Leeds City Council v Revenue and Customs Commissioners

JurisdictionUK Non-devolved
Judgment Date03 December 2013
Neutral Citation[2013] UKUT 596 (TCC)
Date03 December 2013
CourtUpper Tribunal (Tax and Chancery Chamber)

[2013] UKUT 596 (TCC)

Judge Colin Bishopp, Judge Nicholas Aleksander.

Leeds City Council
Revenue and Customs Commissioners

Julian Ghosh QC, Jonathan Bremner and Zizhen Yang, counsel, instructed by Shepherd & Wedderburn LLP, appeared for the Appellant

Andrew Macnab, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Defendants and Respondents

Value added tax - Late claim for repayment of output tax - Failure of UK to implement Directive 77/388, art. 4(5) - Erroneous HMRC guidance - Deadline ("cap") for late claims cut to three years - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 section 80s. 80 - Directive 77/388 (the Sixth VAT Directive), art. 4(5) (recast as Directive 2006/112 (the Principal VAT Directive), art. 13) - Whether compatible with EU legal principles - Appeal dismissed.

The Upper Tribunal ("UT") dismissed the appeal by Leeds City Council ("Leeds") against HMRC's decision to reject its late claim for a VAT repayment of output tax.

Before 31 March 2009, which was the cut-off date for "Fleming" claims for overpaid VAT relating to periods ending before 5 December 1996, Leeds claimed a repayment of VAT charged on some of its supplies in periods falling both before and after the date of the cut in the deadline for late claims, i.e. 4 December 1996. HMRC met all such claims if they related to (1) periods ending before 5 December 1996 and (2) periods ending within the three years before the claims were made. However, using the three-year cap, HMRC rejected the claims relating to periods ending after 4 December 1996.


On 11 May 2007, Leeds claimed under Value Added Tax Act 1994s. 80 a repayment of VAT over-declared on:

  1. (2) charges for memorial items placed in cemeteries, for the VAT periods from April 1977 to July 2001;

  2. (3) library charges, for the VAT periods from April 1990 to December 2000; and

  3. (4) excess parking charges, for the VAT periods from January 1984 to August 1999.

On 27 March 2009, Leeds also claimed under section 80s. 80 a repayment of VAT over-declared on:

  1. (2) trade waste collection charges, for the VAT periods from March 1974 to 25 March 2008; and

  2. (3) administration charges in respect of housing improvement loans, for the VAT periods from October 1999 to March 2009.

HMRC met:

  1. (2) all such claims if they related to periods ending before 5 December 1996;

  2. (3) so much of the claims in respect of charges for collecting trade waste relating to periods ended within the three years before the claims were made.

Relying on then three-year cap, HMRC rejected the remaining claims.

It was agreed (except for administration charges relating to housing improvement loans) that:

  1. (2) all of the supplies, save for the excess parking charges, were within art. 4(5) due to Leeds having made those supplies ("the art. 4(5) supplies") in the capacity of a public body "acting as such";

  2. (3) the proviso relating to significant distortion of competition is not relevant to any of the supplies; and therefore

  3. (4) Leeds is a non-taxable person in respect of all of the art. 4(5) supplies that are the subject of this appeal; but

  4. (5) until dates after 4 December 1996, HMRC's policy was that the supplies were standard-rated.

On 24 August 2006, HMRC's business-briefs 13/2006Business Brief 13/2006 explained their policy on late claims for a VAT repayment. HMRC announced that they would meet such claims, subject to recovery if the House of Lords reversed a recent Court of Appeal decision. On 13 September 2006, Leeds wrote to HMRC announcing its intention to make, or more accurately renew, claims for over-declared VAT. The claim in respect of excess parking fees had originally been submitted in 2002, and claims in respect of library charges and cemetery memorial items had been made in 2004. They were rejected at the time because HMRC believed they could rely on the three-year cap.

Leeds' renewed claims were made on 11 May 2007. The further claims made in March 2009 were not renewals of earlier claims.

There is a separate dispute between Leeds and HMRC about whether the administration fees charged for the housing improvement loans would, but for art. 4(5), be taxable supplies, or are exempt supplies of finance. That dispute was not before the UT.

It is not suggested that excess parking charges (that is, charges levied when a motorist has stayed in a parking space for longer than the time for which he has paid, or in excess of the maximum permitted time) fall within art. 4(5), but Leeds argued that its position in respect of these supplies is similar. HMRC's published policy in relation to such charges was, until 2002, that they were the consideration for the continued use of the parking space and standard-rated under VATA 1994, section 4s. 4. On 15 May 2002, the Tribunal in Bristol City Council No. 17,665; [2002] BVC 4077 held that the excess parking charges, whatever may be their precise nature, as damages for trespass or as a penalty for infringement, are not consideration for a supply of parking. HMRC then accepted that their earlier policy that the excess parking charges were taxable was wrong.

Leeds argued that it accounted for VAT in respect of the supplies because it relied on HMRC's incorrect guidance. Some guidance was provided by Public Notices, but some was contained in correspondence or given during the course of meetings between HMRC and Leeds, or between HMRC and the representative bodies of local authorities, e.g. the Chartered Institute of Public Finance and Accountancy ("CIPFA").

Leeds argued that HMRC's reliance on the three-year cap offends various EU principles:

  1. (2) it denies Leeds an effective remedy;

  2. (3) it does not respect the requirement of legal certainty;

  3. (4) it is disproportionate;

  4. (5) it does not meet Leeds' legitimate expectations; and

  5. (6) it breaches the principle of equivalence (para. 35 of the decision).

Leeds submitted that the three-year cap, as it purportedly applied to the repayment claims, should be set aside until Parliament enacts a limitation provision which satisfies the general principles of EU law. As it has not yet done so, Leeds is entitled to recover the disputed VAT. Alternatively, Leeds argued that the UT should refer questions to the Court of Justice of the European Union (ECJ).

HMRC argued that Leeds' claims all relate to accounting periods ending on or after the date of enactment of the three-year cap. They are not claims in respect of which:

  1. (2) the time limit was once longer, or non-existent

  2. (3) or where time formerly ran from discovery of the error but no longer does.

Once three years from the relevant payment had expired, the claims became barred by section 80 subsec-or-para 4s. 80(4), and remain barred. Thus, although there was some uncertainty about the cap, which applied to claims for repayment of sums paid before 4 December 1996, that was not a consideration in this case.

The UT's decision

The UT held that:

  1. (2) the circumstances in which the three-year cap was introduced are irrelevant (para. 86 of the decision);

  2. (3) there is no EU law impediment to the introduction of a new and shorter time limit for making future claims for the repayment of sums paid in error after its introduction, provided only that the new time limit respects various principles;

  3. (4) the Court of Session said in R & C Commrs v Scottish Equitable plc(25 June 2009; unreported) that the need to disapply the three-year cap arose only respecting accrued rights at the time of the legislative amendment. It could not be argued that the disapplication extended to rights to repayment accruing in the future;

  4. (5) the fact that the manner in which the new time limit was introduced may have been offensive in respect of accrued rights has no bearing on its application to future rights; and

  5. (6) the UT started from the position that, unless it can be defeated by reason of its offending one of those principles, the three-year cap, as it applies to the rejected claims, is valid.

The principle of effectiveness requires that a person whose rights have been infringed has an available remedy by which he may assert those rights. Member states must provide that remedy.

Although art. 4(5) has not been implemented in UK law, it is a provision which, so long as it is sufficiently precise, has direct effect. Leeds could have relied on it without implementation. Leeds apparently failed to rely on it because of HMRC's misleading pronouncements (para. 89 of the decision).

Thus, the UT rejected the argument that Leeds was deprived of an effective remedy (para. 94 of the decision).

The UT rejected the argument that there is, or has been, a lack of legal certainty. Although the impact of the three-year cap on claims which had accrued at the date of its introduction was unclear for some years. However, there was little room for doubt that the three-year cap was effective regarding payments made after 4 December 1996 (para. 95 of the decision).

The UT rejected the argument that there is anything disproportionate about a cap of three years from payment. There is nothing in the cases which suggests that three years is too short (para. 96 of the decision).

As regards legitimate expectation, Leeds must have realised on 18 July 1996 (and if not, it should have realised) that the government intended to implement a three-year cap for section 80s. 80 claims. From that day, Leeds could have had no more than a hope that Parliament might not enact the necessary legislation; it could certainly not assume that it would not. In fact, on 3 December 1996, Parliament passed a resolution bringing the three-year cap into effect; and from the passing of that resolution the only possible expectation which Leeds could have held, in respect of claims arising thereafter, was that they would be affected by a three-year cap, and that Parliament would in due...

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