Saint-Gobain Building Distribution Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 May 2019 |
| Neutral Citation | [2019] UKFTT 314 (TC) |
| Date | 16 May 2019 |
| Court | First-tier Tribunal (Tax Chamber) |
[2019] UKFTT 314 (TC)
Judge Peter Kempster
Mr David Southern QC, instructed by Grant Thornton UK LLP, appeared for the appellant
Ms Eleni Mitrophanous of counsel, instructed by the General Counsel and Solicitor to HM Revenue & Customs, appeared for the respondents
Value added tax – Bad debt relief – FA 1990, s. 11 & VATA 1994, s. 36 – Historical claim.
The FTT dismissed an appeal for historical bad debt relief because the claimant could not satisfy it that on the balance of probabilities a claim for bad debt relief had not been made at the time.
Like many taxpayers Saint Gobain Building Distribution Ltd (“SG”) made a claim for historic bad debt relief following the R & C Commrs v GMAC (UK) plc [2016] BVC 39 and the subsequent issue of Revenue & Customs Brief 1(2017).
In summary, until the law was changed on 19 March 1997, bad debt relief could not be claimed unless title in the goods had passed to the customer (the so-called “property condition”). The conclusion of the GMAC UK plc case was that UK law at the time was not in accordance with EU law and was disproportionate. Taxpayers were therefore invited to make historic claims.
SG's historic clam for BDR in relation to the period 1 April 1989 to 19 March 1997 was rejected by HMRC for several reasons, chiefly that HMRC was not satisfied that BDR had not been claimed at the time. SG's position was that BDR had not been claimed due to the property condition, however HMRC maintained that, due to SG's circumstances, the property condition would not have applied and BDR could have been claimed at the time.
SG's records in relation to how its VAT returns were prepared in the years 1989–1997 were extremely limited. The Tribunal reviewed case law concerning the acceptance of alternative evidence when considering historic VAT errors. It concluded that (para. 54):
- The taxpayer bears the burden of proving, on the balance of probabilities, that:There were historical bad debts;BDR was not previously claimed thereon; andThe amount of the BDR can now be reasonably and sustainably estimated or approximated by the taxpayer.
- Practical difficulties may be encountered in attempting to substantiate historical claims, but the passage of time and the consequent lack of records does not absolve the taxpayer from the obligation of proving such matters.
The Tribunal examined the evidence before it and agreed with HMRC that SG had not provided evidence that BDR had not been previously claimed and, therefore, the appeal was dismissed.
This case demonstrates the difficulties taxpayers have when making historic claims. It underlines that, although businesses in SG's position are not required to have the comprehensive records a taxpayer should have if a VAT claim from last year is being considered, they must have some objective evidence regarding their VAT calculations to place before HMRC and, if necessary, the Tribunal.
[1] In May 2014 the Appellant submitted a claim for VAT bad debt relief (“BDR”) in respect of supplies made in the period from 1 April 1989 to 18 March 1997 (“the Claim Period”). The Respondents (“HMRC”) rejected that claim in June 2014. The relevant supplies were of building materials, and the customers were mainly builders buying on trade credit terms.
[2] The relevant supplies were made by three companies in the VAT group of which the Appellant is the representative member (s 43 VAT Act 1994 refers): Jewson Limited (“Jewson”), Harcros Timber and Building Supplies Limited (“Harcros”), and Graham Group Limited (“Graham”) (together “the Claimant Companies”). In was previously in dispute whether the Appellant could bring a claim on behalf of the Claimant Companies; however, it has now been agreed (following the Upper Tribunal decision in R & C Commrs v MG Rover Group Ltd [2016] BVC 543 that the Appellant is eligible to bring claims for Jewson and Harcros for the entire Claim Period, and for Graham for the period from 1 April 1994 to 18 March 1997.
[3] The amount in dispute has been varied since the original claim, following discussion between the parties, and the parties agreed that further work would be necessary to finalise the amount if any repayment is found to be due. The claim currently stands at around £9.9 million plus statutory interest. The parties requested and I agreed that a decision in principle should be determined, with leave to revert to the Tribunal, if appropriate and necessary, on quantum.
[4] The Claim Period starts almost three decades ago, so it is necessary to refer to historical as well as current legislation.
[5] Article 11(C)(1) Sixth Council Directive 77/388/EEC (now article 90 Directive 2006/112/EC) 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 States.
However, in the case of total or partial non-payment, Member States may derogate from this rule.
[6] The UK legislative enactment providing relief for bad debts was first in s 11 Finance Act 1990, then replaced by s 36 VAT Act 1994. The relevant requirements may be summarized as follows:
(1) A person has supplied goods or services for consideration and has accounted for and paid VAT on the supply (s 11(1)(a) FA 1990, s 36(1)(a) VATA 1994).
(2) That person has written off in his accounts the whole or any part of the consideration as a bad debt (s 11(1)(b)) FA 1990, s 36(1)(b) VATA 1994).
(3) A stipulated period of time has elapsed from the date of the supply – this was originally two years (s 11(1)(c) FA 1990) reduced, from 1991, to one year (s 15 FA 1991) and, from 1994, to six months (s 36(1)(c) VATA 1994).
(4) A claim is made to HMRC for a refund of the amount chargeable in relation to the outstanding amount (ie the unpaid consideration written off) (s 11(2) & (3) FA 1990, s 36(2) & (3) VATA 1994). Regulations required a claim to be made in a particular form and manner; for it to be evidenced and quantified by reference to records; require such records to be retained; and require repayment of refunds in specified cases (s 11(2) & (5) FA 1990, s 36(2) & (5) VATA 1994) – during the Claim Period the relevant regulations were The Value Added Tax (Bad Debt Relief) Regulations 1986, The Value Added Tax (Refunds for Bad Debts) Regulations 1991, and the Value Added Tax Regulations 1995. Regulations 167 & 168 of the VAT Regulations 1995 provide:
Save as the Commissioners may otherwise allow, the claimant, before he makes a claim, shall hold in respect of each relevant supply–
- either–a copy of any VAT invoice which was provided in accordance with Part III of these Regulations, orwhere there was no obligation to provide a VAT invoice, a document which shows the time, nature and purchaser of the relevant goods and services, and the consideration therefore,
- records or any other documents showing that he has accounted for and paid the VAT thereon, and
- records or any other documents showing that the consideration has been written off in his accounts as a bad debt.
- Any person who makes a claim to the Commissioners shall keep a record of that claim.
- Save as the Commissioners may otherwise allow, the record referred to in paragraph (1) above shall consist of the following information in respect of each claim made–in respect of each relevant supply for that claim–the amount of VAT chargeable,the prescribed accounting period in which the VAT chargeable was accounted for and paid to the Commissioners,the date and number of any invoice issued in relation thereto or, where there is no such invoice, such information as is necessary to identify the time, nature and purchaser thereof, andany payment received therefor,the outstanding amount to which the claim relates,the amount of the claim,the prescribed accounting period in which the claim was made, anda copy of the notice required to be given in accordance with regulations 166A.
- Any records created in pursuance of this regulation shall be kept in a single account to be known as the refunds for bad debts account.
- Where regulation 166AA applies, prescribed accounting period in this regulation is to be read as tax period.
(5) In the case of the supply of goods, the property in the goods has passed to the person to whom they were supplied or to a person deriving title from, through or under that person (s 11(4)(b) FA 1990, s 36(4)(b) VATA 1994) (“the Property Condition”).
[7] In R & C Commrs v GMAC (UK) plc [2016] BVC 39 (“GMAC”) the Court of Appeal decided (at [83] & [89]) that the Property Condition was not in accordance with EU law and was disproportionate, and should be disapplied. The Property Condition was repealed from 19 March 1997 – which marks the end of the Claim Period. Following that change, HMRC issued “Revenue and Customs Brief 1 (2017): VAT – historical bad debt relief claims”, which it is convenient to set out here:
This brief sets out HM Revenue and Customs' (HMRC) position on claims for historical bad debt relief following the Court of Appeal's judgments in British Telecommunications of 11 April 2014 and GMAC UK Plc on 25 October 2016.
VAT registered businesses that suffered bad debts on supplies they made between 1 January 1978 and 19 March 1997 and that didn't adjust the VAT on such debts.
The UK VAT Bad Debt Relief scheme was introduced in 1978. Since then the conditions of the scheme have changed:
- before 1 April 1989, the scheme required the defaulting customer to be formally insolvent
- until 19 March 1997, there was also a condition that title in any goods must have passed to the customer
The litigation concerned the bad debt relief legislation that existed...
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