Emblaze Mobility Solutions Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 November 2018 |
| Neutral Citation | [2018] UKUT 373 (TCC) |
| Date | 23 November 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0373 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
The Hon Mr Justice Marcus Smith
Leigh-Ann Mulcahy, QC, instructed by The Khan Partnership LLP, appeared for the appellant
Philip Moser, QC and Nicholas Macklam, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Interest – Application for interest under VATA 1994, s. 84(8) – Rate of interest – Deduction of repayment supplement.
The Upper Tribunal considered an appeal against a decision of the FTT regarding the interest due in a case of official error.
HMRC had failed to repay VAT claimed on a VAT return within the statutory time limits and the claimant thus became entitled to a repayment supplement and interest. The history of the case is complicated and the entitlement of the claimant to the refund was subject of a series of court decisions which are not relevant to this case.
The FTT ruled that HMRC should pay interest at the Bank of England base rate plus 1.75% and that the amount of the repayment supplement could be deducted from the interest before it was repaid.
The appellant appealed the FTT's decision on the ground that 1) the correct interest rate to apply was 2.55% above the base rate and 2) the repayment supplement should be paid in addition to interest.
On the first point, s. 84(8) confers “broad discretion on the FTT” with regard to the applicable rate of interest in cases of official error (para. 13). When considering whether the FTT has exercised its discretion correctly, the UT can only overrule the lower court if it has made an error in law. The UT considered that the arguments advanced by the appellant in this case amounted to “an attempt to re-argue what the FTT had decided”. As the appellant could not demonstrate a fact that the FTT had failed to consider or an error in law, the UT dismissed this part of the appeal.
On the second point, having reviewed the information before it, the UT could find “no reason” to deduct the repayment supplement from the interest due. The UT concluded that the FTT “acted unlawfully in deducting the repayment supplement from the interest that had been awarded simply because the rate of interest had been calculated at a higher than conventional rate” (para. 48). It therefore allowed this part of the appeal.
This case is a reminder that appeals to the Upper Tribunal must relate to a question of law. In cases where the First Tier Tribunal has exercised discretion, an appeal to the Upper Tribunal will only succeed if the appellant can demonstrate an error in law, e.g that the FTT misdirected itself or failed to put proper weight on factors presented to it. It is not enough that the appellant disagrees with the FTT's conclusion – as was the case with the first ground of appeal.
[1] On 13 April 2006, Global Telecoms Distribution Ltd (“Global”) submitted a VAT return for the VAT Accounting Period 03/06 (that is, for the quarter ending 31 March 2006) in which it claimed an input tax repayment of £8,444,651. The basis on which that claim was made, and the reasons for the Respondents' (“HMRC's”) refusal of that claim, are immaterial for the purposes of this appeal.
[2] On 20 December 2006, Global filed a notice of appeal against HMRC's decision refusing the repayment claim (the “Appeal”).
[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 the Appellant (“Emblaze”), which was a 51% shareholder in Global and an unsecured creditor of Global. On 29 February 2008, Emblaze was substituted for Global in the Appeal.
[4] The Appeal was allowed, with costs. For reasons that are again immaterial for present purposes, HMRC did not make the repayment to Emblaze. This resulted in proceedings before the High Court, which were concluded in part by a consent order dated 18 July 2011, under which HMRC agreed to pay Emblaze a total of £7,333,716.84 comprising:
- £6,911,433.66 in respect of the repayment claim; and
- £422,282.51 by way of repayment supplement under section 79 of the Value Added Tax Act 1994 (VATA).
[5] It is helpful to set out here the relevant parts of section 79 VATA, which provides as follows:
(1) In any case where –
- a person is entitled to a VAT credit, or
- …
and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment … shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater.
(2) The said conditions are –
- that the requisite return or claim is received by the Commissioners no later than the last day on which it is required to be furnished or made; and
- that a written instruction directing the making of the payment … is not issued by the Commissioners within the relevant period, and
- that the amount shown on the return or claim as due by way of payment or refund does not exceed the payment … which was in fact due by more than 5 per cent of that payment … or £250, whichever is the greater.
(2A) The relevant period in relation to a return … is the period of 30 days beginning with the later of –
- the day after the last day of the prescribed accounting period to which the return … relates, and
- the date of the receipt by the Commissioners of the return …
[6] Following a hearing in the High Court in March 2012, HMRC were ordered to pay the balance of the input tax repayment claim (£1,534,216.78) to Emblaze. HMRC did so on 9 May 2012.
[7] HMRC refused to pay interest on the amounts (re)paid to Emblaze and, by a notice of application dated 25 July 2012, Emblaze applied to the First-tier Tribunal (Tax Chamber) (the “FTT”) for an award of interest under section 84(8) VATA.1 The FTT's decision (the “Decision”) is dated 14 July 2018. The FTT held that:
- Interest should be paid at a rate of Bank of England base rate plus 1.75%.
- Interest was to be calculated on a simple basis.
- Interest should be paid on the repayment of £6,911,434 from 28 April 2006 until 9 April 2012. Interest should be paid on the repayment of £1,533,217 from 28 April 2006 until 9 May 2012.
- On this basis, the total interest payable in monetary terms amounted to £2,052,268.58. From this amount, the repayment supplement of £422,282.51 was to be deducted, giving an award of £1,629,986.06.
[8] The Decision considered and reached determinations in relation to a number of matters. Most of them are not before this tribunal. This appeal is only concerned with two grounds of appeal. Both are advanced by Emblaze.2 HMRC does not seek to appeal the FTT's Decision in any respect but does (if the matter arises) seek to uphold the award of interest on other grounds. The two grounds of appeal that are before me are:
- Whether the FTT erred in concluding that the rate of interest under section 84(8) VATA should be Bank of England rate plus 1.75% rather than the rate contended for by Emblaze which was 2.55% above the Bank of England base rate (Ground 1).
- Whether the FTT erred in deducting the repayment supplement from the amount of interest awarded as described in paragraph 7(4) above (Ground 2).
[9] There was a third ground of appeal, namely that the FTT erred in concluding that interest should be calculated on a simple rather than a compound basis, having regard to Emblaze's right under EU law to an “adequate indemnity”. The appeal from the Decision was stayed by consent to await the outcome in Littlewoods Ltd v R & C Commrs [2017] BVC 54, which considered this question.
[10] In Littlewoods, the Supreme Court decided that the right to an “adequate indemnity” did not require the award of compound interest. In consequence, this third ground of appeal was not pursued before me.
[11] This decision accordingly considers the two remaining grounds of appeal.
[12] Section 84(8) VATA provides:
(8) Where on an appeal it is found –
- …
- (b) that the whole or part of any VAT credit due to the appellant has not been paid,
so much of that amount as is found not to be due to or not to have been paid shall be repaid (or, as the case may be, paid) with interest at such rate as the tribunal may determine.
[13] It is readily apparent that section 84(8) confers a broad discretion on the FTT. HMRC emphasised that this tribunal ought to be slow to interfere with the FTT's exercise of discretion. HMRC cited two cases in support:
- In G v G [1985] 1 WLR 647 at 651–652, Lord Bridge cited with approval the following statement of Asquith LJ in Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343 at 345:We are here concerned with a judicial discretion, and it is of the essence of such discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.
- In AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Lord Woolf MR cited with approval the following statement of Stuart-Smith LJ in Roache v News Group Newspapers Ltd [1998] EMLR 161 at 172:Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the...
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