Totel Ltd v Commissioners for HM’s Revenue and Customs

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLady Hale,Lord Sumption,Lord Briggs,Lord Hodge,Lord Carnwath
Judgment Date26 July 2018
Neutral Citation[2018] UKSC 44
Date26 July 2018

[2018] UKSC 44

Supreme Court

Trinity Term

On appeal from: [2016] EWCA Civ 1310


Lady Hale, President

Lord Sumption

Lord Carnwath

Lord Hodge

Lord Briggs

Totel Ltd
Commissioners for Her Majesty's Revenue and Customs


Michael Firth

(Instructed by Morrisons Solicitors LLP)


Jonathan Swift QC

Katherine Eddy

(Instructed by HMRC Solicitor's Office (Salford))

Heard on 25 and 26 April 2018

Lord Briggs

(with whom Lady Hale, Lord Sumption, Lord Carnwath and Lord Hodge agree)


Traders who wish to appeal against assessments to Value Added Tax (“VAT”) in the United Kingdom are required, by section 84 of the Value Added Tax Act 1994, first to pay or deposit the tax notified by the assessment with HMRC, unless they can demonstrate that to do so would cause them to suffer hardship. Otherwise, their appeal will not be entertained. This “pay-first” requirement is a feature of the procedural regime for appealing assessments to a number of other types of tax, including Insurance Premium Tax, Landfill Tax, Climate Change Levy and Aggregates Levy. But it is not a condition for appealing assessments to Income Tax, Capital Gains Tax (“CGT”), Corporation Tax or Stamp Duty Land Tax (“SDLT”).


VAT is, in the UK and elsewhere in the European Union, regulated by the provisions of EU Directives, currently of VAT Directive 2006/112. An appeal against an assessment to VAT is therefore a claim based on EU law. All the other taxes and levies referred to above are regulated by domestic law, so that appeals against assessments to any of them are based on domestic law.


The appellant Totel Ltd (“Totel”) seeks to appeal a number of assessments to VAT but has been unable to demonstrate that a requirement to pay or deposit the tax in dispute would cause it hardship. But Totel claims that the requirement to pay or deposit the disputed tax as a condition for its appeals being entertained offends against the EU law principle of equivalence. In outline, this principle requires that the procedural rules of member states applicable to claims based on EU law are not less favourable than those governing similar domestic claims. It is submitted that appeals against assessment to Income Tax, CGT and SDLT are claims which are similar to appeals against assessment to VAT and that, because a VAT appeal is subjected to the pay-first requirement whereas those other appeals are not, then the UK's procedural rules for VAT appeals are less favourable than those governing similar domestic claims.


In the course of a convoluted but irrelevant procedural history Totel first raised its challenge based upon the principle of equivalence when (successfully) seeking permission to appeal from the Upper Tribunal (Tax and Chancery Chamber) to the Court of Appeal. In December 2016 the Court of Appeal rejected that challenge on two grounds. Logically the first (although the second to be dealt with in the leading judgment of Arden LJ) was that none of the domestic taxes (Income Tax, CGT and SDLT) relied upon by Totel were true comparators with VAT for the purpose of the application of the principle of equivalence. The second ground was that, even if they were, there were other domestic taxes (namely those described in para 1 above) which subjected appeals against assessments to the same pay-first requirement, so that it could not be said that EU-derived VAT appeals had been picked out for the worst procedural treatment. Accordingly, what is commonly called the “no most favourable treatment proviso” (“the Proviso”) applied so as to prevent infringement of the principle of equivalence.


In this court Totel challenges both those conclusions of the Court of Appeal. For their part, HMRC challenge (for the first time) the underlying assumption that, when viewed in the round, the procedure for appeals against tax assessments is rendered less favourable to the taxpayer by the imposition of the pay-first requirement in relation to only some of them.


The principle of equivalence and its qualifying Proviso are creatures of the jurisprudence of the CJEU (and its predecessors), and take effect within the general context that it is for each member state to establish its own national procedures for the vindication of rights conferred by EU law: see EDIS v Ministero delle Finanze (Case C-231/96) at paras 19 and 34 of the judgment. Further, it has been repeatedly stated by the CJEU that it is for the courts of each member state to determine whether its national procedures for claims based on EU law fall foul of the principle of equivalence, both by identifying what if any procedures for domestic law claims are true comparators for that purpose, and in order to decide whether the procedure for the EU law claim is less favourable than that available in relation to a truly comparable domestic claim. This is because the national court is best placed, from its experience and supervision of those national procedures, to carry out the requisite analysis: see Palmisani v Istituto Nazionale della Previdenza Sociale (Case C-261/95) at para 38, and Levez v TH Jennings (Harlow Pools) Ltd (Case C-326/96) [1999] ICR 521, para 43.

The search for a true comparator

The principle of equivalence works hand in hand with the principle of effectiveness. That principle imposes a purely qualitative test, which invalidates a national procedure if it renders the enforcement of a right conferred by EU law either virtually impossible or excessively difficult. By contrast, the principle of equivalence is essentially comparative. The identification of one or more similar procedures for the enforcement of claims arising in domestic law is an essential pre-requisite for its operation. If there is no true comparator, then the principle of equivalence can have no operation at all: see the Palmisani case, at para 39. The identification of one or more true comparators is therefore the essential first step in any examination of an assertion that the principle of equivalence has been infringed.


Plainly, the question whether any, and if so which, procedures for the pursuit of domestic law claims are to be regarded as true comparators with a procedure relating to an EU law claim will depend critically upon the level of generality at which the process of comparison is conducted. Is it sufficient that both claims are tax appeals, or (as Totel submits) appeals against the assessment of tax, or that they must both be made to the same tribunal? Or is it necessary to conduct some more granular analysis of the different claims, and the economic structures in which they arise? Or is there some simple yardstick which would prevent claims from being truly comparable, such as, in the present case, the difference between claims arising out of the assessment of liability to direct and indirect taxes, (as HMRC submits)? Decisions of the CJEU provide considerable assistance in identifying the correct approach to this task, although the guidance to be gained from some of them is not always that which springs from an over-simplistic analysis of particular phraseology.


First, the question whether any proposed domestic claim is a true comparator with an EU law claim is context-specific. As Lord Neuberger put it in Revenue and Customs Comrs v Stringer [2009] UKHL 31; [2009] ICR 985 at para 88:

“It seems to me that the question of similarity, in the context of the principle of equivalence, has to be considered by reference to the context in which the principle is being invoked.”

This proposition was not in dispute between counsel, and it is therefore unnecessary to cite decisions of the CJEU in support of it, although most of those to which reference is made below illustrate or mandate the conduct of a context-specific enquiry.


The domestic court must focus on the purpose and essential characteristics of allegedly similar claims: see the Levez case, at para 43 of the judgment:

“In order to determine whether the principle of equivalence has been complied with in the present case the national court — which alone has direct knowledge of the procedural rules governing actions in the field of employment law — must consider both the purpose and essential characteristics of allegedly similar domestic actions.”

To the same effect is para 35 of the judgment of the Grand Chamber in Transportes Urbanos y Servicios Generales SAL v Administración del Estado (Case C-118/08). In Littlewoods Retail Ltd v Revenue and Customs Comrs (Case C-591/10) [2012] STC 1714, the Court at para 31 used the phrase “similar purpose and cause of action”, without in my view thereby intending to change the underlying meaning from that described in the earlier cases.


Of particular importance within the relevant context is the specific procedural provision which is alleged to constitute less favourable treatment of the EU law claim. This is really a matter of common sense. Differences in the procedural rules applicable to different types of civil claim are legion, and are frequently attributable to, or at least connected with, differences in the underlying claim. A common example is to be found in different limitation periods. Thus, in England and Wales, the primary limitation period for personal injury claims is three years, whereas the primary limitation period for most other claims is six years. There is a 20 year prescription period for property claims in Scotland. To treat personal injury and, for example, property claims as true comparators for the purpose of deciding whether the shorter limitation period for personal injury claims constituted less favourable treatment would make no sense. This is because it is no part of the purpose of the principle of equivalence to prevent member states from applying different procedural requirements to different types of claim, where the differences in those...

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