A new ruling has confirmed that a representative member of a VAT group cannot rely on a claim made by a departed VAT group member when the representative member itself did not make the claim.
HM Revenue & Customs (HMRC) has successfully appealed at the Supreme Court against an earlier decision by the Scottish Inner House, which has provided definitive guidance on the UK’s VAT grouping rules.
VAT grouping was introduced to simplify the administration and collection of VAT. To make use of this facility Taylor Clark Leisure Plc (TCL) was a ‘representative member’ of the Taylor Clark VAT group between 1973 and 2009.
In 1990 TCL conducted a group reorganisation involving the transfer of its bingo business to another member of the VAT group, Carlton Clubs Ltd (Carlton) who ceased to be part of the VAT group eight years later, following a sale to a company outside of the Taylor Clark group of companies.
In November 2007 a dispute arose when Carlton submitted four claims for repayment of VAT to HMRC without the knowledge of TCL, despite the overpayments being made by TCL in accounting periods between 1973 and 1996.
The overpayments related to bingo and gaming machine income which had been treated as taxable but later found to be exempt by the CJEU.
The House of Lords held in 2008 that UK legislation that imposed a shortened three-year time limit on claims for the refund of overpaid VAT between 1973 and 4 December 1996 without providing for an adequate transitional period fixed in advance, was contrary to European law.
As a result, Carlton submitted VAT repayment claims to HMRC for VAT overpaid between 1973 and 1996..
At an earlier hearing, a First-tier Tribunal (FTT) found that Carlton had made the claims on its own behalf and that these could not be relied upon by TCL. However, this was overturned by the Inner House of the Court of Session – Scotland’s appeal court.
In the latest appeal by HMRC, the Supreme Court was given the task of deciding whether the claims made by Carlton, which had been made in time, could be treated as having been made on behalf of TCL as the representative member of the VAT group.
After much consideration, the Supreme Court has restored the decision of the FTT and found in favour of HMRC saying Carlton, which had “long ceased to be a member of the VAT group”, did not make a claim for repayment on behalf of TCL.
“Even if Carlton had remained a member of the VAT group, I would not have construed its letter as one on behalf of TCL, in the absence of an assertion that it was acting as TCL’s agent, because the statutory scheme, which it was invoking, envisaged that HMRC would deal only with the representative member,” said Lord Hodge when delivering his ruling.
The rules surrounding VAT groupings, particularly where a member leaves and seeks to reclaim VAT, can be extremely complex. Whilst this new ruling provides a degree of clarity, it is advised that businesses entering or leaving a VAT group seek specialist advice before doing so.
To find out how UK VAT Advice can help you with this and other complex VAT arrangements, speak to our team today.