Shop Direct Group and Others v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Asplin |
| Judgment Date | 19 April 2013 |
| Neutral Citation | [2013] EWHC 942 (Ch) |
| Court | Chancery Division |
| Date | 19 April 2013 |
| Docket Number | Case No: FTC/3033/2012 |
[2013] EWHC 942 (Ch)
IN THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Asplin
Case No: FTC/3033/2012
David Goldberg QC and Michael Jones (instructed by Weil, Gotshal and Manges) for the Appellants
Malcolm Gammie QC and Elizabeth Wilson (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 19, 20 and 21 February 2013
This is an appeal by Shop Direct Group (SDG), Shop Direct Home Shopping Limited (SDHSL), Reality Group Limited (RGL), and Littlewoods Retail Limited (LRL), (together referred to as the Appellants) from a decision of Judge Berner and Miss O'Neill sitting in the First-tier Tribunal (Tax Chamber) ("FTT"), dated 14 February 2012 (see [2012] UKFTT 128 (TC)) ("the FTT Decision"). The case concerns the corporation tax treatment of sums appearing in the Appellants' accounts which are equal in amount to repayments of overpaid VAT ("VRPs") and interest arising on those repayments ("the IPs") together referred to as "the Sums".
The FTT decided that each of the VRPs were trading receipts of existing trades or trades which have discontinued and all were chargeable to corporation tax on the Appellants under Schedule D Case I or VI as the case may be. Further, it decided that all the IPs were properly assessable on the Appellants under Schedule D Case III. Accordingly, the Appellants' appeal against amendments made by the Commissioners for Her Majesty's Revenue and Customs (HMRC) to the corporation tax self assessments of the Appellants for various accounting periods were dismissed.
There were eight VRPs and corresponding IPs save in respect of VRP5 in relation to which there was no IP. The appeal relates to each of the VRPs and IPs save for such parts of VRPs 4 and 6 and IPs 4 and 6 which are attributable to supplies made by six companies when they were not members of a VAT group. The extent of those parts of VRPs 4 and 6 and IPs 4 and 6 (the Excluded Parts) is not known or quantified at present. The six companies were Brian Mills Limited, Burlington Warehouses Limited, Janet Frazer Limited, John Moores Home Shopping Service Limited, Littlewoods Warehouses Limited and Peter Craig Limited (the Six Companies). They were received as a result of LRL and SDHSL respectively having a direct entitlement to the repayments and interest rather than as payments received from the representative member of a VAT group in their capacity as members of that group.
The Appellants appeal on six bases. It is said that the FTT erred in law:
i) in holding that the VRPs and, accordingly, the IPs arose from a trade carried on by the Appellants which recorded the relevant sums ("the Sums") in their accounts ( the Source argument);
ii) in determining that the Appellants had a beneficial entitlement to the VRPs and IPs as if it were a question of fact instead of a question of law or a question of mixed fact and law and as a consequence erred in concluding that the VRPs and IPs were taxable ( the Beneficial Entitlement argument);
iii) in holding that SDG was liable to tax under section 103 Income and Corporation Taxes Act 1988 ( ICTA) in respect of those parts of VRP2 which related to the trades of GUS plc, Kay & Company and Abound Ltd in circumstances in which the FTT also held that the rights to those parts of VRP2 had been retained by those companies (the SDG Retention argument);
iv) in construing the asset sale agreement between SDG and SDHSL dated 28 th October 2005 (the 2005 Agreement) as ineffective to transfer to the latter such rights as SDG had to VRP2 and IP2 (the SDG Construction argument);
v) in construing section 103 ICTA as imposing a charge to tax on any person receiving a particular sum regardless of whether that person formerly carried on the trade to which the sum related ( the s103 argument);
and lastly,
vi) in holding that IP6 was taxable on LRL as interest under Case III Schedule D and in holding that the remainder of the IPs were payments of interest and in holding that such interest fell within the loan relationship rules, (the Interest arguments).
In essence, the Appellants contend that the effect of the original payment of VAT and the consequent receipt of the VRPs and IPs through VAT groups, with the result that only the representative member was entitled to the receipt of the VRPs and IPs, is that the source of the Sums is not a trade, nor can it be established as a matter of law or fact that the Appellants as recipients of the Sums as opposed to the VRPs and IPs themselves were beneficially entitled to the Sums. Equally, in relation to the IPs they contend that the IPs cannot be characterised in a way which renders them assessable to corporation tax. Lastly, as a result of a number of transactions, in the case of VRPs and IPs 2 and 5, the Appellants contend that the Sums cannot be treated and taxed as post cessation receipts.
HMRC's case in response is simple. It is said on their behalf that the FTT made findings of fact which were open to it, and its decision that the VRPs and IPs thereon were chargeable receipts of the respective Appellants was the inevitable result of applying the correct legal test to those facts.
More particularly, HMRC contends that the FTT rightly held that each repayment was a receipt of the respective Appellants (consistent with the Appellants' accounts); that each repayment arose from the trade of those against whom the VAT had been wrongly charged ("the real source"); and that the Appellants were the persons properly charged under Schedule D Case I or VI, as the case may be as the FTT found at [135] and [146]. In particular HMRC submits that:-
i) Part of VRP1, part of VRP3, part of VRP5, and the whole of VRP7 and 8 are chargeable under Schedule D Case I for the reasons given by the FTT at [134–135];
ii) The remainder of VRP1 and of VRP3, and the whole of VRP4, and VRP6 are chargeable under Schedule D Case I by virtue of section 106(2) of the ICTA as the FTT found at [146];
and
iii) VRP2 and the remainder of VRP5 are chargeable under Schedule D Case VI by virtue of section 103 ICTA, as post-cessation receipts as the FTT found at [146].
HMRC's case in relation to the effect of VAT groups is that the function and role of the representative member in any group is essentially a question of evidence as the FTT found at [27] and [30]. The only necessary implication from section 43 Value Added Tax Act 1994 ( VATA) is that the representative member has authority to act as against HMRC as if it had made supplies and received consideration actually made by and belonging to the member to give effect to its limited authority. This it is submitted, is consistent with the FTT's findings in relation to the arrangements of group members at [30–35].
Basis of Appeals from the FTT
Appeals from the FTT to the Upper Tribunal are restricted to a point of law by virtue of section 11(1) of the Courts, Tribunals and Enforcement Act 2007. As Etherton LJ pointed out at paragraph 36 of his judgment in MJP Media Services Limited v Commissioners for her Majesty's Revenue and Customs, [2012] EWCA Civ 1558 it is also well established that an appeal may be made on a finding of fact which was perverse in the sense that no person acting judicially could properly have reached the finding in question.
The Facts
The facts are and were largely agreed and were set out in an agreed statement of facts. They were set out at paragraph 7 of the FTT Decision and in the appendices to it. For the purposes of this appeal they can be summarised as follows.
The First Appellant, SDG appealed in relation to amendments to its corporation tax returns for the period 1 April 2004 to 31 March 2005, the period 1 April 2005 to 30 April 2005 and the period 31 January 2007 to 30 January 2008. Its appeal relates to two VRPs and two IPs. VRP1 was in the sum of £15,686,929 and the related interest IP1 was in the sum of £1,328,993. The payments were made between February and June 2005. VRP2 was in the sum of £124,963,600 and IP2 in relation to it was £174,828,209. Those payments were made on 19 September 2007.
The Second Appellant, SDHSL appealed in relation to amendments to its corporation tax returns for the period 1 May 2004 to 30 April 2005, the period 1 May 2006 to 30 April 2007 and the period 1 May 2007 to 30 April 2008. Its appeal relates to VRP3 of £7,740,298 received in January 2005 and the related IP3 of £832,628 received in two instalments in February 2005. Its appeal is also concerned with VRP4 in the sum of £52,141,416 and the related IP4 of £78,395,858 paid in August 2007.
The Third Appellant, RGL appealed against assessments for the period 1 April 1997 to 31 March 1998 and the period 1 April 1998 to 31 March 1999. Its appeal relates to VRP5 of £83,604,357 made in May 1998 in relation to which there is no corresponding IP.
The Fourth Appellant, LRL appealed against amendments to its corporation tax returns for the period 1 January 1995 to 31 December 1995, the period 1 May 1997 to 30 April 1998, the period 1 May 1998 to 30 April 1999 and the period 1 May 2001 to 30 April 2002. The appeal relates to VRP6 in the sum of £14,782,382 which was paid in two instalments on 22 November 1995 and 20 December 1995 and statutory interest of £20,527,859 (IP6) paid in two instalments on 27 December 1995 and 12 January 1996.
The repayments of VAT arose in a number of ways. For example, VRPs 5 and 7 arose in respect of overpaid VAT by HMRC attributable to the wrongful charging of VAT on a supplier's debtor balances as at 28 February 1997, when the...
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