The representative member of a VAT group remains entitled to recover overpaid VAT, even if the company whose activities gave rise to the supplies – the 'real world supplier' – has left the VAT group by the time the repayment is claimed, the Court of Appeal has determined.
The court's ruling came in a decision concerning a number of different disputes over entitlement to VAT repayments.
"The judgment reinforces the need for companies to consider putting in place private contractual rights to allocate refunds of VAT in circumstances where a real world supplier leaves a VAT group," said Clara Boyd, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com.
Members of a VAT group appoint one company to be the 'representative member'. Any business carried on by a member of the VAT group is treated as carried on by the representative member.
If it later becomes apparent that some of the output tax accounted for by the representative member was not lawfully due, and at the time that a claim for a refund from HMRC is made the real world supplier is still a member of the VAT group, the representative member is entitled to bring the claim to recover the overpaid VAT.
The issue considered by the Court of Appeal in this case was what happens if the real world supplier has left the VAT group at the time the claim is made. HMRC's policy has been to accept the claims of the representative member of the VAT group and to refuse claims by real world suppliers who have left the VAT group. HMRC has applied this policy even where the VAT group has been dissolved by the time the claim is made, treating the correct claimant as the last representative member of the VAT group before dissolution.
One of the disputes considered by the Court of Appeal in this case related to repayments of VAT accounted for in respect of supplies of services by Chartered Trust plc, now owned by Lloyds Banking Group. In some periods when the supplies triggering the repayments were made Chartered Trust was itself the representative member of the VAT group, in other periods, Standard Chartered plc was the representative member.
Another dispute covered by this judgment was between MG Rover Group and BMW and related to claims to refunds of VAT paid by the Rover VAT group. The decision also covered a dispute between Gala Leisure and HMRC in respect of claims it had made relating to sales made by real world suppliers who had left different VAT groups which still existed at the time of the claim.
In July 2018 the Supreme Court decided in a case concerning bingo operator Taylor Clark Leisure that a repayment claim made by a company which had left the group could not be treated as having been made by the representative member of the group, which was then out of time to make the claim itself.
Notwithstanding the Taylor Clark decision, which is binding on the Court of Appeal, the taxpayers in this case argued that the UK's domestic law provisions did not comply with EU law and that this issue was not before the Supreme Court in the Taylor Clark case and was not determined by it.
Declining to refer the case to the Court of Justice of the European Union (CJEU) for a preliminary ruling, Lady Justice Rose said: "I see nothing in the objectives, context or wording of article 11 [of the EU Principal VAT Directive (PVD)] as interpreted by the CJEU that rules out the model adopted in section 43 [of the UK's VAT Act (VATA)]. It does not run counter to the objectives of simplification and combating abuse and it does not create uncertainty."
"Neither the wording of article 11 PVD nor the jurisprudence of the CJEU precludes the model of VAT grouping adopted by the UK in sections 43 to 44 VATA whereby the VAT group appoints a member of the group to be the representative member and attributes the businesses of the other members of the group to that representative member who then accounts to HMRC for the VAT arising from all transactions in those businesses. The proper construction of article 11 does not stipulate that the single taxable person created by the VAT grouping provisions operates in such a way that any [VAT repayment] rights arising from that accounting for VAT are held by the real world suppliers so that those suppliers take the rights with them when they leave the VAT group," Lady Justice Rose said in her judgment.
"Where the VAT group has been dissolved, the last representative member of the group has a claim under section 80 whether or not it is the same legal entity as fulfilled that role at the time of the supplies and whether or not it is still a taxable person. The question of who bore the economic burden of the tax is not a relevant consideration," the judge said.
Clara Boyd of Pinsent Masons said, though, that the Court of Appeal did, though, reiterate that there may be exceptional circumstances in which the operation of sections 43 and 44 VATA and sections 80 and 80A do not provide an adequate framework for the full enforcement of rights to recover tax levied contrary to EU law.
"The paradigm example would be where the VAT group and representative member have been dissolved. However, the appellants were unable to establish that any exceptional circumstances existed in their cases," Boyd said.
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