Reed Employment Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 March 2011 |
| Neutral Citation | [2011] UKFTT 200 (TC) |
| Date | 24 March 2011 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 01069
[2011] UKFTT 200 (TC)
Judge Roger Berner (Chairman), Dr Caroline Small (Member)
Jonathan Peacock QC and John Brinsmead-Stockham, instructed by Slaughter and May, for the Appellant
Philippa Whipple QC and Richard Smith, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
The following cases were referred to in the judgment:
A1 Lofts Ltd v R & C CommrsVAT [2009] BVC 924
Accenture Services Ltd v R & C Commrs; Barclays Bank plc v R & C CommrsVAT [2009] BVC 429
C & E Commrs v Redrow Group plcVAT [1999] BVC 96
C & E Commrs v Reed Personnel Services LtdVAT [1995] BVC 222
Eastbourne Town Radio Cars Association v C & E CommrsVAT [2001] BVC 271
Fleming (t/a Bodycraft) v R & C Commrs; Conde Nast Publications Ltd v R & C CommrsVAT [2008] BVC 221
Grundig Italiana SpA v Ministero delle FinanzeECAS (Case C-68/96) [1998] ECR I-3775
Harris v Reed Employment Ltd (Case 25575/83/LS)
Marks & Spencer plc v C & E CommrsECASVAT (Case C-62/00) [2002] BVC 622
Marks & Spencer plc v C & E CommrsECASVAT (Case C-309/06) [2008] BVC 577
Marks & Spencer plc v C & E CommrsVAT [2009] BVC 106
Oxfam v R & C CommrsVAT [2010] BVC 108
R & C Commrs v Loyalty Management UK Ltd; R & C Commrs v Baxi Group LtdECASECASVAT (Case C-53/09) and C-55/09) [2011] BVC 1
Tesco plc v C & E CommrsVAT [2004] BVC 3
The John Martin GroupVAT No. 19,257; [2006] BVC 4,025
University of LiverpoolVAT No. 16,769; [2001] BVC 2088
Weber's Wine World Handels-GmbH v Abgabenberufungskommission WienECASTAX (Case C-147/01) [2004] BTC 8,019; [2003] ECR I-11365
Supply - Whether services of an employment bureau in respect of temporary workers were of those of introductory services or of staff - Consideration for such supplies - Jurisdiction of tribunal to determine nature of a claim and whether a later demand was an amendment of an earlier claim - Whether commissioners could rely on a defence of unjust enrichment in relation to claims made after 26 May 2005.
The primary issue was whether the appellant's supplies were limited to the introduction of workers to its clients in return for an introduction fee or, as contended by the commissioners, the appellant was acting as principal in making a supply of temporary staff, the consideration for which was the whole amount charged to the client. Secondary issues were the jurisdiction of the tribunal and whether the commissioners could rely on the defence of unjust enrichment in relation to the appellant's claim for repayment of overdeclared VAT.
The background to the appeals was that the appellant carried on a recruitment business and was the representative member of a VAT group. Although the business operated in both the permanent and temporary job markets, the appeals were solely concerned with the placement of temporary workers. In outline, the appellant's business consisted of introducing workers to clients who were looking to fill temporary job vacancies. It would issue a weekly invoice to the client based on an hourly rate calculated as the amount of the worker's services plus commission. The appellant had historically accounted for output tax on the whole of its receipts from clients in respect of temporary workers, but in the light of the High Court decision in C & E Commrs v Reed Personnel Services LtdVAT[1995] BVC 222, the appellant sought to ensure that the same VAT treatment, that of accounting for output tax on only the commission element, was applied prospectively to its non-nursing business. The appellant also sought to obtain repayment of output tax claimed to have been previously overpaid.
The commissioners agreed to the issue of credit notes and the adjustment of overpaid output tax for the period 1993-96 in the sum of £607,352. In addition, in January 1997, the appellant made a protective claim for a repayment of output tax overpaid in the period 1991-93 and the commissioners made a repayment of VAT in the amount of £1,471,952 plus statutory interest. A further claim was made in June 2003 for the period 1973-90, which the commissioners refused and this was the first appeal with which the tribunal was concerned. The amount at issue was £3,945,734 plus interest. Following the judgments of the European Court of Justice in Marks and Spencer plc v C & E CommrsECAS (Case C-309/06) [2008] BVC 577 and of the House of Lords ([2009] BVC 106) in that case and in Fleming v R & C Commrs, the appellant demanded the repayment of two further amounts of overpaid output tax. The first of these was made by what the appellant claimed was an amendment to the 2003 claim covering the period 1973-90, and this formed part of the dispute between the parties. This claim was for £63,868,033 plus interest. The appellant's second appeal was against the commissioners' refusal of this claim. The appellant's second demand related to the period 1991-96 and was for overpaid tax of £75,854,485 plus interest. The commissioners accepted that claim from 1 January 1995, so the third appeal related only to the period 1991-94.
In support of the case that its supplies were limited to the introduction of workers to clients in return for a fee, the appellant submitted that its role was that of supplying an introduction service and that once it had introduced the two parties, the temporary workers supplied their services direct to the clients. The clients paid a commission for the introduction service and the appellant contended that it should be liable to account for VAT only on that amount. The commissioners argued that the appellant was supplying services as principal to its clients, comprising the supply of temporary staff, and that the consideration for its supply was the whole amount charged to the clients. Costs met by the appellant out of that whole amount, such as remuneration of the worker, were its own costs, to be met from its income.
The commissioners submitted that the distinction between operating as an employment agency and as an employment business was determinative of the VAT analysis. An employment agency supplied agency services for which the consideration was the commission paid by the client and the remaining invoiced charge, representing staff costs, was simply a disbursement on which no VAT was due. On the other hand, an employment business supplied staff, for which the consideration was the whole amount charged to the client and that amount was subject to VAT. The commissioners submitted that the contracts with the workers showed conclusively that the appellant had chosen the employment business model. They relied on a number of factors which they considered pointed to the appellant acting as principal: it invoiced clients a single sum which did not split out the commission element and it did not inform the clients what the commission element was; its advertising material suggested that the supply was one of staff to act under the client's control rather than of an introduction service; and the appellant assumed a number of obligations to the workers including a loyalty bonus, luncheon vouchers, training, profit-related pay and the obligation to pay the workers even if the client did not reimburse the appellant. The tribunal disagreed with the commissioners, finding that the payment which the appellant made to the temporary worker was a payment made on behalf of the client in satisfaction of the consideration for the supply by the worker to the client. The supplies made by the appellant to its clients in respect of temporary workers were those of introductory and ancillary services.
The next issue for the tribunal concerned the extent of the original claim made in 2003. The parties disagreed as to the effect of the later demand covering the period 1973-90. The appellant maintained that this was an amendment to the 2003 claim, but the commissioners argued that it was a new claim, made in 2009. If it were a new claim, the defence of unjust enrichment would be available to the commissioners in respect of that demand, but if it were merely an amendment to the 2003 claim, there would be no such defence. However, the commissioners contended that the tribunal had no jurisdiction to decide whether the 2009 demand was an amendment to the earlier claim. The commissioners said that only they themselves had the power to treat a claim as an amendment to an existing claim, under their collection and management powers. The tribunal disagreed. The jurisdiction of the tribunal was conferred by the Value Added Tax Act 1994, Value Added Tax Act 1994 section 83 subsec-or-para 1s. 83(1)(t) and encompassed the claim made Value Added Tax Act 1994 section 80under s. 80. It was inherent in that jurisdiction that the tribunal must be able to determine, in case of dispute, the nature, scope and extent of the claim before it, and the time at which a relevant claim has been made. That, included whether claims made at different times were separate claims or a single claim. In exercising that jurisdiction, the tribunal found that the 2009 demand for repayment by the appellant did not arise out of the same subject matter as the 2003 claim. It covered different ground and could not be regarded as an amendment to the original claim.
On the basis of the tribunal's decision that the 2009 demand was a new claim by the appellant, the question of availability of the unjust enrichment defence arose in relation to both demands, that is covering the periods 1973-90 and 1991-94. The appellant's case was that, on the basis of EU law, the commissioners could not rely on an unjust enrichment defence in respect of either claim. The appellant submitted that, since it had shown it had overpaid VAT, it had an EU law right to recover that overpayment. Further, the appellant argued that if it had been able to make a claim for the amounts at issue in its latest claims up to 26 May 2005, from which date s. 80 was amended to remedy the infringement of EU law...
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