Gala Leisure Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 July 2015 |
| Neutral Citation | [2015] UKFTT 516 (TC) |
| Date | 14 July 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge David Demack, Ms Gill Hunter (Member)
Mr Jonathan Peacock QC instructed by Messrs Ashursts, solicitors, London, appeared for the Appellant
Mr Peter Mantle of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax – Claims under Value Added Tax Act 1994 (“VATA 1994”), s. 80 – Sixth VAT Directive (77/388/EEC), art. 4(4)b; Principal VAT Directive (2006/112/EC), art. 11) – VATA 1994, s. 43 – Entitlement to claim repayment of overpaid VAT – Effect of companies leaving VAT groups on entitlement to claim – Whether representative member or generating member entitled to claim – Held representative member so entitled.
The First-tier Tribunal (FTT) heard an appeal by Gala Leisure Ltd (GLL) against a decision by HMRC to reject parts of its two claims for the repayment of VAT made under VATA 1994, s. 80. The central issue was the entitlement to claim and whether, where a company which generates an overpayment ceases to be a member of the VAT group existing at the time of the overpayment, it is the company or the group representative member which is the person entitled to claim. The FTT found that entitlement remained with the representative member and duly dismissed the appeal.
GLL made claims to recover overpaid output tax accounted for during the period 1 April 1973 to 30 September 1996. The claims related to supplies of mechanised cash bingo (MCB) and main stage bingo (MSB). The total tax involved in the appeal amounted to some £28m. The company, whose trading activities gave rise to the overdeclaration of output tax was the member of a VAT group during the relevant period and the output tax was accounted for to HMRC by the representative member of the group. The VAT group remained in existence, but the company generating the overdeclaration had since ceased to be a member. The issue for the tribunal was to determine whether it was the generating member or a company to which the generating member had assigned any right to claim under VATA 1994, s. 80 which was entitled to make a claim for the overdeclared output tax. Parts of the claims relating to MCB and MSB were accepted and paid by HMRC, but significant sums remained in dispute.
Following a three day hearing, the FTT adjourned the appeal and directed that the parties be allowed to make written submissions on three recent appeal decisions concerning a very similar point of law, these being Standard Chartered plc; Lloyds Banking Group plc TAX[2014] TC 03450 (Standard Chartered); MG Rover Group Ltd (in creditors' voluntary liquidation) TAX[2014] TC 03461 (Rover); and Taylor Clark Leisure plc v R & C Commrs VAT[2014] BVC 536, (Taylor Clark). Following the release of these decisions, the FTT directed that a further hearing would take place to determine how the present appeal should proceed. This was essentially a case management hearing in which both parties invited the FTT to produce its own decision based on the facts of the case and on written submissions made after the release of the three other decisions.
A difficulty for the FTT was that Judge Berner in Standard Chartered and Judge Mosedale in Rover had reached opposite and irreconcilable conclusions on the law in respect of whether the generating member or the representative member was entitled to claim under VATA 1994, s. 80 for repayment of overpaid VAT. In the opinion of Judge Demack, Judge Mosedale's approach in Rover was wrong and offended basic principles of legal certainty and non-retroactivity. The FTT observed that permission to appeal to the Upper Tribunal (UT) had been granted in both of these cases and the two appeals were listed together for hearing. HMRC contended that until decisions were given in those further appeals, the UT decision in Taylor Clark, and thus the legal reasoning in Standard Chartered, should be followed. HMRC submitted that, applying the legal analysis in Standard Chartered, it followed that GLL's appeal should be dismissed. It was held in that case that, for VAT purposes, the representative member was to be treated as carrying on the business of the group members and as making and receiving all the group's external supplies during the currency of its group membership; it was the representative member that had all obligations and rights under the VAT legislation.
In the opinion of the FTT, there was nothing in HMRC's main case with which it disagreed and nothing which it was unable to accept as representing the law to be applied. As their case was based on the decision in Standard Chartered, it followed that the FTT endorsed that decision. In fact, Judge Demack regarded the decision as providing the clearest exposition possible of the “single taxable person” concept and the application of that concept in practice. Thus, there was no merit in GLL's submission that a generating member had an entitlement to the monies it claimed on the basis of the existence at the relevant time of supply of a beneficial relationship between the representative member of its VAT group and itself. The reasoning of the FTT and its conclusion in favour of HMRC on that point in the Standard Chartered and Rover decisions, coupled with the endorsement by the UT in Taylor Clark, were cogent and compelling. There was no basis for GLL's argument that it had throughout its periods of membership of various VAT groups a beneficial relationship with the relevant representative member without there being in existence an agency or trust relationship. There was no principled basis for an extension of the right to claim overpaid VAT to a person other than one on whom the burden of the tax had fallen as a consequence of the VAT system.
Turning to the question of which company had the right to make a VATA 1994, s. 80 claim where a company ceased to be a member of a group, referred to as the departure scenario, the FTT found that the effect of VATA 1994, s. 43 was to create the single taxable person. The representative member did not represent individual members of the group, but rather represented or embodied the single taxable person. A change in the composition of a VAT group, whether in the departure scenario or upon disbandment of the group had no detrimental effect on the entitlement of a representative member to make repayment claims for VAT overpaid by the single taxable person during the currency of the group registration. The FTT was unwilling to accept GLL's argument that since the burden of the tax fell on the generating member, upon it leaving the VAT group it took with it an entitlement to recover any overpaid tax. When a company leaves a VAT group it does not retrospectively affect the economic reality of the intra-group relationships that existed throughout its membership; the single taxable person concept could not be downgraded to an administrative simplification measure with one person required to represent the group, but only until a member leaves.
The concept of “single taxable person” did not constitute a breach of fiscal neutrality and HMRC acknowledged that in the exceptional case, where restricting the right to claim overpaid VAT to the representative member would result in non-compliance with the EU law principle of effectiveness, a San Giorgio right to claim would arise in favour of a person other than the representative member. However, this was likely to arise only where a group had ceased to exist or where a company had left the group and a claim by the representative member of the continuing group failed to provide an effective remedy.
Rejecting GLL's contention that the decision in Rover was to be preferred to that in Standard Chartered, the tribunal held that it was the representative member which was entitled to make the claim for overdeclared VAT. GLL's appeal was dismissed.
This decision is likely to be far from the end of the ongoing disputes on the issue of entitlement to claim repayments of overpaid tax within VAT group structures, although Judge Demack's open criticism of the decision of the FTT in Rover lends strength to the decision in Standard Chartered. It is expected that the inconsistencies and conflicts in the published decisions will be ironed out by the UT when it considers the various further appeals.
[1] This appeal by Gala Leisure Ltd (“GLL”), a company which owns and operates a number of bingo halls, is brought as a result of the respondent Commissioners for Her Majesty's Revenue and Customs (“HMRC”) having rejected certain parts of two groups of claims it made under s.80 of the Value Added Tax Act 1994 (“VATA 94”) to recover amounts brought into account as output tax that were not output tax due.
[2] That was because the supplies on which the tax was charged and paid were incorrectly treated as standard-rated whereas it was later held that they were exempt from VAT. Further sums which were not deductible input tax were also incorrectly deducted as input tax, for the same reason. Stated colloquially, VAT was overpaid.
[3] The overall claim period ran from 1 April 1973 to 30 September 1996.
[4] One of the groups of claims relates to supplies of mechanised cash bingo (“MCB”) and the other to main stage bingo (“MSB”).
[5] The total sum involved in the appeal is some £28 million. However, we are not required to deal with quantum, but rather to make a decision in principle on the issue before us.
[6] That issue, in the form suggested by HMRC, takes the following form:
In circumstances where
1) the representative member of a VAT group accounted to HMRC for VAT for a prescribed accounting period and brought into account an amount as output tax that was not output tax due;
2) the company whose trading activities gave rise to that overdeclaration of output tax (“the generating member”) was a member of that VAT group during the relevant prescribed accounting period;
3) that VAT group...
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