BUPA Purchasing Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice May,Lord Justice Auld |
| Judgment Date | 12 June 2007 |
| Neutral Citation | [2007] EWCA Civ 542 |
| Docket Number | Case No: C3/2005/2696 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 June 2007 |
[2007] EWCA Civ 542
Lord Justice Auld
Lord Justice May and
Lady Justice Arden
Case No: C3/2005/2696
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE HIGH COURT OF JUSTICE (CHANCERY DIVISION)
Park J
Royal Courts of Justice
Strand, London, WC2A 2LL
Nigel Pleming QC & Miss Philippa Whipple (instructed by the Solicitor for HM Revenue and Customs) for the Appellants
Roderick Cordara QC (instructed by Ernst & Young) for the Respondents
Hearing dates : 12/13 March 2007
This appeal raises technical but important questions about assessments for value added tax (“VAT”).
The appellants, the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”), have an undoubted power under s 73(1) of the Value Added Tax Act 1994 (“ VATA”) to make an assessment on a person of the amount due from him by way of VAT. This power is exercisable in specified circumstances, such as where a person has failed to make a return or the Commissioners consider that a return that has been filed is incorrect. This power must be exercised within time limits laid down by statute. The Commissioners cannot increase this amount assessed as due though the VAT tribunal may do so under s 84(5) of VATA. The Commissioners can, however, issue further assessments provided that they do so within those time limits. They can also reduce or withdraw an assessment at any time.
The questions which the judge had to decide were these: where the Commissioners have made an assessment under s 73(1) of VATA but after the expiry of the time limits for making any further assessment it becomes clear to them that (for example) further input tax is deductible, can the Commissioners resist any reduction of the amount stated in the assessment to be due by way of VAT to the extent that there is any output tax due from the same taxpayer which has not yet been taken into account and which arises out of the same transactions or series of transactions as those covered by the assessment? In addition, if the tax to be offset means that a further sum would have been due in respect of VAT in excess of the amount assessed, can the tribunal exercise its power to increase the amount specified in the assessment?
These questions arise because the Commissioners made assessments on the respondents to this appeal on the wrong view as to what input and output tax was due in respect of certain transactions. In their original assessments, the Commissioners thus took a different view from the taxpayers as to the correct treatment for VAT of certain sales and expenses. In due course, but after the time when they could issue a fresh assessment, developments in the law led them to take yet another view of these matters and they sought to notify yet further amendments to the amounts for input tax and output tax which had formed the basis of their original assessments. As a result, some of the assessments fell to be reduced and in other cases the position was that more VAT should have been assessed. The judge held that the Commissioners ought to have issued fresh assessments (which would have been out of time) and that it followed that the tribunal could not properly increase the amount of the assessments in those circumstances.
It is necessary to say a little more about the way in which these questions on this appeal arise, which I do in the next section of this judgment. I will then set out the necessary legislative provisions and then turn to the conclusions I have reached on the questions that I have identified above in the light of the submissions of the parties to this appeal. I then deal with a subsidiary issue which has been raised as to whether the Commissioners were entitled to make amendments to the input and output tax (or the tribunal to increase the amount of any assessment) even though the inputs and outputs did not in all cases relate to the same period. I conclude with some miscellaneous points.
Background
BUPA Purchasing Ltd (“BPL”), the first respondent, is a member of a group of companies that are leading national suppliers of private medical, health care and hospital services. Most of the supplies that it makes are exempt supplies, that is, supplies on which VAT is not charged. As a result, most of the input tax that the group has to pay when it buys goods or services is not recoverable. (I need not refer to the other members of the group because it is common ground that the result as respects BPL will govern the position of the other respondents.)
In the early 1990s, the group entered into a scheme (known as “the group exit scheme”), which was designed to enable the respondents to recover the input tax attributable to large purchases of supplies from outside suppliers. The judge ( [2006] STC 388) described the group exit scheme as follows:
“[11] The stages of the scheme were as follows:
i) At the outset BPL was an indirect 100% subsidiary of BUPA. Further it was a member of the VAT group of which BUPA was the registered member. (See my previous judgment for statutory references, and for fuller details of the scheme).
ii) On 1 October 1992 BUPA and BPL entered into an agreement whereby BPL agreed that it would supply goods and services to BUPA over a spread of future years. BUPA made a large prepayment (£30m) to BPL, to be applied from time to time to the cost of those goods and services as they came to be supplied.
iii) A few days later BPL, while continuing to be an indirect 100% subsidiary of BUPA, was removed from the VAT group registration. It therefore became a taxable person it its own right, and acquired its own VAT registration. In future VAT accounting periods it was liable to make its own VAT returns.
iv) Thereafter from time to time BUPA requested BPL to supply specified goods or services to it pursuant to the agreement at (ii) above. When that happened BPL bought in the goods or services from outside suppliers and supplied them on to BUPA. Alternatively, BPL may have already bought in goods and services from outside suppliers in anticipation of being asked to supply them to BUPA.
v) Suppose that the outside supplier's charge for an item of goods or services bought was 100 plus VAT. The outside supplier invoiced BPL for 100 plus 17.5 for VAT. BPL paid 117.5 to the supplier.
vi) BPL supplied the item on to BUPA at an uplift calculated at 1% on the pre-VAT price. So, VAT apart, BPL supplied the item to BUPA for 101. However, 98% of that 101 (which is 98.98) was taken to have been satisfied out of the prepayment which BUPA had made to BPL at stage (ii). So the pre-VAT amount for which BPL invoiced BUPA was only 2% of the 101: that is 2.02.
vii) The group had been advised that BPL was liable to account to Customs & Excise for VAT on the 2.02, but not on the 98.98. So BPL invoiced BUPA for 2.02 plus 17.5% (VAT). The VAT was 0.3535, and the total of the invoice was 2.3735. (The 0.3535 was input tax suffered by BUPA, but because BUPA's recoverable proportion was low -assumed in my previous judgment and in [10] above to have been 7.5%-it would yield only a negligible recovery from Customs & Excise).
viii) The foregoing transactions were repeated over the years in relation to various individual supplies of goods and services (in BPL's case goods as well as services, not just as assumed in my previous judgment) until the original prepayment of £30m had been used up. The scheme had then run its course. That occurred by July 1996.
[12] The scheme was intended to have two vital effects, one related to input tax and the other related to output tax. First when BPL suffered input tax on buying in goods and services from an outside supplier, it should be entitled to recover the full amount of the input tax from Customs & Excise. In the example it should be entitled to recover the 17.5 which (together with the basic price of 100) it paid to the supplier at stage (v). That was the intended input tax effect. Second, when BPL supplied the goods or services onward to BUPA or BHL the output tax which it was liable to pay to Customs & Excise should be 17.5% of only the two percent of the total price which it invoiced to BUPA or BHL. It should not be liable to pay output tax on the 98% of the price which was satisfied out of the prepayment which had been made when it (BPL) was a member of the BUPA VAT group. In the example BPL should be liable to pay output tax on 2.2 (ie 0.385), and not on 101 (ie not on 17.675). That was the intended output tax effect. If the scheme had indeed achieved both of the intended effects it would have improved the group's VAT position significantly, to the disadvantage of Customs & Excise.”
Pursuant to the scheme, the respondents submitted sixteen monthly VAT returns for periods from April 1995 to July 1996. The Commissioners took the view that the returns were wrong. They sought to correct the position by making assessments under s 73(1) of VATA. The Commissioners erroneously made their assessments only on input tax grounds instead of partly on input and partly on output tax grounds. The assessments were first notified on 17 April 1997. The Commissioners then withdrew their assessments and replaced them with other assessments on 5 June 1997, which were then themselves amended by amended assessments dated 27 November 1997. The respondents appealed to the tribunal. In 2000, shortly before the tribunal was due to hear the appeal by the respondents and three years after the assessments were made, the Commissioners wrote to the respondents...
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