Commissioners of Customs and Excise v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judgment Date | 10 July 2000 |
| Docket Number | CO/2030/99 |
| Date | 10 July 2000 |
| Court | Chancery Division |
Chancery Division.
Ferris J.
Nigel Pleming QC (instructed by the Solicitor for Customs and Excise) for the Crown.
David Milne QC, Greg Sinfield, solicitor advocate, and James Henderson (instructed by Lovells) for Barclays Bank plc.
The following case was referred to in the judgment:
British Airways Board & Airways Pension Fund Trustees LtdNo. 846
Value added tax - Group of companies - Company ceased to be eligible for membership on disposal of its shares to a third party - Whether membership ceased automatically on termination of eligibility or whether Customs might specify a later date for termination of membership - Value Added Tax Act 1994,Value Added Tax Act 1994 section 43 subsec-or-para (5) section 43 subsec-or-para (6)s. 43(5)(b) and (6) - Sixth Council directive (Directive 77/388) of 17 May 1977 (OJ 1977 L145/1), art. 4(4).
This was an appeal by Customs against a decision of the VAT and duties tribunal that a company's membership of a group for VAT purposes came to an end when the company ceased to be eligible for membership (No. 16,008; [1999] BVC 2221).
On 27 February, the two issued shares in a member of the Barclays group ("TDL") were transferred to a charity. As a result TDL was no longer controlled by Barclays and ceased to be eligible for membership of the group. On 28 February, Barclays wrote to Customs informing them of the position and applying for separate registration for TDL. Customs treated the letter as an application under Value Added Tax Act 1994s. 43(5)(b) of the Value Added Tax Act 1994 to remove TDL from the group. Customs replied informing Barclays that TDL would be removed from the group with effect from 1 July 1995, pursuant toValue Added Tax Act 1994s. 43(7), consequent on an application made by the letter not less than 90 days before the date of termination taking effect.
Customs contended that there were only two possible means by which membership of a group could be brought to an end: either by an application under Value Added Tax Act 1994s. 43(5)(b)or by a notice given by Customs under Value Added Tax Act 1994s. 43(6) if it appeared to them that a company had ceased to be eligible to be treated as a member. If Barclays' argument were to be accepted, s. 43(6) would be unnecessary because membership would have ceased on the company becoming ineligible and there would be no need for a notice.
Held, dismissing Customs' appeal:
A company ceased to be a member of a group when it became ineligible for membership although the result was that the effect of Value Added Tax Act 1994s. 43(6) would be limited. Otherwise it would be possible for the company to remain entitled to group treatment, which it might find highly advantageous, merely by refraining from making an application under Value Added Tax Act 1994s. 43(5)(b).Moreover, to permit a company to remain a member of a group after it had become ineligible for membership would be contrary to art. 4(4) of the sixth Council directive.
Ferris J: 1. This is an appeal by Customs from a decision of Mr Stephen Oliver QC given in his capacity as chairman of a VAT tribunal sitting in London. The decision was released on 29 April 1999. Shortly stated the issue raised by the appeal is whether a company which has been treated as a member of a VAT group automatically ceases to be a member of that group when the conditions of eligibility for membership of the group cease to be satisfied in relation to it or whether membership ceases only when certain formalities required by the relevant legislation have been carried out. The tribunal decided that the former is the case. The commissioners contend for the latter proposition.
2. Whether membership of a VAT group will result in a greater or lesser liability for VAT depends on the circumstances of the case. The group which is relevant in this case is that of which Barclays Bank plc ("Barclays") is the principal member. The company whose membership is in question is named Thamesbank Developments Ltd ("TDL"). On the facts Barclays' liability for VAT will be very substantially reduced if TDL is to be treated as ceasing to be a member of the group immediately it ceased to be eligible for membership.
3. Prior to 24 February 1995 TDL was a wholly-owned subsidiary of Barclays and was a member of the Barclays VAT group. The correctness of this treatment is not in question. On 24 February 1995 TDL entered into a contract with Barclays for the fitting out of new premises at Canary Wharf in east London which were intended to be occupied by BZW, a division of Barclays. On entering into the contract Barclays paid TDL £149.6m on 27 February 1999, the only two issued shares in TDL were, by the direction of Barclays, transferred to a charity named the Felix Trust. As a result TDL ceased to be a subsidiary of Barclays and, it is said by Barclays, automatically ceased to be a member of the Barclays VAT group. The commissioners do not dispute that TDL ceased to be a subsidiary of the group on 27 February 1999 or in the language of the relevant legislation ceased then to be controlled by Barclays. They contend, however that TDL did not cease to be a member of the group until an application for the cesser of its membership had been made and had been accepted by the commissioners. This, it is said resulted in TDL remaining a member of the group until the 1 July 1995. The issue is a critical one so far as liability for VAT on the £149.6m is concerned because as the result of an amendment made to the relevant legislation by s. 25 of the Finance Act 1995 the consequences contended for by Barclays would not follow if TDL was still a member of the Barclays group on 1 March 1995...
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Commissioners of Customs and Excise v Barclays Bank Plc
...greater than if it were not. Both the VAT and Duties Tribunal (Mr Stephen Oliver QC) and Ferris J, whose judgment is reported at [2000] STC 665, concluded that TDL had automatically ceased to be a member of the Barclays VAT group on the change of control occurring on 28th February 1995. Thi......