Emblaze Mobility Solutions Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 July 2014 |
| Neutral Citation | [2014] UKFTT 679 (TC) |
| Date | 14 July 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 0679 (TC)
Judge Greg Sinfield
Paul Lasok QC, instructed by the Khan Partnership LLP appeared for the Appellant
Philip Moser QC, Imran Afzal and Michael Firth, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax - Interest - Application for interest under Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 section 84 subsec-or-para 8s. 84(8) - Whether right to interest acquired before 1 April 2009 - Whether repeal of VATA 1994, Value Added Tax Act 1994 section 84 subsec-or-para 8s. 84(8) from 1 April 2009 removed right to interest - Effect of Interpretation Act 1978 ("INA 1978"), Interpretation Act 1978 section 16s. 16 - Whether right to interest under EU law - Whether interest calculated on simple or compound basis - Rate of interest - Application granted.
The First-tier Tribunal (FTT) decided that Emblaze was entitled to interest under s. 84(8) from 28 April 2006 to 21 July 2011 in respect of £6,911,434 and from 28 April 2006 to 9 May 2012 in respect of £1,533,217 at the Bank of England base rate plus 1.75%, but calculated on the simple basis.
Before the appointment of an administrative receiver, Global Telecoms Distribution plc (Global) was a wholesale distributor of mobile telephones. The administrative receiver assigned to Emblaze the benefit of an appeal against the disallowance of input tax claimed by Global in respect of accounting period to 31 March 2006 in the sum of £8,790,868. For that period, Global's output tax was £345,218. The net sum disallowed was, therefore, £8,445,650. Emblaze was substituted for Global as the appellant. The FTT decided that HMRC should credit to Emblaze the disallowed £8,790,868 ([2011] TC 00680).
HMRC did not appeal, but informed Emblaze that they intended to set against the sum to which Emblaze was entitled, pursuant to the FTT's decision, sums that they said were owed to them by Global in respect of various taxes, e.g. corporation tax and PAYE. HMRC argued that, after exercising the set-off, the sum owed to Emblaze was £474,156. Emblaze 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 debits;
(3) whether Emblaze was entitled to interest on the sum due to it.
The assignment to Emblaze preceded Finance Act 2008, Finance Act 2008 section 130 section 133ss. 130 and 133, which provided for a right of set-off where there was both (1) a sum payable by HMRC to a person and (2) a sum payable by a person to HMRC.
Following the High Court order, HMRC paid the balance of the input tax claim of £1,534,216 to Emblaze on 9 May 2012.
On 25 July 2012, Emblaze applied for an award of interest under s. 84(8) and, further or alternatively, under EU law at varying rates calculated on a compound basis in relation to a claim for repayment of input tax, to which the FTT had decided Emblaze was entitled ([2011] TC 00680). From 1 April 2009, s. 84(8) was repealed, but VATA 1994, Value Added Tax Act 1994 section 85As. 85A was inserted, subject to certain transitional and savings provisions. After s. 85A applied, the FTT lacked the power to determine the interest rate payable by HMRC on amounts found, on appeal, to be due to a person and there is no entitlement to interest where the person is due repayment supplement under VATA 1994, Value Added Tax Act 1994 section 79s. 79.
Interpretation Act 1978 (IA 1978), s. 16(1) provides that where an Act repeals an enactment, the repeal does not, unless the contrary intention appears, affect any right accrued under that enactment and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if the repealing Act had not been passed.
On 18 September 2012, HMRC objected to the application on the ground that it had been subject to an inexcusable delay. On 19 October 2012, the FTT held that Emblaze could apply.
The FTT rejected HMRC's argument that a person's entitlement to interest arises only after there is a Tribunal determination, even though the interest runs from an earlier date (para. 31 of the decision).
The provisions that repealed s. 84(8) do not provide explicitly for the continued application of s. 84(8) as regards current proceedings, but it need not do so because IA 1978, s. 16(1) does the job (para. 40 of the decision).
The FTT held that the removal of Emblaze's right to interest under s. 84(8) retrospectively would contravene EU law. Thus, s. 84(8) continued to apply to Emblaze's appeal and the amount which the FTT found was due to Emblaze was payable to Emblaze, with interest at such rate as the FTT may determine (para. 41 of the decision).
Following Littlewoods Retail Ltd v R & C CommrsECAS (Case C-591/10) [2012] BVC 498, it is clear that there is an EU law right to interest on tax that is unlawfully levied and repayments of tax that are wrongly withheld by member states (para. 45 of the decision).
Without EU legislation, each member state decides (1) how interest on unlawfully levied tax should be paid, (2) the rate of interest and (3) the method of calculation (para. 48 of the decision).
The FTT held that s. 79 repayment supplement deprived Emblaze of an adequate indemnity for the loss of the use of the unpaid tax over several years (para. 56 of the decision).
The FTT held that the need to avoid a construction that results in a breach of EU law by the UK supports the interpretation of repealing provisions that they did not displace the operation of IA 1978, s. 16(1), which preserved Emblaze's right to interest under s. 84(8) after 31 March 2009 (para. 61 of the decision).
The FTT held that, if s. 16(1) and the repealing provisions cannot be construed so as to preserve Emblaze's right to interest under s. 84(8), the FTT lacks power to award interest to Emblaze, even though it has a right to interest under EU law (para. 67 of the decision).
The FTT held that interest is payable from 28 April 2006 to 21 July 2011 in respect of £6,911,434 and from 28 April 2006 to 9 May 2012 in respect of £1,533,217 (para. 77 of the decision).
The FTT held that in the context of s. 84(8) and this case, EU law does not require interest to be compounded (para. 85 of the decision).
Both parties accepted that, if s. 84(8) applies, the FTT has a broad discretion to determine the appropriate rate of interest to be awarded under that section (para. 86 of the decision).
Both parties agreed that the conventional rate of base rate plus one per cent was the starting point (para. 88 of the decision).
The FTT held that interest at the Bank of England base rate plus 1.75 per cent, calculated on a simple basis, for the periods from 28 April 2006 to 21 July 2011 in respect of £6,911,434 and from 28 April 2006 to 9 May 2012 in respect of £1,533,217 is an appropriate rate of interest (para. 102 of the decision).
This case illustrates that HMRC are firm when a dispute concerns Missing Trader Intra-Community (MTIC) fraud. The amounts at stake are so large that the Chancellor of the Exchequer is probably watching.
[1]By a Notice of Application dated 25 July 2012, the Appellant ("Emblaze") applied for an award of interest under Value Added Tax Act 1994 section 84 subsec-or-para 8section 84(8) Value Added Tax Act 1994 ("VATA") in relation to a claim for repayment of input tax which the Respondents ("HMRC") had refused to pay but to which the First-tier Tribunal ("FTT") later decided Emblaze was entitled. For the reasons set out below, I have decided that Emblaze is entitled to interest under Value Added Tax Act 1994 section 84 subsec-or-para 8section 84(8) from 28 April 2006 until 21 July 2011 in respect of £6,911,434 and from 28 April 2006 until 9 May 2012 in respect of £1,533,217 at the Bank of England base rate plus 1.75% calculated on the simple basis.
[2]On 13 April 2006, Global Telecoms Distributions plc ("Global") submitted a VAT return for VAT accounting period 03/06 in which it claimed a repayment of £8,444,651. The repayment was the amount by which input tax of £10,075,164 incurred by Global on purchases of mobile phones during period 03/06 exceeded output tax due on sales during the same period. On 29 November 2006, HMRC refused the repayment claim on the ground that Global, through its then managing director, John Drinkwater, knew or should have known that its transactions were connected with the fraudulent evasion of VAT. Global filed a notice of appeal with the VAT and Duties Tribunal on 20 December 2006.
[3]On 30 May 2007, Global was placed into administrative receivership. On 16 January 2008, Global, acting by its receivers, assigned all its rights, interest and title in the appeal to Emblaze, which was a 51% shareholder in Global and also an unsecured creditor. The assignment was subject to charges in favour of two banks and an agreement that, after payment of certain sums, any proceeds of the claim would be shared between Emblaze and the receivers.
[4]On 29 February 2008, the VAT and Duties Tribunal directed that Emblaze should be substituted for Global as the appellant in the proceedings. The appeal was heard by the FTT,...
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