Emblaze Mobility Solutions Ltd v R & C Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 27 April 2012 |
| Date | 27 April 2012 |
| Court | Chancery Division |
Chancery Division.
Peter Leaver QC (sitting as a deputy High Court judge).
David Chivers QC and Michael Patchett-Joyce (instructed by the Khan Partnership) for the claimant.
Philip Moser QC (instructed by the Solicitor for HM Revenue & Customs) for the defendants.
The following cases were referred to in the judgment:
Administration des douanes v SA Gondrand FrèresECAS (Case 169/80) [1981] ECR 1931
Autoweld Systems Ltd v Kito Enterprises LtdUNK [2010] EWCA Civ 1469
Burton (HMIT) v Mellham LtdTAX [2006] BTC 308
DH Curtis (Builders) Ltd, ReELR [1978] 1 Ch 162
Geldof Metaalconstructie NV v Simon Calves LtdUNK [2010] EWCA Civ 667
Nader v C & E CommrsVAT [1993] BVC 267
Oxfam v R & C CommrsUNKVAT [2009] EWHC 3078 (Ch); [2010] BVC 108
R v Secretary of State for Education and Employment, ex parte BegbieWLR [2000] 1 WLR 1115
Rowland v Environment AgencyELR [2003] Ch 581
Uszodaépíto kft v APEH Központi Hivatal Hatósági FoosztályECAS (Case C-392/09) [2010] ECR I-8791
Value added tax - Input tax - Set-off - Interest - Missing trader intra-Community (MTIC) fraud - Knowing participation - Mobile phones - First-tier Tribunal allowing taxpayer's appeal against denial of input tax - HMRC seeking to set-off other tax liabilities - Whether HMRC entitled to exercise statutory, equitable or other set-off - Whether taxpayer entitled to rely on legitimate expectation - Whether taxpayer entitled to interest on sum due from HMRC - Judgment in favour of taxpayer on set-off and in favour of HMRC on interest.
This was a trial of issues concerning the right of HM Revenue and Customs to set-off against a liability owed by HMRC to a taxpayer a liability owed by the taxpayer to HMRC, and, secondly, whether interest was payable on the sum found due and payable by HMRC in the decision of the First-tier Tribunal (see [2010] UKFTT 410 (TC); [2011] TC 00680).
Prior to the appointment of an administrative receiver by a debenture holder, Global Telecoms Distribution plc (Global) carried on business as a wholesale distributor of mobile telephones. The administrative receiver assigned to the claimant (Emblaze) the benefit of an appeal against the disallowance of VAT input tax claimed by Global in respect of the VAT accounting period up to 31 March 2006 in the sum of £8,790,868.75. For that same period Global's VAT output tax liability was £345,218.31. The net sum disallowed was, therefore, £8,445,650.44. Emblaze was substituted as the appellant in place of Global. The FTT decided that HMRC should credit to Emblaze VAT input tax in the disallowed sum of £8,790,868.75. HMRC did not appeal the decision but informed Emblaze that they intended to set-off against the sum to which Emblaze was entitled pursuant to the FTT's decision sums that they contended were owed to them by Global in respect of various historic taxes, including corporation tax and PAYE contributions. HMRC's position was that after exercising the set-off the sum owed to Emblaze was £474,156.83. Emblaze commenced proceedings challenging HMRC's right to set-off and two issues were ordered to be tried (i) whether HMRC could exercise a set-off between Global's direct and indirect tax credits and/or debits; (ii) whether, Emblaze was entitled to interest on the sum found to be due to it.
The assignment to Emblaze was before the coming into force of the Finance Act 2008, s. 130 and s. 133 which provided for a statutory right of set-off where there was both a sum payable by HMRC to a person and a sum payable by a person to HMRC, and where the right to be paid a sum had been transferred.
Held, allowing the appeals:
1.HMRC did not have, at the relevant time, a statutory right to set-off credits and debits between different taxes, although it did have the power in respect of VAT to set-off credits and debits pursuant to s. 81 of VATA. Section 81(3) appeared to be mandatory in requiring sums owed by the taxpayer to HMRC to be set against sums due from HMRC to the taxpayer. If the position was that the Inland Revenue had no power to set-off sums owed to it, for example, in respect of corporation tax against sums owed by it in respect of some other tax, notwithstanding that the moneys were all under the care and management of the Commissioners of the Inland Revenue, it seemed unlikely that there was any power to set-off sums as between the Inland Revenue and Customs & Excise. There was at the relevant time no general statutory right to set-off sums owed to HMRC against sums owed by HMRC to the taxpayer. The position was a fortiori in the case of an assignee such as Emblaze.
2.The test for equitable set-off was whether the cross-claim by HMRC was so closely connected with the taxpayer's demands that it would be manifestly unjust to allow the taxpayer to enforce payment without taking into account HMRC's cross-claim. That test was not easy to apply when, as in the present case, the claimant was an assignee and the real cross-claim was in respect of the assignor's right to payment which had been assigned to the claimant. The liability of Global to pay VAT and corporation tax were both statutory liabilities. HMRC's liability to repay Global's input tax was likewise a statutory liability. Global's liabilities arose under two different statutes. In the circumstances, it was difficult to conclude that the liability to pay VAT and the right to receive repayment in respect of corporation tax were so closely connected as to bring into existence a right corresponding to the equitable right of set-off in closely connected contracts. Furthermore, it was not manifestly unjust to deny the right of equitable set-off in such circumstances. Accordingly, as HMRC had no right of set-off against Global, there could not be a right of set-off against the claimant as assignee. That conclusion became a fortiori when Parliament had, since the date of the assignment, specifically enacted provisions for set-off both as between the taxpayer and HMRC and between assignees and HMRC. Although it might be convenient to set-off sums owed by way of corporation tax and PAYE against repayments due in respect of VAT, that was an accounting practice, which was a matter of convenience but not a matter of right. (Geldof Metaalconstructie NV v Simon Calves Ltd [2010] EWCA Civ 667 applied and Burton (HMIT) v Mellham Ltd [2006] BTC 336 distinguished.)
3.The taxpayer did not have a legitimate expectation that HMRC would continue to apply the practice, which they had applied prior to the date upon which the taxpayer took the assignment, of only setting off sums owed by the taxpayer against sums owed by them to the taxpayer, if the taxpayer consented. Consultation documents issued in 2007 and 2008, in which statements of policy were made, were documents in which HMRC stated how they currently exercised their powers in the context of seeking a new statutory framework. This was not a case in which HMRC made it known how they intended to exercise their powers. However, those statements did support the conclusion that there was no statutory power of set-off and no equitable right of set-off. The consultation documents spoke of the practice which would be reversed if objection were made. If there had been a statutory power of set-off or an equitable right of set-off, statements to that effect would have been made in the consultation documents.
4.The taxpayer was not entitled to interest on the sum due to it from the date of the decision until the date of repayment. The sum was found due to the taxpayer by a decision of the First-tier Tribunal, which was not a judgment to which the Judgments Act 1838 applied. The Tribunals, Courts and Enforcement Act 2007 provided that a sum payable pursuant to a tribunal decision should be recoverable as if it were payable under a court order. However, simply because a sum was recoverable as if it were payable under the order of the court did not make it a judgment: it merely stipulated the manner in which the order could be recovered or enforced. If Parliament had wanted tribunal decisions or all orders to be judgments, it would have said so and the TCEA 2007 would have provided the obvious occasion for it to do so. By VATA 1994, s. 85A, Parliament had legislated for precisely the situation in which the taxpayer now found itself. The taxpayer had received a repayment supplement and was not entitled to any sum by way of interest. It was open to Parliament to decide how fiscal neutrality should be achieved, and the provision for the making of a repayment supplement was the manner in which Parliament had decided such neutrality would be achieved.
Peter Leaver QC: Introduction
[1]The issues to be decided in these proceedings concern, first, the right of the defendants, the Commissioners for Her Majesty's Revenue and Customs ("HMRC" or "the Commissioners"), to set-off against a liability owed by HMRC to a taxpayer a liability owed by the taxpayer to HMRC, and, secondly, whether interest is payable on the sum found due and payable by HMRC by the First-tier Tribunal (Tax Chamber) ("FTT") in its Decision dated 25 August 2010 ([2010] UKFTT 410 (TC); [2011] TC 00680.
[2]The first issue was ordered to be tried by Stadlen J on 13 July 2011, and the second issue was ordered to be tried, also by Stadlen J, on 13 December 2011.
[3]The facts can be shortly stated. Prior to the appointment of the Administrative Receiver on 30 May 2007, Global Telecoms Distribution plc ("Global") carried on business as a wholesale distributor of mobile telephones. The Administrative Receiver was appointed by HSBC Plc pursuant to the terms of a debenture dated 1 May 2002.
[4]Global was registered with HMRC for the purposes of VAT. Prior to the commencement of the Commissioners for Revenue and Customs Act 2005 on 18 April 2005, Global would have been registered with HM Customs and Excise for those purposes.
[5]On 17 January 2008 the Administrative Receiver...
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Emblaze Mobility Solutions Ltd
...challenged HMRC's right to set-off and the following two issues were considered and on 27 April 2012 settled in favour of Emblaze ([2012] BVC 174): (2) whether HMRC could exercise a set-off between Global's direct and indirect tax credits and/or (3) whether Emblaze was entitled to interest ......