HMRC v Grattan plc [2011]

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09 December 2011

Following the Upper Tribunal decision in HMRC v Grattan plc [2011] UKFTT 691 (TC), the First-tier Tribunal has directed that a question should be referred to the ECJ on whether repayment interest on overpaid VAT may be compounded.

Questions referred to ECJ

The question relates to situations where a taxable person has overpaid VAT which is collected by a Member State contrary to the requirements of EU legislation.  

The crucial point is whether the EU law principles of effectiveness and/or equivalence require any further remedy required by EU law to be provided in the tax tribunals in the UK, or whether it is sufficient that a remedy is available under national law in the ordinary courts of the Member State.

Background

The Appellant, Grattan plc ("Grattan"), is registered for VAT as the VAT representative member of a VAT group and also the assignee of the rights of other VAT registered persons.  Grattan therefore either paid VAT to HMRC, or had the benefit of the rights of those who did so.  

The dispute that was presented before the Tribunal arose out of claims made by Grattan to HMRC under s. 80 VATA 1994 for repayment of sums which Grattan claimed were wrongly levied as VAT.

HMRC had already repaid most of the principal sums to Grattan.  The outstanding sums in dispute were with regard to commission received in cash in respect of third party purchases.  The issue before the Tribunal was whether the appropriate measure of interest was to be applied to the whole of the amounts that had either been repaid or, as a result of the proceeding before the Tribunal, were found to be repayable.  

Analysis

Where a claim under s. 80 VATA 1994 is successful, the taxable person may also be entitled to interest on the sum overpaid calculated in accordance with the provisions of s.78 VATA 1994.  As a matter of national law, the provisions of s.78 and s.80 VATA 1994 are the only means available to a taxpayer to recover overpaid VAT and interest.  This was confirmed in the judgment of Littlewoods Retail Ltd v Revenue & Customs [2010].  However, in this case, the High Court stated that exclusion would be disapplied to the extent necessary to give effect to any EU law right.  

Therefore, if EU law required any further remedy to be provided in addition to that already provided for under s.78 and s.80 VATA 1994, that remedy would only be available by a claim for restitution before the ordinary courts.  

The issue before the Tribunal in HMRC v Grattan plc [2011] asks the question whether the provisions of s.78 and s.80 VATA 1994 are in accordance with the requirements of EU law regarding any substantive right under EU law to recover interest on overpaid amounts of VAT.  

HMRC appealed the Tribunal's decision to refer a question to the ECJ.  They claimed that the Court of Appeal had previously noted in John Wilkins (Motor Engineers) Ltd v CRC [2011] that the interpretation of EU law and how it applied to compound interest on overpaid VAT had been settled.  However, the Tribunal has replied that although it is true that the First-tier Tribunal had referred an effectively identical reference to one that the Court of Appeal had declined to refer in John Wilkins, it was still entitled to refer the question to the ECJ.  

The Tribunal has decided to stay the proceedings before it pending the judgment of the ECJ.

Impact of ECJ judgement

If s.78 and s.80 VATA 1994 are not in accordance with EU law, the Tribunal has already taken the provisional view that these sections could not be construed so as to accommodate the EU substantive right in proceedings before the Tribunal.  The Tribunal's preliminary conclusion was that that did not breach the principles of equivalence or effectiveness but it considered that it could not conclude on this point with complete confidence and without seeking the guidance of the ECJ.  

It will be interesting to see the ECJ's judgment on this point, and the impact that it will have on the repayment of overpaid VAT and interest going forward.

If you have any queries, please contact Natalie Stoter in the Corporate Tax team on natalie.stoter@burges-salmon.com.  

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