DPAS Ltd (No. 2)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 February 2015 |
| Date | 09 February 2015 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Barbara Mosedale
John Walters QC and Conrad McDonnell, Counsel, appeared for the Appellant
A Bates, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure – Application for stay of appeal against decision refusing repayment pending appeal to Upper Tribunal of decision in principle.
The First-tier Tribunal (FTT) refused an application by HMRC for a stay of the appeal by DPAS, because such a stay would cause DPAS to be deprived of its money for longer than was proper.
DPAS Ltd (“DPAS”) considered that its supplies in administering a dental payment plan were exempt. However, HMRC decided that the supplies were standard-rated, although HMRC subsequently restricted their decision to supplies made on or after 1 January 2012. DPAS appealed. In the meantime, DPAS accounted for VAT on its supplies. On 22 November 2013, the FTT held that DPAS made exempt supplies to its dental patients (DPAS Ltd TAX[2013] TC 03058). Following that decision, DPAS claimed under Value Added Tax Act 1994 (“VATA 1994”), s. 80 to recover VAT paid on its supplies since 1 January 2012. Meanwhile, HMRC lodged an appeal with the Upper Tribunal (UT) against the FTT's decision, which the FTT referred to as the “DPAS no. 1” appeal. HMRC refused the s. 80 claim and DPAS appealed, which the FTT referred to as the “DPAS no. 2” appeal. On 26 August 2014, HMRC applied for a stay of proceedings until 60 days after the UT had issued its decision in the “DPAS no. 1” appeal. HMRC argued that, if they were forced to prepare “DPAS no. 2” for hearing, such work would be wasted if they succeeded in the UT.
DPAS accepted that quantum had not been in dispute in “DPAS no. 1”, so it was not entitled to a payment following the release of the FTT's decision in 2013. However, “DPAS no. 2” put the quantum in dispute, so the effect of “DPAS no. 2” determining the quantum would be that an amount would be determined as repayable to DPAS.
DPAS argued that a stay of “DPAS no. 2” would stop it receiving a repayment until (at the earliest) resolution of the appeal in “DPAS no. 1” in the UT. If the FTT thought a stay was appropriate, this would suggest that the stay should be continued until final resolution of any appeal to higher courts in “DPAS no. 1”, thus stopping it getting repayment (if it ultimately won) potentially for years (para. 10 of the decision).
The FTT agreed with DPAS that the matter is one of principle and that the proximity of the UT hearing does not justify a stay if one is not justified in principle (para. 12 of the decision).
The FTT held that the purpose of calling a preliminary hearing is to save costs, as resolution of the preliminary issue ought to have the possibility of resolving the dispute without a full hearing. It is normal to have a preliminary hearing to resolve issues of principle, leaving quantum to be decided later if necessary. If HMRC win the preliminary hearing, a quantum hearing becomes unnecessary. If the taxpayer wins the preliminary hearing, the quantum hearing needs to take place if the parties cannot settle the matter (para. 20 of the decision).
The FTT saw no reason in principle why it should not proceed with determining the quantum appeal while an appeal against the preliminary ruling was pending. The policy behind ordering the preliminary hearing was to save wasted costs. However, that was to save the wasted costs of determining quantum if HMRC won in principle. Once HMRC have lost in principle, that policy no longer applies (para. 21 of the decision).
The FTT held that there is a general policy in favour of effect being given to decisions at first instance, even where there is an appeal, which could reverse that decision. There is no reason why that policy should not apply where the manner in which the dispute with HMRC arose led to two separate appeals (one against a decision in principle and one against a decision refusing repayment) (para. 24 of the decision).
The FTT held that HMRC must justify the case for the stay, but they had not done so. They did not satisfy the FTT that the risk of costs being wasted justified depriving DPAS of its money, to which it had been found in principle to be entitled (para. 28 of the decision).
Thus, the FTT refused the application by HMRC for a stay of the appeal by DPAS.
HMRC did not apply for the stay on the grounds that they considered revenue to be at risk. Understandably, HMRC want to save costs if the final outcome is in their favour. However, if the final outcome is not in HMRC's favour, costs are not saved, and the taxpayer is deprived of his money for longer than is proper.
[1] DPAS Ltd (“DPAS”) considered that its supplies as dental payment plan administrator were exempt. HMRC issued it with a decision in April 2012 that its supplies were entirely standard rated, although HMRC subsequently restricted their decision to supplies on or after 1 January 2012. DPAS appealed. In the meantime DPAS accounted for VAT on its supplies.
[2] On 22 November 2013 this Tribunal issued the decision of Judge John Brooks in DPAS' appeal (DPAS Ltd TAX[2013] TC 03058) determining that DPAS did make exempt supplies to its dental patients. Immediately following that decision, DPAS submitted a claim under s 80 Value Added Tax Act (“VATA”) to HMRC to recover VAT paid on its supplies since 1 January 2012. HMRC, in the meanwhile, lodged an appeal with the Upper Tribunal against the Tribunal's decision, which I shall refer to as “DPAS no.1”. HMRC also refused the appellant's s 80 claim and the appellant lodged another appeal with this Tribunal. I shall refer to that appeal as the DPAS no.2 Appeal.
[3] Directions were issued in the DPAS no.2 appeal and in accordance with these the appellant has served its list of documents and witness evidence. HMRC has not served any witness evidence yet but instead applies for a stay of proceedings until 60 days after the Upper Tribunal issues its decision in the DPAS no.1 appeal.
[4] The Upper Tribunal is due to hear DPAS no.1 on 6–7 May 2015 which is in 13 weeks' time. HMRC's position is that if they are forced to prepare DPAS no.2 for hearing, the work would be wasted if they are successful in their appeal to the Upper Tribunal. They say only a short stay is requested and is justified by the potential saving in costs.
[5] Of course, any stay in reality will be for longer than 13 weeks. It will be for approximately 8 weeks after the Upper Tribunal's decision is released which is unlikely to be before late June or July 2015, so the requested stay in practice is likely to last until about September this year.
[6] But it seems to me that it is appropriate to bear in mind, when judging whether the stay should be granted, the day it was requested, which was 26 August 2014. I think this because otherwise the inevitable delay between the application and the hearing of it would mean that to an extent the matter goes by default. So in considering the matter, I need to bear in mind whether it would have been appropriate to stay the proceedings from August of last year until about September of this year.
[7] But, as I explain below, I think that principles, rather than timing, resolve the issue of whether a stay is appropriate.
[8] Both parties were agreed, it seemed to me, that the effect of DPAS no.2 proceeding to hearing would be that the Tribunal would determine the quantum of the appellant's claim. Both were agreed that DPAS no.1 had only determined the matter in principle. While the appellant maintained that the entirety of the sum retained by DPAS from...
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