London School of Accountancy and Management Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 August 2022 |
| Neutral Citation | [2022] UKFTT 239 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 239 (TC)
Dr Heidi Poon
Value added tax – Taxpayer in liquidation as an education provider – No refund of course fees to students made – Output VAT repayment claim pursued – Article 90 of the Principal VAT Directive – Whether there was ‘a reduction in the taxable amount’ – VAT Regulations 1995, reg. 38 – Conditions set in transposing Article 90 within Member States’ margin of discretion – Procedural and evidential requirements not met – In the alternative, a claim under VATA 1994, s. 80 subject to the defence of unjust enrichment and time limit – Appeal dismissed.
In London School of Accountancy and Management Ltd [2022] TC 08559, the FTT found that a company in liquidation which claimed to have made refunds to customers was not entitled to a repayment of output tax. There was no evidence that there had been a ‘reduction in the taxable amount’ as required by Directive 2006/112, art. 90.
The appellant made taxable supplies of education (it was not an eligible body and therefore the exemption contained in VATA 1994, Sch. 9, Grp. 6 did not apply). The company had become insolvent and was in liquidation. When it ceased trading arrangements were made to transfer its existing students to another education provider.
The appellant deregistered for VAT and on its final VAT return made a claim to recover over £750k of previously paid output tax. Students paid for their courses up front and the appellant issued ‘credit notes’ to students in respect of supplies which, it claimed, had not been made.
The FTT was dissatisfied the documentation provided by the appellant and the explanations provided. The majority of the evidence was provided by the company’s liquidator, the FTT described this as ‘largely unreliable’ and stated that ‘We conclude that the legal basis and the quantum of the claim cannot be substantiated by reference to either [the liquidator’s] oral evidence or any documentary evidence’ (para. 7).
Directive 2006/112, art. 90 states ‘In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member State’.
The FTT found that there had been no reduction in the price paid by students and, although ‘credit notes’ had been issued, no refunds had been made (para 62). It appeared to the FTT that the appellant was arguing that it was entitled to an output tax refund because, as a consequence of its insolvency, some services paid for had not been delivered. However, this was ‘irrelevant to the determination of this appeal’ (para. 64).
The FTT noted that unless there was a decrease in consideration as a matter of ‘economic reality’ art. 90 was not engaged (para. 65) and as a ‘finding of fact’ there had been ‘no change to the consideration actually received’ by the appellant’ (para. 66).
The appeal was dismissed.
Given the FTT’s finding that the appellant’s main witness was ‘unreliable’ its decision to dismiss the appeal is unsurprising.
Comment by Sarah Kay, CTA, Senior Tax Writer at Croner-i.
Edward Mercer of Maddox Legal, instructed by Frost Group Ltd appeared for the appellant
Michael Ripley, of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents
[1] The appellant, London School of Accountancy and Management Limited (“LSAM”) appeals against a decision by the respondents (“HMRC”) dated 18 August 2016 whereby an adjustment for a VAT credit contained in the appellant's VAT return for the period ending 30 September 2012 (“09/12 period”) was rejected.
[2] LSAM is a limited company currently in liquidation; it was in the business of making supplies in higher education to students until 2012. The appeal concerns a claim by LSAM to reduce the “taxable amount” for VAT purposes at a time after the company entered into administration for services said to have been invoiced to students but never supplied.
[3] On the basis of the reduction in taxable amount, LSAM claimed that a VAT credit in the sum of £781,505.76 is due to be repaid by HMRC. The substantive issue for determination in this appeal is whether LSAM is entitled to the VAT credit so claimed as provided by domestic legislation implementing the relevant EU law.
[4] Separately, the Notice of Appeal was lodged more than five months after HMRC's review conclusion letter (the appealable decision). HMRC do not object to the appeal proceeding despite the fact that it has been brought out of time. The parties' skeleton arguments have addressed only the substantive issue. The Tribunal exercised its case management powers and admitted the late appeal at the start of the hearing.
[5] Mr Jeremy Frost lodged a witness statement, and was called as a witness for the appellant. He is joint liquidator of LSAM with Stephen Wadsted, both of Frost Group Limited, and authorised insolvency practitioners in the UK by the Insolvency Practitioners' Association. Mr Frost has provided a witness statement, which includes statements of opinion on his understanding pertaining to the interpretation of the relevant law and authorities. Mr Frost was called as a witness of fact, and we have set aside all his opinion evidence.
[6] As to documentary evidence lodged for the appeal, the Hearing Bundle of documents of 614 pages comprises the parties' correspondence in the course of the enquiry, and subsequent to the lodgement of the appeal. Some of the documents referred to in Mr Frost's parol evidence has not been included in the bundle, such as the Statement of Affairs of LSAM as at 9 October 2012. We record aspects of his oral evidence without necessarily accepting the content as proven facts, since we have no sight of the actual documents, such as figures given in relation to the Statement of Affairs. (References are to HB/followed by internal pagination.)
[7] To whatever extent that Mr Frost's evidence could have been relevant, we find his evidence largely unreliable, having regard to the evidential basis for the claim upon which he was cross-examined. We conclude that the legal basis and the quantum of the claim cannot be substantiated by reference to either Mr Frost's oral evidence or any documentary evidence.
[8] On 31 May 2022, Maddox Legal lodged further documents (post-hearing) in relation to legislative changes in insolvency procedure with effect from 1 December 2020 to make HMRC a preferential creditor. The further documents produced are: (a) a covering letter by Mr Frost referring to certain sections of the Insolvency Act 1986 (“IA1986”), (b) the policy paper on “HMRC as a preferential creditor” published on 30 November 2020 on “GOV.UK” website, and (c) sections of IA1986 that were referred to by Mr Frost in his letter of 31 May. These documents were not included in the original bundle, and the Tribunal queried where they were in the bundle when Mr Frost made references thereto. The Tribunal did not issue any directions for their production; nor do we find the documents of relevance to the appeal on perusal.
[9] Article 90 of the Principal VAT Directive (“PVD”) is the successor provision of the former art 11(C)(1) under the Sixth VAT Directive. Article 90 provides as follows:
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member State.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.
[13] Section 80 of VATA, so far as relevant, provides as follows:
(1) Where a person–
- has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and
- in doing so, has brought into account as output tax an amount that was not output tax due,
the Commissioners shall be liable to credit the person with that amount.
…
(1B) Where a person has for a prescribed accounting period (whenever ended) paid to the Commissioners an amount by way of VAT that was not VAT due to them, otherwise than as a result of–
- an amount that was not output tax due being brought into account as output tax, or
- an amount of input tax allowable under section 26 not being brought into account,
the Commissioners shall be liable to repay to that person the amount so paid.
(2) The Commissioners shall only be liable to credit or repay an amount under this section on a claim being made for the purpose.
[…]
(3) It shall be a defence, in relation to a claim under this section by virtue of subsection (1) or (1A) above, that the crediting of an amount would unjustly enrich the claimant.
[…]
(4) The Commissioners shall not be liable on a claim under this section–
- to credit an amount to a person under subsection (1) or (1A) above, or
- to repay an amount to a person under subsection (1B) above,
if the claim is made more than 4 years after the relevant date.
(4ZA) The relevant date is–
- in the case of a claim by virtue of subsection (1) above, the end of the prescribed accounting period mentioned in that subsection, unless paragraph (b) below applies;
- in the case of a claim by virtue of subsection (1) above in respect of an erroneous voluntary disclosure, the end of the prescribed accounting period in which the disclosure was made;
- in the case of a claim by virtue of subsection (1A) above in respect of an assessment issued on the basis of an erroneous voluntary disclosure, the end of the prescribed accounting period in which the disclosure was made;
- in the case of a claim by virtue of subsection (1A) above in any other case, the end of the prescribed accounting period in which the assessment was made;
- in the case of a claim by virtue of subsection (1B) above, the date...
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