R (on the application of Phoenix Life Holdings Ltd and Others) v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 26 July 2019 |
| Neutral Citation | [2019] EWHC 2043 (Admin) |
| Date | 26 July 2019 |
| Court | Queen's Bench Division (Administrative Court) |
[2019] EWHC 2043 (Admin)
Mr Justice Phillips
Kieron Beal QC (instructed by PricewaterhouseCoopers LLP) appeared for the claimants
Raymond Hill (instructed by HMRC) appeared for the defendants
Value added tax – Fleming claim for historic input tax submitted before 31 March 2009 deadline – HMRC initially accepted that VAT group member making the claim entitled to make claim – Claim rejected in 2013 on grounds that claimant did not have standing to make claim, current representative member of VAT group should make claim – Whether HMRC actions unfair – Decision was conspicuously unfair.
The High Court considered whether HMRC's refusal of a Fleming claim submitted within the deadline for such claims was conspicuously unfair. The claim was for underclaimed input tax which had been incurred by the representative member of a VAT group in the period 1973–1997. When the claim was made, far in advance of the 31 March 2009 deadline for Fleming claims, the company was in a different VAT group. Although HMRC initially accepted that the companies of the new VAT group had the necessary standing to make the claim, in 2013 it decided that the claim should have been made by the representative member of the previous VAT group. This company could not make the claim because it was now time barred. The appellants requested a judicial review of this decision on the grounds that it was conspicuously unfair. The High Court agreed and ordered that the claim be repaid (subject to the quantum of the claim being agreed).
The appellants requested a judicial review of HMRC's decision to refuse a Fleming claim. The claim was rejected on technical grounds. The companies concerned were members of a different VAT group when the claim was submitted from the group they were members of when the input tax was incurred. Claims made by VAT group members are made in the name of the representative member and HMRC's view was that the claim had been submitted by the incorrect representative member.
The Fleming claim was submitted in 2007 but the issue of whether the claim had been made by a company with the correct standing was not raised until 2013. By this time the claim could not be re-submitted by a different company because it was time-barred.
The appellants argued that HMRC's rejection of the claim due to a technical issue which could have been rectified before the 31 March 2009 deadline for the submission of Fleming claims was conspicuously unfair and/or an abuse of power (see para. 11 for full list of arguments).
The High Court reviewed the history of the claim in detail. The court heard evidence regarding the various group registrations, correspondence between the parties and internal discussions by HMRC. The Court concluded that the question of whether the company making the claim was eligible to make the claim had been considered by HMRC in 2008 and that, at that time, HMRC had concluded that it was eligible.
Having considered the evidence Justice Philips concluded at para. 78 that:
In my judgment, having determined prior to the expiry of the limitation period not to take the technical objection, the Commissioners' reversal of that position after its expiry without a change of circumstances or any other good reason, was not lawful as a matter of public law. As the original internal decision was not communicated to the claimants, it is not a case of “conduct equivalent to a breach of contract or breach of representations”, but it is plainly a case where the Decision is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. Certainly a decision maker who felt bound by the highest public standards could not have done so.
The decision of HMRC not to make the repayment was therefore quashed.
Given the fact that this case involved a claim for £16m it is perhaps unsurprising that HMRC looked for reasons to reject the claim. However, their rejection of the claim on a ground which could easily have been resolved had it been made at the time was, as the Judge concluded, manifestly unfair.
The court did not consider whether HMRC's decision was correct. Although large historic claims such as this are no longer possible due to the capping rules introduced after the Fleming case, there are cases where the composition of VAT groups changes and companies which have under/overpaid VAT find themselves in a different VAT group when the issue is picked up to when the under/overpayment occurred. Care is needed in these situations to make sure that the corrections are made by the correct company.
[1] The claimants are members of the Phoenix Group of companies, known as the Pearl Group until it was renamed in 2010. In these proceedings they apply for judicial review of the decision of the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners” or “HMRC”) made on 9 November 2017 (“the Decision”), upholding HMRC's rejection of a claim made exactly ten years earlier (“Claim”) by the second claimant (“Pearl”) and the fourth claimant (“PGSL”).
[2] The Claim was for repayment of significant amounts of under-recovered VAT input tax paid by Pearl in the period 1973 to 1997 (“the Claim Period”). Pearl was the representative member of the VAT group with registration number (VRN) 234 9868 22 (“the 234 VAT Group”) throughout the Claim Period and submitted VAT returns in that capacity. HMRC1 has now accepted that £6,999,207 was under-recovered by Pearl on those returns. In 2003 PGSL replaced Pearl as the representative member of the 234 VAT Group.
[3] Pearl and PGSL both left the 234 VAT Group in April 2005 (in circumstances described below) and joined a newly formed VAT group numbered 860 2114 63 (“the 860 VAT Group”), PGSL becoming the representative member. When the Claim was made on 9 November 2007 it was made by both Pearl and PGSL.
[4] On 30 April 2008 the 860 VAT Group was dissolved, Pearl joining VAT group 369 4465 10 (“the 369 VAT Group”), of which the third claimant (“PGMS”) was and remains the representative member. From that date, the Claim was pursued in the name of PGMS.
[5] The Claim was submitted well in advance of 31 March 2009, the date by which such claims (known as Fleming2 claims) were required to be made pursuant to s.121 of the Finance Act 20083. However, it was not until 2012 that HMRC objected that PGMS was not the correct claimant, and not until December 2013 that HMRC explained that none of the Phoenix group had a valid claim as (i) the right to repayment belonged to the 234 VAT Group, through its representative member at the time the Claim was made; (ii) Pearl had ceased to be the representative member of the 234 VAT Group by the time of the Claim was made and (iii) any claim by or on behalf of the correct company would be out of time.
[6] The alleged issue arose because, in December 2004, the Pearl Group and its life assurance business, then part of the Henderson group of companies, had been sold to new owners4, thereby separating the two groups. In March 2005, following completion of the sale, Henderson Administration Ltd (“HAL”) had become the representative member of the 234 VAT Group and, about one month later, Pearl ceased to be a member of that group, joining the 860 VAT Group. HMRC asserted in 2013 that HAL (and not Pearl or PGSL) was the correct claimant when the Claim was made in 2007, as HAL was then the representative member of the group which had the Claim.
[7] Pearl contends that the entitlement to claim the repayment of VAT was retained by it pursuant to the terms of the 2004 sale, so PGSL was entitled to claim as the representative member of the VAT group of which Pearl was a member when the Claim was made. Further, the Henderson group has confirmed, in unequivocal terms, that any recovery of input tax relating to the period prior to 2004 is due to Pearl/Phoenix and not to HAL or any other member of the Henderson group, and that any payments due to HAL should be paid to the Phoenix group.
[8] HMRC has nonetheless maintained its stance and has rejected not only Pearl's primary contention but also alternative approaches. In particular, HMRC has rejected the argument that it has (and should exercise) a discretion (i) to permit Pearl's claim for repayment of VAT Pearl under-recovered to be made other than by the representative member of the 234 VAT Group; or (ii) to treat the Claim as having being made on behalf of HAL; or (iii) to allow HAL to claim out of time, in each case asserting that it has no power to do so.
[9] HMRC formally rejected the Claim on 24 July 2017 (but modified its reasoning on 25 August 2017). As referred to above, on 9 November 2017, following a review, HMRC made the Decision under challenge, upholding its earlier rejection of the Claim.
[10] The claimants' application, and the hearing before me, proceeded on the assumed basis that, after March 2005, any claim for repayment of the VAT under-recovered by Pearl should have been made by HAL as the (then) representative member of the 234 VAT Group. Whilst the claimants' grounds for judicial review in these proceedings include an assertion that HMRC's decision was wrong in law because Pearl was entitled to claim (either on its own behalf or on behalf of HAL, HAL having ratified such agency), Mr Beal QC recognised on behalf of the claimants that, as those arguments are also being advanced by way of statutory appeal, it was neither necessary nor appropriate that they be determined by way of judicial review.
[11] Instead the claimants focused on their grounds that, assuming the Claim should have been made in the name of HAL, the Commissioners' refusal of the Claim (a) was conspicuously unfair and/or an abuse of power, (b) failed to take into account a material consideration...
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