DCM (Optical Holdings) Ltd v Commissioners for HM Revenue and Customs
| Jurisdiction | Scotland |
| Judgment Date | 08 September 2020 |
| Neutral Citation | [2020] CSIH 60 |
| Date | 08 September 2020 |
| Docket Number | No 8 |
| Court | Court of Session (Inner House) |
[2020] CSIH 60
First Division
Upper Tribunal (Tax and Chancery Chamber) (5 December 2018)
Revenue — Value added tax — Whether assessments made out of time — Value Added Tax Act 1994 (cap 23), secs 73(1), (6), 77
Revenue — Value added tax — Whether Commissioners entitled to reduce claims for repayment of input tax and to amend returns accordingly — Value Added Tax Act 1994 (cap 23), sec 25(2), (3); sch 11, paras 1, 4 — Value Added Tax Regulations 1995 (SI 1995/2518), reg 35
Revenue — Value added tax — Whether Commissioners correctly allocated discounts on the taxpayer's charges between chargeable supplies and exempt supplies — Value Added Tax Act 1994 (cap 23), sec 19(4)
The Value Added Tax Act 1994 (cap 23) (‘VATA’), sec 19(4), provides, “Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.” Section 25 provides inter alia, “(2) Subject to the provisions of this section, [a taxpayer] is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him. (3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then … the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners”. Section 73 provides, inter alia, “(1) Where a person has failed to make any returns required under this Act … 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. … (6) An assessment under subsection (1), (2) or (3) … of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following– (a) 2 years after the end of the prescribed accounting period; or (b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge”. Section 77 provides, inter alia, “(1) Subject to the following provisions of this section, an assessment under section 73, 75 or 76, shall not be made– (a) more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned”. Schedule 11 provides, inter alia, “1. The Commissioners … shall be responsible for the collection and management of VAT. … 4.–(1) The Commissioners may, as a condition of allowing or repaying input tax to any person, require the production of such evidence relating to VAT as they may specify.”
The Value Added Tax Regulations 1995 (SI 1995/2518), reg 35, provides, “Where a taxable person has made an error– (a) in accounting for VAT, or (b) in any return made by him, then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require.”
A taxpayer submitted six appeals to the First-tier Tribunal (Tax Chamber) against assessments and decisions of the Commissioners for HM Revenue and Customs (‘the Commissioners’). The FTT dismissed all six appeals. In relation to appeal 1, the FTT held that assessments made by the Commissioners had not been made out of time (‘the time-bar issue’). In relation to appeals 2 to 6, the FTT held that the Commissioners had been entitled to reduce claims for repayment of input tax made by the taxpayer and to amend the relative VAT returns accordingly (‘the amendment issue’). In relation to appeals 2, 3, 5 and 6, the FTT accepted the Commissioners' allocation of discounts on the taxpayer's charges between chargeable and exempt supplies (‘the discounts issue’). The taxpayer appealed to the Upper Tribunal (Tax and Chancery Chamber).
The UT refused the appeal on the amendment issue and the discounts issue, but allowed the appeal on the time-bar issue. It held that the assessments were not time-barred in so far as they assessed the taxpayer to take account of overstated input tax, but that they were time-barred in so far as they assessed the taxpayer to take account of understated output tax. Both parties appealed to the Court of Session.
In relation to the time-bar issue, the Commissioners argued that: (1) an assessment was a unitary demand for tax which could involve a reassessment of both input tax and output tax and so, where the Commissioners became aware within a year of an assessment of material facts sufficient in their opinion to make an assessment to recover overstated input tax, it was also open to them to use the assessment to recover additional VAT where output tax had been understated for the same period; and (2) in any event, the UT had not been entitled to reach a different conclusion as to when, in the Commissioners' opinion, there were sufficient facts to justify making an assessment to recover additional output tax which ought to have been declared. The taxpayer defended the decision of the UT.
In relation to the amendment issue, the taxpayer argued that if the Commissioners sought to refuse to pay or to reduce a sum claimed they could only do so by exercising a statutory power. Neither sec 25(2) and (3) of, nor sch 11(1) and (4) to, VATA expressly empowered the Commissioners to amend VAT returns. It was not necessary to imply such a power because alternative statutory remedies were available to the Commissioners. Where a sum was due to the Commissioners as a consequence of an incorrect repayment claim, they could issue an assessment under sec 73(1) and (2) of VATA within certain time-limits. Where the error resulted in a reduced repayment being due to the taxpayer, the Commissioners could use their power under reg 35 of the 1995 Regulations to direct the taxpayer to correct the VAT return, again within certain time-limits.
The Commissioners argued that sec 25(2) and (3) of, and sch 11(1) and (4) to, VATA gave the Commissioners the power to verify a claim for repayment, that power would be pointless if, irrespective of the conclusion reached, the return required to be accepted, and so it was implicit that the Commissioners were empowered to reject any claim for repayment either in whole or in part.
In relation to the discounts issue, the taxpayer argued that the test to be applied in assessing which part of the consideration was properly attributable to the supply of goods or services under sec 19(4) of VATA was a subjective one. The FTT had erred by applying an objective test and so the UT ought to have remade the decision itself or remitted the case to the FTT to permit it to make further findings in light of the correct test.
The Commissioners argued that the UT had been right to hold that, on the evidence, the FTT was entitled to decide as it had and that the FTT's error in suggesting that the proper approach was objective rather than subjective had not been material to its decision.
Held that: (1) in relation to the time-bar issue, the FTT had been the fact-finder, and it had found that, in the year before the assessments were made, the Commissioners had obtained knowledge of material facts relating to understated output tax and overstated input tax and it had been entitled to make those findings on the evidence (paras 25, 26); (2) it had not been open to the UT to make findings which were at odds with the findings of the FTT and, in so doing, the UT had erred in law (para 28); (3) in relation to the amendment issue, it was implicit in sec 25(2) and (3) of, and sch 11(1) and (4) to, VATA that the Commissioners could accept or reject a claim for repayment of input tax in whole or in part, and the Commissioners had accordingly been entitled to reject the taxpayer's claims for repayment to the extent indicated in their decision and the taxpayer was not entitled to repayment of the parts of those claims which the Commissioners had rejected (para 44); (4) in relation to the discounts issue, although the FTT had erred in so far as it had suggested that some form of objective approach was appropriate, that error had not had a material bearing on the decision of the FTT; it had been open to the FTT to accept the Commissioners' approach to discounts and the UT did not err in law in refusing the appeal on that issue (paras 54–56); and the Commissioners' appeal on the time-bar issue allowed and the taxpayer's appeal on the amendment issue and discounts issue refused.
Opinion reserved on: (1) whether the time-limits in secs 73(6) and 77 of VATA ought to be applied separately to elements of the assessments attributable to recovery of (i) additional output tax and (ii) VAT due because of the overstatement of input tax (para 30); and (2) the proper construction and scope of reg 35 of the 1995 Regulations (para 45).
Benridge Care Homes Ltd v Revenue and Customs Commissioners [2012] UKUT 132 (TCC); [2012] STC 1920; [2012] BVC 1708; [2012] STI 2730
BUPA Purchasing Ltd v Customs and Excise Commissioners (No 2) [2007] EWCA Civ 542; [2008] STC 101; [2007] BTC 5635; [2007] BVC 603; The Times, 5 July 2007
Glasgow (University of (University Court of)) v Commissioners of Customs and Excise 2003 SC 355; 2003 SLT 472; [2003] STC 495; [2003] BTC 5445; [2003] BVC 501; [2003] STI 420
Infinity Distribution Ltd (in administration) v Revenue and Customs Commissioners [2010] EWHC 1393; [2010] STC 2258; [2010] BVC 880; [2010] STI 1721
Lex Service plc v Customs and Excise Commissioners [2003] UKHL 67; [2004] 1 WLR 1; [2004] 1 All ER 434; [2004] STC 73; [2004] RTR 18; [2003] BTC 5658; [2004] BVC 53; [2003] STI 2274; (2004) 101 (3) LSG 34; (2003) 147 SJLB 1430; The Times, 5 December 2003
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