Commissioners of Customs and Excise v Eastwood Care Homes (Ilkeston) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 November 2001 |
| Date | 08 November 2001 |
| Court | Value Added Tax Tribunal |
Chancery Division.
Lloyd J.
Philip Sales (instructed by the Solicitor of Customs & Excise) for Customs.
The taxpayers did not appear and were not represented.
The following case was referred to in the judgment:
Francovich v Italy (Joined Cases C-6/90 and C-9/90) [1991] ECR I-5357
Value added tax - Registration - Group - Voluntary registration - Companies applying to register for VAT retrospectively - Group registration - Whether group members entitled to separate registration for periods prior to group registration - Value Added Tax Act 1994, Sch. 1, para. 9- Council Directive 77/388, art. 24(6).
This was an appeal by Customs against a decision of a tribunal (No. 16,231; [2000] BVC 2082) that the taxpayers were entitled to be registered separately for VAT at a time when they were already part of a group registration.
Each of the taxpayers ran a residential care home. All were subsidiaries of the same parent company. Because of the nature of the business of the subsidiaries, almost all of their supplies of goods or services were exempt under the VAT legislation. Until 1995, the parent company was registered for VAT, but none of the subsidiaries was. Therefore they could not recover any of the input tax which they bore on taxable supplies to them. In 1995 the taxpayers applied for voluntary registration as a group with the parent company as the representative member. Registration was granted from August 1995.
In 1996, the taxpayers applied to be registered separately for VAT retrospectively with effect from April 1992. At the time their new accountants were unaware of the group registration. The applications were granted but Customs discovered the earlier group registration and cancelled the separate registrations. The taxpayers appealed against the cancellation contending that the separate registrations should apply retrospectively to the period prior to the start of group registration. That would be fair as other similar businesses had been allowed to register retrospectively to take advantage of a relaxation in the de minimis limit for recovery of input tax attributable to exempt supplies. The VAT tribunal allowed the appeals on the basis that the purported cancellation or refusal of separate registration was unlawful and invalid on the basis that eu-directive 77/388 article 24 subsec-or-para 6art. 24(6) of Council Directive 77/388 had an overriding effect and conferred on each taxpayer a right, notwithstanding the limitations of the national legislation, to exercise the right to opt for the normal tax scheme to apply to them for the period from April 1992 to July 1995. Customs appealed to the High Court.
Held, allowing Customs' appeal:
1. Value Added Tax Act 1994 schedule 1 subsec-or-para 9Paragraph 9 of Sch. 1 to the Value Added Tax Act 1994 provided for voluntary VAT registration if a taxpayer could satisfy Customs that he made taxable supplies or was carrying on a business and intended to make taxable supplies in the course or furtherance of that business. Customs had a discretion as to retrospective registration. Though they usually allowed it, they could not be compelled to do so. In terms of the 1994 Act, the taxpayers could not contend that a refusal to allow retrospective registration was unlawful.
2. eu-directive 77/388 article 24Article 24of the sixth directive was concerned to provide for and prescribe the freedom of member states to make special schemes, differing from the normal VAT regime, in the case of small undertakings. Under para. (6), a small undertaking which was eligible might choose between a para. (1) scheme or exempt status under para. (2), or the normal VAT legislation, in the latter case gaining the advantage of being able to claim credit for input tax. Such freedom of choice as between exempt and registered status, was allowed by the 1994 Act in Value Added Tax Act 1994 schedule 1 subsec-or-para 9Sch. 1, para. 9.
3. The taxpayers had to demonstrate that Value Added Tax Act 1994 schedule 1 subsec-or-para 9para. 9 did not go far enough to satisfy the directive in two respects: (a) the imposition of pre-conditions which they could not satisfy while they were within the scope of a group registration; and (b) the feature that registration as of right (if it applied at all) was limited to prospective registration, leaving any retrospective operation as a matter of discretion for Customs.
4. There was no divergence between the policy of Value Added Tax Act 1994 schedule 1 subsec-or-para 9Sch, 1, para. 9 andeu-directive 77/388 article 24 subsec-or-para 6art. 24(6). The article required that relevant persons be free to choose between exempt status and normal registered status by applying for group registration. The taxpayers made that choice, and opted for the application of the normal regime. As regards eu-directive 77/388 article 24 subsec-or-para 6art. 24(6), there was nothing to suggest that what was required was anything other than a prospective effect of the choice to be made.
5. The tribunal was wrong to assume that eu-directive 77/388 article 24 subsec-or-para 6art. 24(6) had direct effect so as to prescribe the choices which member states must allow. In order that a provision of a directive could be found to be of direct effect, it must be shown to be "unconditional and sufficiently precise" andeu-directive 77/388 article 24 subsec-or-para 6art. 24(6), in the present context, was not unconditional or sufficiently precise to have direct effect, given the existence of a real choice in the national legislation. It was clear that it was not intended, in this context, to have direct effect. Accordingly the requirements ofeu-directive 77/388 article 24 subsec-or-para 6art. 24(6) did not allow an application for voluntary registration in the present circumstances, and, even if they did, they did not compel the commissioners to grant retrospective registration, which was a matter of discretion, not of entitlement. (Francovich v Italy (Joined Cases C-6/90 and C-9/90) [1991] ECR I-5357 considered.)
Lloyd J:
1. This is an appeal by the Commissioners of Customs and Excise against a decision by the VAT and Duties Tribunal made on 25 August 1999 in favour of the five respondent companies ([2000] BVC 2082). The commissioners had cancelled the registration of the companies for VAT purposes, in circumstances which I will describe. The tribunal held that this cancellation was not justified, for reasons which they explained, finding that eu-directive 77/388 article 24 subsec-or-para 6art. 24(6) of the Council Directive 77/388 on VAT had overriding effect. Both parties were represented before the tribunal, but the respondents chose not to take part in the appeal, relying on the judgment of the tribunal. I am grateful for the submissions of Mr Sales for the commissioners who has put the matter succinctly but fully and fairly to me. I have come to the clear conclusion that the tribunal were wrong in deciding that the directive had overriding effect in the way they thought, and that the commissioners' appeal should be allowed, for the reasons which I set out in this judgment. Although only one party was represented, this judgment is one which may be cited, notwithstanding the Practice Direction (Citation of Authorities) WLR[2001] 1 WLR 1001, because, by reversing the tribunal's decision, it establishes a new principle.
2. Each of the respondents runs a residential care home. All are subsidiaries of a company called Eastwood Care Homes plc. Because of the nature of the business of the subsidiaries, almost all of their supplies of goods or services are exempt under the VAT legislation, but they do make some standard-rated supplies. The amount of the latter, however, is so small in each case that they are under the threshold of turnover at which registration for VAT is compulsory. Until 1995, the position as regards VAT registration was that the parent company was registered, but none of the subsidiaries was. That was entirely consistent with the legislation, because of the low level of non-exempt turnover by the subsidiaries. Their not being registered had the consequence that they could not recover any of the input tax which they bore on taxable supplies to them.
3. The respondents could have applied for voluntary registration at any time between 1992 and 1995, and the application would have been allowed. The effect of their being registered, given that most of their supplies were exempt, would have been as described by the tribunal in a passage with which Mr Sales took no exception, as follows:
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11. A person whose input tax is wholly attributable to exempt supplies made or to be made by him cannot take credit for that input tax. If he also makes taxable supplies, such part of his input tax as is attributable to his taxable supplies is allowable for credit. In addition there is a provision, commonly called the "de minimis provision" by virtue of which, if the input tax attributable to his exempt supplies (his exempt input tax) does not exceed a specified amount, all of his exempt input tax is treated as attributable to his taxable supplies and is thus allowable for credit. Until 1 April 1992 the amount was a sum which was less than (a) a specified sum per month on average or (b) both a different monthly average sum and a specified percentage of all of the person's input tax. With effect from 1 April 1992 (b) was in effect removed, so that in order to qualify for full credit it was only necessary that the monthly average of a person's exempt input tax should not exceed a specified amount. This allowed persons who made both taxable and exempt supplies to claim credit for substantially more of their exempt input tax than previously. This provision was replaced with effect from various dates in 1995 (depending on the date of the beginning of a person's tax year) by a new version...
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