Revenue and Customs Commissioners v Moorbury Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 September 2010 |
| Neutral Citation | [2010] UKUT 360 (TCC) |
| Date | 23 September 2010 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2010] UKUT 360 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Norris J.
Aidan Robertson QC (instructed by the Solicitor to HM Revenue and Customs) for the appellant.
Andrew Hitchmough and Jonathan Bremner (instructed by Ernst & Young LLP) for the Respondent.
The following cases were referred to in the judgment:
Ecotrade SpA v Agenzia delle Entrate - Ufficio di Genova 3ECASECASVAT (Joined Cases C-95/07 and C-96/07) [2010] BVC 235; [2008] ECR I-3457
FJ Chalke FJ Ltd v R & C CommrsUNKVAT [2009] EWHC 952 (Ch); [2009] BVC 486
Halifax plc v C & E CommrsECASVAT (Case C-255/02) [2006] BVC 377; [2006] ECR I-1609
Marks & Spencer plc v C & E CommrsECASVAT (Case C-62/00) [2002] BVC 622; [2002] ECR I-6325
WHA Ltd v R & C CommrsUNKVAT [2007] EWCA Civ 728; [2007] BVC 695
Value added tax - Overpayment - Input tax - Educational institution entering into scheme for recovery of input tax on building works - Scheme conceded to be abusive - Redefinition in accordance with Halifax principles - Whether HMRC required to undertake complete redefinition - Whether taxpayer required to make claim for overpaid tax - First-tier Tribunal deciding that complete redefinition required - HMRC required to reimburse any overpaid VAT without claim - HMRC appeal dismissed - Value Added Tax Act 1994, Value Added Tax Act 1994 section 80s. 80.
This was an appeal by HM Revenue and Customs from a decision of the First-tier Tribunal ([2009] UKFTT 180 (TC); [2009] TC 00135) that where HMRC redefined an abusive transaction under the principle in Halifax plc v C & E Commrs (Case C-255/02) [2006] BVC 377; [2006] ECR I-1609 to recover tax for which credit had been improperly obtained, it had to give credit for any tax overpaid.
The taxpayer was a wholly-owned subsidiary of Cumbria College of Art and Design. The College decided to construct new buildings and refurbish existing buildings on its campus but, being an exempt educational provider, it was unable to recover VAT on the work. Therefore the College entered into a series of transactions designed to mitigate the irrecoverable VAT cost of the building works. First, the College agreed to lease part of its campus to a wholly-owned subsidiary (XCo) on terms which required XCo to develop the land, to provide construction services to the College for £67,287 (plus VAT of £11,775), and then to surrender the lease back to the college. XCo then engaged the taxpayer to provide the construction services. For the supply of those services the taxpayer invoiced XCo in advance in the sum of £3.364m plus VAT of £588,476. The taxpayer accounted for the £588,746 of VAT in its return for the period ending June 1999. The taxpayer then procured the actual supply of the construction services from arm's-length contractors over a period beginning in the VAT quarter ending June 1999 and terminating in the VAT quarter ending December 2001. The contractors charged the taxpayer VAT which it reclaimed as input tax in the relevant VAT accounting periods (including a claim for £41,265 in the quarter ending June 1999). When the development was completed XCo surrendered the lease to the College. The intended effect of the arrangements was that the College paid only £11,775 in VAT, although the VAT on the construction services actually provided amounted to £588,746.
HMRC decided that XCo had incorrectly claimed repayment of the £588,746 VAT which it had been charged by the taxpayer and assessed XCo in that sum (less the £11,775 accounted for). XCo accepted that to be correct. HMRC also said that the taxpayer had incorrectly treated the arm's-length contractors' VAT as reclaimable input tax and raised assessments in respect of the tax reclaimed for the periods from June 1999 to December 2000. Because HMRC said that the taxpayer had incorrectly charged and accounted for the £588,746 as output tax in its return for the period ending June 1999, it was invited to make a claim under s. 80 of VATA 1994 in respect of the tax overpaid.
Following the judgment of the European Court of Justice in Halifax, the transactions in which the taxpayer participated were redefined on the basis that they were abusive. HMRC accepted that in relation to the VAT quarter ending June 1999 they could not claim payment of £41,265 and ignore the actual payment of £588,746: the overpayment could be used to satisfy the claim arising on the redefinition of the transactions without the need for a claim by the taxpayer under s. 80. However, HMRC argued that in relation to claims arising subsequent to the June 1999 accounting period it was necessary for the taxpayer to make a s. 80 claim and that the time for making such a claim had expired. Accordingly HMRC argued that they could claim payment of a further £547,481 from the taxpayer (in addition to assessing XCo for the same amount of wrongly recovered input tax) and ignore the fact that the taxpayer had already paid £547,481. The First-tier Tribunal rejected that argument and HMRC appealed.
Held, dismissing the appeal:
1. The decision in Halifax did not concern the creation of substantive rights or entail the provision of remedies: it laid down a principle of construction. Even if a transaction was formally correct in every respect it did not have the consequence that a literal application of the relevant legal rule would suggest, if that consequence was contrary to the purpose of the rule and if the essential aim of the transaction was to obtain a tax advantage. The result of interpreting the deduction rule in that way was to secure that the correct tax was collected: and the interpretative principle itself indicated what that correct tax was, namely the tax that would have been paid and collected if the abusive transaction had not been entered into. The Halifax principle, if engaged, might require the court to adopt an approach different from that adopted in the general run of VAT cases which were to be determined by reference to individual transactions. (WHA Ltd v R & C Commrs [2007] EWCA Civ 728; [2007] BVC 695 considered.)
2. The power to redefine and re-assess was confined to re-establishing the situation that would have prevailed in the absence of the transactions which constituted the abusive practice. That might involve re-assessment: it might also involve reimbursement. The interpretative principle (and the mechanism of redefinition) applied equally to both. There would be a most curious asymmetry in the Halifax principle (not apparent from the language in which it was expressed by the ECJ) if for the purpose of collecting tax the taxing authority was permitted to depart from the literal meaning of the charging and deduction rules but for the purpose of permitting reimbursement was entitled to insist upon the literal terms of the rule and strict adherence by the taxpayer.
3. Redefinition, if properly implemented, required the return for each period to be adjusted so as to re-establish the situation that would have prevailed in the absence of the abusive transaction. That would result in payment returns for some periods and repayment returns for others; but there was nothing inconsistent with domestic law in collecting (or repaying) the overall net amount due. The Halifax principle proceeded on the footing that one did not examine a transaction in its discrete parts period by period. Whatever might be the position in (say) the quarter ending December 2000, overall the taxpayer had paid the VAT of £547,481 for which HMRC said it was liable: and no process of redefinition (if required) should ignore that. In the original transaction the taxpayer's position was actually VAT neutral; and in the redefined transaction its position should also have been VAT neutral. (WHA considered.)
4. Any approach other than requiring HMRC automatically to give credit for tax already paid before raising assessments upon the redefinition of a...
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