Leeds City Council v Revenue and Customs Commissioners

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lord Justice Ryder,Lord Justice Christopher Clarke
Judgment Date17 December 2015
Neutral Citation[2015] EWCA Civ 1293
Docket NumberCase No: A3/2014/0308

[2015] EWCA Civ 1293




Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Lewison



Lord Justice Christopher Clarke

Case No: A3/2014/0308

Leeds City Council
The Commissioners for her Majesty's Revenue and Customs

Mr Julian Ghosh QC & Mr Jonathan Bremner (instructed by Shepherd and Wedderburn LLP) for the Appellant

Mr Andrew Macnab (instructed by Solicitors Office HMRC) for the Respondent

Hearing date: 8 December 2015

Lord Justice Lewison

On 11 May 2007 and 27 March 2009 Leeds City Council ("Leeds") made claims to the Commissioners for Her Majesty's Revenue and Customs ("HMRC") for the repayment of VAT which it said it had wrongly paid. HMRC were willing in principle to repay VAT for which Leeds had accounted before 4 December 1996, but not VAT for which Leeds had accounted after that date. The reason for HMRC's position was the combined effect of section 80 (4) of the VAT Act 1994 and section 121 of the Finance Act 2008. The former section (in force from 4 December 1996) imposes a three year limitation period for the making of claims for the repayment of wrongly paid VAT, while the latter section (in force from 19 March 2008) disapplied that limitation period in relation to VAT accounted for or paid before 4 December 1996, provided that the claim was made before 1 April 2009.


The Upper Tribunal upheld HMRC's position in a closely reasoned decision which can be found at [2013] UKUT 596 (TCC), [2014] STC 789. With the permission of Kitchin LJ, Leeds appeals.


As is well-known, VAT has a European origin. As the time of the events with which we are concerned the European provisions in question were contained in the Sixth VAT Directive (77/388/EEC) and are now contained in the Principal VAT Directive (2006/112/EC). The Directives are addressed to the Member States and it is the latter's responsibility for transposing the Directives correctly into national law. However, the rights conferred by the Directives are directly effective in Member States, with the consequence that those rights exist even if the member state in question fails to transpose a Directive (whether in whole or in part) or transposes it incorrectly.


The administration and collection of VAT in this country is under the management of HMRC (formerly the Commissioners for Customs & Excise). There are many problems of interpretation arising out of the VAT code and HMRC provide the public with their own interpretation of points of difficulty; and information about the practice they adopt in various areas. These are variously contained in Notices, Business Briefs and the VAT Manual. They are not law: they are no more than HMRC's interpretation of the law. HMRC are not of course infallible, and so Parliament has legislated for a system of tribunals to decide contested points. As and when cases are decided against HMRC they will often revise their opinion and inform the public accordingly. Sometimes, of course, HMRC disagree with a tribunal decision, in which event they may choose to appeal.


The background to this appeal lies mainly in the provisions of article 4.5 of the Sixth Directive. Put shortly, this applies to local government authorities (among others) in respect of their activities as public authorities. When they engage in such activities they are not to be considered as taxable persons, unless treatment as non-taxable persons would lead to significant distortions of competition. The United Kingdom has not transposed article 4.5 into domestic law. However, it is common ground that it is (and always has been) directly effective.


Leeds is a local government authority. It is now common ground in this appeal that almost all the activities with which this appeal is concerned fall within article 4.5 and that treatment of Leeds as a non-taxable person would not give rise to significant distortions of competition. That is why HMRC have paid Leeds' claims for VAT for periods before 4 December 1996. However that has not always been common ground; and that fact is a significant part of Leeds' complaint.


The UT set out the history of HMRC's changes of position. Only a summary is needed for the purposes of this appeal.


The first category of supply concerned fees for the placing of memorial plaques in cemeteries and crematoria. HMRC's published Notice simply stated that the supplies in question were standard rate, without explaining why. The published Notice did not refer to article 4.5 at all. Leeds argued that the operation of cemeteries and crematoria was not a business activity; but HMRC disagreed. However, in February 2000 a VAT & Duties Tribunal took a different view, holding that a local authority was not to be considered a taxable person when providing and maintaining cemeteries. This was not a question of whether or not the supplies were supplies for a consideration, which had been the focus of the argument between Leeds and HMRC. Rather it turned on the application of article 4.5. In consequence HMRC changed their position. They accepted the Tribunal's decision as far as it went, but maintained that services offered by a local authority in addition to the operation of the cemetery remained outside the special statutory regime underpinning its non-business status, and therefore continued to be business activities of the local authority. In September 2004 Leeds made a claim in respect of those services supplied for the three years from August 2001. That claim has been paid, so HMRC have moved from that fall back position. But HMRC declined to pay the similar claim that was made in May 2007 in so far as it relates to accounting periods ending on or after 4 December 1996.


The second category of supply concerns loans of pictures, cassettes and videos. HMRC's original position was that all these loans were standard rated supplies. Again their published Notice simply stated that the supplies were standard rated, without any supporting reasoning, and again without reference to article 4.5 They changed their position after lobbying; and by 1999 they agreed that the loan of spoken word cassettes by public libraries was a non-business activity, but made no greater concession. Further lobbying led to a further change of position. In December 2003 HMRC accepted that all such loans constituted non-business activities, because of the statutory obligation of local authorities to lend, and that the competition proviso was not engaged. In January 2004, Leeds made a claim for repayment of VAT on library charges for the period from January 2001 to December 2003. That claim has also been paid. It is, again, only the May 2007 claim which HMRC decline to pay in so far as it relates to accounting periods ending on or after 4 December 1996.


The third category of supply concerns excess parking charges. From at least 1977 HMRC's position was that excess charges made for off-street car parks were standard rated. These supplies are nothing to do with article 4.5. However in May 2002 a Tribunal disagreed with HMRC and held that charges of that kind were not consideration for a supply and hence were not taxable. HMRC accepted that their earlier stance that the excess parking charges were taxable was wrong, and changed their published position following that decision. Leeds made a claim for repayment of VAT on excess parking charges levied at off-street car parks for the period from September 1999 to August 2002. That claim has been paid. Here, too, it is the May 2007 claim which HMRC decline to pay in so far as it relates to accounting periods ending on or after 4 December 1996.


The fourth category of supply concerns trade waste collection charges. Whether these charges are standard rated has been a matter of debate between HMRC and the professional accountants. HMRC's public stance has always been that that charges for the collection of commercial waste were the consideration for a standard-rated business activity. However, despite this continuing debate, on 27 March 2009 Leeds made a claim for repayment of VAT accounted for on trade waste charges, with a view to resolving the outstanding question whether such activities were business activities or not. The claim was for the period from March 1974 to March 2008. On 13 December 2010, HMRC wrote to Leeds to the effect that they were now of the view that the collection of trade waste was a non-business activity when conducted by a local authority and that the levels of competition within the market were insufficient to invoke the second paragraph of what was by then article 13 of the Principal VAT Directive. HMRC have therefore paid the claim except in relation to accounting periods beginning on and after 4 December 1996 and ending more than three years before the claim was made.


The last category of supply concerns administration charges in connection with the assessment of eligibility for home improvement grants. HMRC have adopted a variety of positions over the years. In the light of a High Court decision in 2001, by 2002 HMRC's position was that the whole of the administration fee was a standard rated supply. On 27 March 2009 Leeds made a claim for repayment, asserting that HMRC's position was wrong. That claim related to the periods from October 1999 to March 2009. In May 2009 Leeds made another such claim for the period from April 2009 to March 2010. HMRC deny that they are liable to pay any of these claims; but say that if they are wrong about that, then they are not liable to pay claims for any period on or after December 1996 and more than three years before the making of the claims.


It is now necessary to set out the story to explain why the domestic legislation takes the form that it...

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