Glasgow City Council

JurisdictionUK Non-devolved
Judgment Date28 April 2000
Date28 April 2000
CourtValue Added Tax Tribunal

VAT Tribunal

Glasgow City Council

The following cases were referred to in the decision:

Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223

BICC plc VATNo. 15,324; [1998] BVC 2120

Glasgow City Council VATNo. 15,491; [1998] BVC 2239

Marks & Spencer plc v C & E Commrs VAT[2000] BVC 35

R v C & E Commrs, ex parte Building Societies Ombudsman Co LtdVAT[1999] BVC 368

The Royal Bank of Scotland Group plc VATNo. 16,035; [1999] BVC 2240

Recovery of overpaid tax - Local authority - Three-year capping - Regime for payment and repayment traders contrasted - Lawfulness or otherwise of retrospective effect - Relevance and application of Community law rights and principles -Value Added Tax Act 1994Value Added Tax Act 1994, ss. 24, 25, 26, 33 and 80(1), (4) and (7); SI 1995/2518Value Added Tax Regulations 1995 (SI 1995/2518) regs. 34 and 35.

The issue was whether the appellant's claim for the recovery of tax was subject to the three-year capping provisions of Value Added Tax Act 1994Value Added Tax Act 1994, s. 80.

Following the first part of the Council's successful appeal against the commissioners' decision (No. 15,491; [1998] BVC 2239) that in issuing statutory repair notices and engaging local contractors to carry out work it was making taxable supplies, Customs agreed to the greater part of the appellant's claim. However, they refused to repay £1,974,175 claimed by the appellant by letter dated 12 November 1996 on the basis that they were not liable "to repay any amount paid to them more than three years before the making of the claim". In that letter, the appellant set out various amounts which it claimed should be repaid to it by reference to return periods 5/88, 6/88, 10/88, 6/89 and 1/92. In relation to each of the first four periods, when the amount claimed was subtracted from the amount originally declared a net amount of output tax remained payable to the commissioners. However, because of errors made in calculating the returns it was accepted by the parties that in respect of the fifth period 1/92 the appellant was a repayment trader in that, whereas an amount of £35,412 had been erroneously declared and accounted for in the return as output tax, an amount of £264,349 had in fact been due to be repaid to the appellant.

The appellant contended that looked at over the period of the claim, or even annually, it was a repayment trader and thus not, at that time before input tax claims were subject to the three-year limitation period, capped by Value Added Tax Act 1994 section 80 subsec-or-para (4)s. 80(4). This was on the basis that its claim was a single global claim in the letter of 12 November 1996. If the returns were taken on an individual basis, the fifth return should be corrected and the full amount claimed should be repaid, including the £35,412 declared and paid on the return. It further argued that the retrospective effect of the imposition of the three-year limit in 1996, leading to the removal of the right to reclaim the tax paid on the 1/92 return, was incompatible with Community law and that the issue should at least be sisted until the European Court of Justice had decided the reference to it of Marks & Spencer plc v C & E Commrs VAT[2000] BVC 35. In the alternative, the appellant submitted that in refusing to repay the amount of the claim the commissioners had exercised their discretion unreasonably.

The commissioners contended that the statutory time-limit inValue Added Tax Act 1994 section 80 subsec-or-para (4)s. 80(4) applied to the entirety of the claim, that the issue to be determined in the Marks & Spencer reference differed from that raised by the appellant and that the issue of an exercise of their discretion did not arise in this case.

Held, allowing the taxpayer's appeal in part:

1. The three years in Value Added Tax Act 1994 section 80 subsec-or-para (4)s. 80(4) was reckoned by reference to the date of the claim and the date on which the amount reclaimed was paid, so that the five amounts which were the subject of this part of the appeal had to be looked at separately, regard being paid only to the date on which the overpayment in respect of a particular return was made.

2. The result of this exercise was that the first four payments were caught by Value Added Tax Act 1994 section 80 subsec-or-para (4)s. 80(4). However, when the errors in the calculation of the fifth return were corrected the appellant was due a repayment, which was not subject to the three-year time-limit.

3. In respect of that return, while the amount which should have been claimed and had not been was not caught by Value Added Tax Act 1994 section 80 subsec-or-para (4)s. 80(4), the £35,412 actually paid was, and that had to be deducted from the overall claim.

4. So far as the European point was concerned, the first four amounts were not affected by retrospectivity since they would in any event have been subject to the pre-existing six-year time-limit. In relation to the output tax paid on the 1/92 return, the right to reclaim that amount was not an enforceable Community right but a right arising under national legislation and so would not be affected by the decision in Marks & Spencer. Further, there could not be reliance upon an enforceable Community right which did not exist before the infringement of the general principle upon which reliance was placed.

5. The appeal was not concerned with the exercise by the commissioners of discretion but the application of the law in force at the time.


[The tribunal set out the facts summarised above and continued as follows.]

Statutory background

Value Added Tax Act 1994Section 80 [of the Value Added Tax Act 1994] is headed "Recovery of overpaid VAT". It has undergone a number of recent changes. On 18/7/96, the Government announced that there was to be a cap on retrospective refund claims of three years to take effect from 18/7/96. This measure became law on 4/12/96 by virtue of a resolution under the Provisional Collection of Taxes Act 1968Provisional Collection of Taxes Act 1968. Legislation was subsequently passed in theFinance Act 1997Finance Act 1997, ss. 46 and 47. Hitherto, the period had been six years (Finance Act 1989, s. 24; Value Added Tax Act 1994s. 80 is conveniently quoted without amendment in the Marks & Spencer case; referred to below, at p. 39A) although the criteria for identifying the punctum temporis were different. The basic function of Value Added Tax Act 1994s. 80 now is (a) to declare that where a person has paid an amount to the commissionersby way of VAT which was not VAT due to them, the commissioners are to repay that amount to him; (b) to limit that liability to payments made no more than three years before the claim for repayment is made, and (c) to declare that Value Added Tax Act 1994s. 80is the only mechanism for repayment of an amount paid to the commissioners by way of VAT, where that amount was not VAT due to them (see Value Added Tax Act 1994ss. 80(1), (4) and (7)).

It can be seen that these capping provisions apply to payment traders only. That is to say to taxable persons who have paid more sums by way of VAT than they have deducted from VAT otherwise due by virtue of input tax or refunds. Value Added Tax Act 1994Section 80applies where a person has paid a sum which was not due to be paid. It does not apply to a person who under declared his input tax or refunds where, the overall result is that in any accounting period he reclaims too little. This can arise from a combination of over-declaration of the output tax and the under-declaration of input tax or refund. The true error may be over-declaration yet the result may be that the taxable person has reclaimed too little. This is illustrated arithmetically in the commissioners' Business Brief 2/98, 27 January 1998 (De Voil Indirect Tax Service, vol. 5, s. V16.3, p. 16,257) (A/28). In contrast to a payment trader, a repayment trader is a person who generally receives a repayment in respect of each accounting period, the reason being that his input tax and (if appropriate) his Value Added Tax Act 1994s. 33refunds, exceed his output tax. Payment traders and repayment traders are discussed in Marks & Spencer plc v C & E CommrsVAT[2000] BVC 35 at pp. 54-56. Value Added Tax Act 1994 section 80Section 80 cannot apply to repayment traders because a repayment trader is not a person who has paid an amount to the commissioners by way of VAT which was not due to them (Value Added Tax Act 1994 section 80 subsec-or-para (1)s. 80(1)). The phrases "payment trader" and "repayment trader" are not statutory phrases but are convenient shorthand to describe the result of the arithmetical exercise which a trader carries out for the purposes of accounting for VAT by reference to prescribed accounting periods. In the main, the Council has been a repayment trader. This explains why a very large proportion of its claims in this appeal have been met by the commissioners, presumably applying the unamended version of SI 1995/2518 section 29 section 35regs. 29 and 35 of the Value Added Tax Regulations 1995 (SI 1995/2518). However, for completeness we record that even repayment traders are now subject to a three-year capping. This was introduced with effect from 1/5/97 by an amendment to the 1995 Regulations, introducing SI 1995/2518 section 29 subsec-or-para (1A) section 34 subsec-or-para (1A) section 34 subsec-or-para (1B)reg. 29(1A) and 34(1A) and (1B) (see section 4Value Added Tax (Amendment) Regulations1997 (SI 1997/1086), reg. 4). The amendment relates to input tax. Refund claims under Value Added Tax Act 1994 section 33s. 33 are also to be capped in relation to claims made after 31/3/2000.

Although the events to which these proceedings relate occurred between 1988 and 1997, the parties throughout have referred to the 1994 Act and the current version of the relevant regulations (save in relation to repayment traders mentioned above) as...

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