On this publish, Jack Prytherch, Of Counsel throughout the Tax workers at CMS, previews the selection awaited from the Supreme Courtroom in Commissioners for Her Majesty’s Earnings and Customs v NHS Lothian Nicely being Board [2020] CSIH 14. The attraction was heard by the Supreme Courtroom on 8 and 9 June 2022. The Supreme Courtroom was requested to consider the right technique that must be taken by HMRC and the courts to proof, and the burden and regular of proof, in historic claims for the restoration of overpaid VAT.
Background
The laws in relation to VAT broadly confers a correct to deduct the amount of any VAT on enter expenditure for enterprise actions. The place such ‘enter tax’ is unrecovered so that VAT has been overpaid, it is potential to make a declare for prior durations (subject to any related statutory deadlines).
Claims for overpaid VAT, doubtlessly going once more as far as the inception of VAT in 1973, are generally called ‘Fleming claims.’ They’re so often known as after the selection of the Dwelling of Lords in Fleming (shopping for and promoting as Bodycraft) and Condé Nast Publications Ltd v Commissioners for Her Majesty’s Earnings and Customs [2008] UKHL 2, which concerned one of the best ways via which the then UK statutory time limit on making claims for overpaid VAT had been launched. Finance Act 2008, s 121 was subsequently launched to limit the scope for making such claims by introducing a model new transitional interval ending April 1, 2009, sooner than which any such claims wanted to be made.
The taxpayer, NHS Lothian Nicely being Board (“NHS Lothian”), is an NHS perception liable for the provision of effectively being firms contained in the Lothian house of Scotland. Together with its predecessors, NHS Lothian operated scientific laboratories in the midst of the interval between 1974 and 1997. Most of the work carried out throughout the laboratories was carried out for the medical features of the taxpayer and resulting from this truth composed of non-business actions for VAT features. Nonetheless, NHS Lothian moreover carried out work for people exterior the NHS, along with native authorities and pharmaceutical companies, which constituted enterprise actions for VAT features (that implies that enter tax incurred for the wants of such actions must have been recoverable). Sadly, earlier to 1994, the VAT obligation of NHS boards just like NHS Lothian was handled by the Scottish Office, and thru that interval (and until the 12 months 1995/1996) it was the general observe of public our our bodies to not make claims to get higher enter tax on enterprise actions.
In opposition to that background, NHS Lothian made a world Fleming declare for the interval from 1 April 1974 to 30 April 1997 which included the enterprise actions of its laboratories. That declare was rejected by HMRC and NHS Lothian appealed to the First-tier Tribunal (Tax Chamber) (“FTT“).
Selections of the Tribunals
The primary downside in Fleming claims is usually not the existence of the taxpayer’s declare to get higher overpaid VAT nevertheless in its place whether or not or not that declare is perhaps quantified with satisfactory accuracy to permit an order for reimbursement to be made. The rationale for that’s that historic financial data usually tend to have been destroyed or in some other case misplaced over time. Taxpayers are resulting from this truth reliant on one other proof to assist historic claims.
For the wants of its Fleming declare, NHS Lothian had based its calculations on a separate declare made for the 12 months 2006/2007 in respect of which financial data remained on the market and for which HMRC had agreed that the recoverable amount must be 14.7% of the general costs of the laboratories. NHS Lothian sought to extrapolate that exact same agreed share backward to earlier years and as well as supplied detailed proof, accepted by the FTT, that the actions of the laboratories had not modified significantly all via the associated interval.
However, the FTT held that the proof supplied by NHS Lothian was not precise to utilize as a basis for the quantification of the declare. As an example, whereas NHS Lothian had supplied witness proof confirming that there had been no changes to the general pattern of train over the associated interval, there had not been any reference to reliable principal data (eg, product sales ledgers or copy tax invoices), and the time-scale involved undermined the attainable accuracy of the proposed extrapolation as portions had been sure to fluctuate. The FTT resulting from this truth dismissed NHS Lothian’s declare in its entirety, and that decision was subsequently upheld by the Larger Tribunal.
Decision appealed
On attraction to the Inside Dwelling of the Courtroom of Session, two principal questions arose:
- firstly, whether or not or not the essential correct to reimbursement of overpaid VAT, assured by EU laws and the principle of effectiveness, signifies that, if the taxpayer’s methodology for calculating the amount of repayments had been rejected, HMRC and the Tribunals weren’t permitted to reject completely the taxpayer’s declare solely on the concept of difficulties with determining a satisfactory methodology or difficulties of proof; and
- secondly, whether or not or not, having regard to the essential EU laws requirement that the perfect to get higher overpaid VAT should not be rendered excessively troublesome or not attainable in observe beneath dwelling laws (the principle of effectiveness), HMRC and the Tribunals must undertake a flexible technique to the burden and regular of proof in reference to historic claims for reimbursement.
The Inside Dwelling answered every questions throughout the affirmative and allowed NHS Lothian’s attraction, isolating the FTT’s selection and remitting the case to a differently constituted FTT for reconsideration. It is that decision of the Inside Dwelling that is the subject of the attraction to the Supreme Courtroom.
In step with the Inside Dwelling, the FTT had imposed too extreme a check out on the NHS Lothian as a result of the taxpayer. The existence of a declare to get higher overpaid VAT was not in downside; all that was in dispute was the quantum. That meant that some amount of enter tax must be because of taxpayer (whereas, if the FTT had been proper, none of that amount might be recovered). As such, the place it is clear that some reimbursement of tax is due, the Inside Dwelling thought-about that it must normally be potential to succeed in at some form of quantification of the amount due and “distinctive circumstances” might be required to render such quantification not attainable. If wanted, the FTT ought to hold out the acceptable calculations itself or not lower than state the principles by reference to which the calculation must be made. As a closing resort, it additionally must be potential to low price an estimated amount to copy the uncertainty.
On this case, the rationale for the scarcity of principal proof was the historic nature of the declare, which the Inside Dwelling well-known was largely introduced on by the failure of the UK to accurately implement the EU laws correct to reclaim enter tax and as well as by the reality that NHS Lothian’s VAT affairs had been at one time beneath direct authorities administration. In such circumstances, a “pretty generous technique” must be taken to historic claims and the failure of the taxpayer to provide principal proof could not be given the extent of significance as attributed by the FTT.
The Inside Dwelling determined, resulting from this truth, that the important question must be whether or not or not, throughout the light of the absence of satisfactory principal proof, the taxpayer has succeeded in proving the quantification of its declare on the steadiness of prospects via the usage of such secondary proof as exists and drawing inferences from that proof. In step with the Inside Dwelling, that is not a check out of certainty and even near certainty, nevertheless in its place a question of whether or not or not the taxpayer’s calculation of the reimbursement due is additional extra more likely to amount to an accurate quantification of its declare than the selection (ie, no enter tax being repayable the least bit).
Comment
This case highlights the difficulties that could be confronted by taxpayers in evidencing historic Fleming claims for overpaid VAT, along with the strong technique taken by HMRC in respect of such claims. The number of wonderful Fleming claims, for obvious causes, is diminishing. However, the upcoming selection of the Supreme Courtroom additionally must have relevance to totally different situations the place the taxpayer is required to provide proof to quantify a declare for reimbursement and the general guidelines that must be utilized by HMRC and the FTT in such circumstances.