G B Fleet Hire Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 September 2021 |
| Neutral Citation | [2021] UKUT 225 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 225 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Phyllis Ramshaw, Judge Andrew Scott
Mr Kieron Beal QC and Mr Christopher McNall, counsel, instructed by Silver Law LLP appeared for the appellant
Mr Howard Watkinson, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Procedure – First-tier Tribunal r. 8(3)(c) – Strike out, no reasonable prospect of success.
The UT held that the FTT made an error in law when it struck out an appeal.
G B Fleet Hire Ltd (“GBFH”) is engaged in a complex dispute with HMRC concerning its right to recover input tax, its right to be registered for VAT and whether certain car sales could be zero rated as exports.
In this case the UT heard an appeal against a decision of the FTT [2020] TC 07834 that GBHF's appeal against HMRC's decision that it could not zero rate certain supplies as exports be struck out. After this, the FTT [2021] TC 08110 considered whether GBHF's appeal against HMRC's refusal to register it for VAT should be struck out. Although in each case the FTT considered a different issue, there was overlap in the evidence presented.
GBHF's appeal had been subject to several case management hearings before the FTT. In FTT [2020] TC 07834 HMRC objected to GBHF's request to re-amend its statement of case in relation to the zero rating of exports. HMRC's request that the appeal be struck out was based upon a quote from a letter sent by GBHF's representatives in which it was stated that “For periods 09/16 to 03/17 inclusive, GB Fleet did not claim Zero Rating on its exports. For those periods (monthly accounting) our client claimed Input Tax on its exports … Our client has never claimed zero rated exports of cars” (para. 32).
The FTT granted HMRC's request that the appeal be struck out, primarily on the grounds that it accepted that GBHF had abandoned its case that the car sales were zero rated. GBHF maintained that it had not accepted that its exports were not zero-rated and, in essence, argued that the letter was poorly drafted.
The UT ruled that in coming to this conclusion the FTT had erred in law. The FTT had made an irrational decision based upon one piece of evidence, rather than considering all of the materials before it “as a whole” (para. 45). It agreed with the appellant that “The assertions regarding zero-rating in the letter do not make sense” (para. 46) and noted that this letter “was not the only relevant document [which the FTT should consider]” (para. 47).
The UT re-instated the underlying appeal to be heard by the FTT.
The UT concluded that when it struck out the appeal the FTT had placed too much weight on one poorly drafted letter.
[1] The appellant appeals to the Upper Tribunal (permission to appeal having been granted by the Upper Tribunal on 29 October 2020) against a decision of the First-tier Tribunal dated 16 September 2020 ([2020] TC 07843). The First-tier Tribunal's decision was made following the hearing of two applications at a case management hearing held on 20 August 2020. The First-tier Tribunal dismissed the appellant's application for permission to further amend its grounds of appeal and allowed the respondents' application for the appeal to be struck out. The First-tier Tribunal struck out the appellant's entire appeal, exercising its discretion in accordance with rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the First-tier Tribunal Rules”). The appellant has not appealed against that part of the First-tier Tribunal's decision to refuse permission to amend its grounds of appeal. This appeal is solely against the First-tier Tribunal's decision to strike out the appellant's appeal.
[2] The grounds of appeal, as set out in the grounds attached to the UT1 form, are:
- The First-tier Tribunal erred in its construction of the letter of 5 August 2020;
- The First-tier Tribunal acted in a procedurally unfair manner;
- The First-tier Tribunal deprived the appellant of access to the court and/or effective protection of its EU law rights.
[3] Permission to appeal was granted on the basis of those grounds.
[4] An oral hearing of the appeal was held before the Upper Tribunal on 27 May 2021. Both parties submitted written skeleton arguments and made oral submissions.
[5] The underlying tax dispute concerns supplies made prior to the UK leaving the European Union. We do not need to consider what the position is in terms of the application of EU law. The central issue we are concerned with is the construction of assertions in a letter of the appellant's representative of 5 August 2020 (“the letter”). In submissions made in that regard it is necessary to consider the parties' reference to various concepts in EU and domestic law. At paragraph 38 of the appellant's skeleton argument the following submissions were made:
That construction of the letter was either wrong; or the terms of the letter represent an obvious (and otherwise incomprehensible) error. The vehicles exported to the Far East and those removed to Ireland were properly subject to zero-rating, the conditions having been met for the supplies to be entitled to an exemption from VAT with recovery of input tax under article 138 (for intra-EU removals), article 146 (for exports) and article 169 (input tax recovery) of the PVD. No output tax was accordingly due on those transactions, but input tax could be claimed. That was the point which the letter of 5 August 2020 was, properly construed, seeking to make. The letter was also drawing a distinction between exemption with refund for exports or removals of goods and zero-rating of supplies of goods for social policy reasons, as established by Schedule 8 VATA 1994.
[6] Throughout the proceedings we note that both parties referred variously to a “claim” to zero-rating, entitlement to zero-rating, entitlement/claim to input tax. The concept of exempt transactions with a right to deduct appears to be more latterly referred to – e.g. in the appellant's proposed amended grounds of appeal. The underlying tax dispute is not the subject of this appeal. We do not need to consider the issues or the law but, as the central issue is the construction of the appellant's representative's assertions in its letter of 5 August 2020, we briefly refer to the legislative provisions from which those expressions and the subsequent submissions arise. We note that reference was made to supplies that are outside the scope with the right to deduct in the proposed amended grounds of appeal, however as Mr Beal asserts that the supplies were properly subject to zero-rating (section 30(6) and (8) Value Added Tax Act 1994 (“VATA”) and zero-rating has been referred to throughout the proceedings by the parties, we refer to the domestic legislative provisions that are relevant to zero-rating.
[7] The general principle (in both EU and UK law) is that the VAT charged on purchases and acquisitions that are used in the making of an exempt supply (on which VAT is not chargeable) is not deductible. There is a broad range of exempt transactions on which the associated input VAT is nevertheless deductible. The Principal VAT Directive (Council Directive 2006/112/EC) requires that certain supplies (which meet certain conditions) are exempt from VAT (including relevantly articles 138 and 146 which provide exemption for goods dispatched from one Member State to a taxable person in another Member State and exemption on export of goods respectively). The PVD provides that the VAT paid on supplies made to the taxable person in respect of certain exempt supplies (including supplies made pursuant to articles 138 and 146) is deductible (article 169). Article 110 of the PVD provides a standstill provision that permits Member States to continue to grant certain exemptions with a right to deduct. Supplies made pursuant to article 110 and supplies made pursuant to articles 138 and 146 are generally referred to in EU parlance as exemptions with deductibility or with the right to deduct. The distinction arises only in respect of the fact that article 110 is a derogation from the provisions of the PVD that would otherwise apply to those supplies. There is no distinction in the terminology used describing the supplies as exempt with a right to deduct. The UK has given effect to the relevant parts of articles 138, 146, 169(b) and 110 through the mechanism of zero-rating supplies. Zero-rating and input tax are UK concepts. VAT paid on supplies received and used for business purposes is defined as input tax (section 24 VATA). In UK law, insofar as is relevant to this case, input tax is allowable as an entitlement to credit if attributable to taxable supplies (section 26). Input tax is allowable on zero-rated supplies (section 30) through the mechanism of treating the zero-rated supplies as taxable supplies with a nil rate of VAT. Section 30(8) and regulation 134 (of the VAT Regulations 1995 (SI 1995/2518)) provides for certain removals of goods to be zero-rated, section 30(6) for exports and section 30(2) for supplies in Schedule 8 to be zero-rated. There is no distinction in the mechanism between supplies in 30(2) (those in Schedule 8) and any other zero-rated supply in section 30. The above summary is of course a simplification and should be considered as such. Although the domestic legislative provisions do not refer to a claim or entitlement to recover input tax it is generally accepted and referred to as claiming, reclaiming or entitlement to recovery of input tax and VAT returns and guidance also refer to claiming input tax.
[8] There is a lengthy history to the proceedings that were before the First-tier Tribunal. The appellant appealed to the First-tier Tribunal against decisions of the respondents dated September 2017 and November 2017. These decisions were made in...
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