Sixth VAT Directive, was the exercise of that right in 2009 barred in accordance with the general principles of EU law and/or subject to section 39(5) of the Finance Act 1997?
- Issue 2: If the answer to Question 1 is in the negative in relation to the general principles of EU law, but affirmative in relation to section 39(5), does section 39(5) fall to be disapplied, or construed, under EU law, in such a way as not to affect the exercise of BT's right under EU law?
- Issue 3: Do section 80 of the Value Added Tax Act 1994 and section 121 of the Finance Act 2008 apply to BT's claim irrespective of the answer to Question 1.
[8] The direction for the transfer of the BT issues was made pursuant to a joint application made by the parties:
- Initially, in an application of 13 April 2011, the parties applied for the whole case to be transferred to the UT.
- On 26 April 2011, the President of the tribunal informed the parties that he and the President of the UT were willing to agree to the transfer provided that the UT was not required to determine issues of fact or quantum.
- It appears from the correspondence that the parties sought to address the concern on the fact finding by agreeing a statement of facts which they proposed to provide to the UT. However, in a letter of 9 September 2011 from BT to the UT, BT noted that the parties had confirmed in June 2011 that it was not possible to confirm definitively that all conceivable questions of fact would be agreed in advance between the parties and that some issues of fact may yet require some determination by the UT (or perhaps remission back to the tribunal).
- When the parties failed to reach agreement on a statement of facts, it was decided to seek the transfer of preliminary issues to the UT only. On 30 September 2011 the UT confirmed that the Presidents of the tribunal and the UT were willing to agree to the transfer of a preliminary issue under rule 28 to be heard immediately following the appeal of GMAC provided the parties produced an agreed preliminary issue which was acceptable to the President of the UT. It was also stated that the transfer would not be made if the UT were to be expected to find the facts.
- The correspondence between the parties shows that a number of changes were made to the initial drafts of the BT issues, in particular:in the initial draft prepared by BT, what became BT issue 3 was worded differently to ask whether s 121 was applicable which would make BT's claim in time; andin earlier versions, in what became BT issue 2, there was additional wording at the end which said in circumstances where the relevant national provisions implementing [article 11(C)(1)] in relation to supplies made before July 1990 were repealed after due notice had been given to taxable persons and their legitimate expectations were respected?.As explained in Parts D and E, BT argued that the fact that these references were not included in the final version of the BT issues means that the question of whether the BT claims were made in time under s 121 and issues relating to due notice and legitimate expectations were not included in the scope of the BT issues transferred to the UT for determination.
- On these points BT's counsel, Ms Lyndsey Frawley, set out in an email to HMRC of 23 January 2012 that the main concern was that BT did not accept that BT had any legitimate expectation as regards bad debt relief under the Old Scheme and so could not accept wording that, in its view, suggested there was such an expectation and:It is, of course, a matter for [HMRC] how they then put their submission and whether or not they wish to raise legitimate expectation. It is, however, our view that the inclusion of such a term in the question itself, as if it were an agreed fact, is not appropriate.There are a number of other formulations that we can agree and we would, again, invite [HMRC] to provide a timeline regarding the notices etc. that they say are pertinent. Perhaps the timeline...
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