Express Brands Ltd v The Commissioners for HMRC

By Notice of Appeal dated 1 September 2023 the Appellant appealed against the Respondents’ decision to refuse part of a claim made by error correction notification (“ECN”) under section 80(4) Value Added Tax Act 1994 (“VATA”).

The Respondents refused repayment of £176,404 in respect of VAT periods 06/14, 03/15, and 03/16 to 06/19, on the grounds the ECN submitted on 4th September 2023 was outside the statutory four-year time limit for claims. Repayment of £12,291 claimed in respect of period 09/19 was granted and does not form part of this appeal.

The following facts, taken from the Respondent’s written submissions, were not in dispute.

The Appellant sells goods via Amazon, eBay and other online channels. It has been registered for VAT in the UK since 1st June 2009.

In 2019 the Appellant was advised by Amazon that it was required to register for VAT in Germany, in order to account for sales made there.

On 15th September 2022 the German tax authorities wrote to the Appellant, requiring payment of German VAT on sales in Germany between 2013 and 2019. On 15th August 2023, the Appellant's agent called the Respondents’ VAT Helpline concerning reclaiming VAT on German sales.

On 4th September 2023, the Appellant's agent e-mailed forms VAT652 to the Respondents, to notify error corrections to the Appellant’s UK VAT returns for periods 06/14, 03/15, and 03/16 to 09/19.

On 5th February 2024 the Respondents e-mailed the Appellant’s agent confirming the claim for period 09/19 would be paid, but the claims for earlier periods were out of time and would not be repaid. A copy of the formal decision addressed to the Appellant, advising of its rights of review and appeal, was attached.

On 11th March 2024 the Appellant's agent confirmed a review of the decision was requested.

On 31st July 2024, the Respondents issued their review conclusion letter, upholding the decision to refuse the ECN on respect of periods 06/14, 03/15, and 03/16 to 06/19.

The point at issue in this appeal is whether the Respondents were correct to refuse repayment of UK VAT claimed in ECNs for periods 06/14, 03/15, and 03/16 to 06/19. The burden of proof is on the Appellant to show that the claim should be allowed.

Section 80(1) VATA 1994 provides as follows:

The four year time limit is found in section 80(4) VATA:

“(4)

The Commissioners shall not be liable on a claim under this section—

(a)

to credit an amount to a person under subsection (1) …

if the claim is made more than 4 years after the relevant date.”

Section 80(4ZA) VATA defines the “relevant date” as the end of the related prescribed accounting period.

Regulation 34 of the Value Added Tax Regulations 1995 (“VATR”) specifies limits for the correction of errors by adjusting a person’s VAT account, and also specifies a 4 year limit within which to do so:

“(1A) Subject to paragraph (1B) and (1C) below, any overstatement or understatement in a return where–

(a)

a period of 4 years has elapsed since the end of the prescribed accounting period for which the return was made; and

(b)

the taxable person has not (in relation to that overstatement or understatement) corrected his VAT account in accordance with this regulation before the end of the prescribed accounting period during which that period of 4 years has elapsed,

shall be disregarded for the purposes of this regulation…”

Regulation 35 of the Value Added Tax Regulations 1995 specifies that errors not corrected under regulation 34 shall be corrected in such manner and within such time as required by the Respondents.

The Respondents cited the following authorities in support of their case. In Botanical Catering Ltd [2009] UKFTT 265 (TC) Lady Mitting stated (at paragraph [7]):

“Section 80 gives no discretion either to the Commissioners or to the Tribunal. It is absolutely clear and has to be applied.”

In the Upper Tribunal case of Taylor Clarke Leisure PLC [2014] UKUT 396 (TCC), Lord Doherty held (at paragraph [30]):

“On an ordinary reading of s. 80 a claim made by or on behalf of any claimant for credit or repayment to him requires to have been made prior to the expiry of the relevant limitation period.”

On behalf of the Respondents, Mr Corps submitted that by virtue of s80(4) VATA the Respondents shall not pay claims made more than four years after the “relevant date”. The Appellant’s returns were not previously corrected, therefore the “relevant date” is the end of each individual prescribed accounting period, as per section 80(4ZA)(a) VATA 94.

The claims are out of time, ranging from 1892 days late (period 06/14) to 66 days late (period 06/19).

There is no discretion under section 80 VATA 94 to vary the statutory 4 year time limit, nor does the statute provide for any mitigation or consideration of unfortunate circumstances to enable the Appellant’s claims to be paid.

The Respondents submit that in line with the binding precedent of Taylor Clarke, the Appellant was required to make its claim before the expiry of the time limit within Section 80(4) VATA 94. The Appellant failed to meet this requirement, and as such its claim cannot be accepted under the provisions of Section 80.

The Respondents submit that even if the claim had been made by the Appellant correcting its VAT account in accordance with Regulation 34 VATR, the Respondents would still have been correct to refuse the consequent repayment as the resulting overpayment is subject to the time limits of the primary legislation, unless the Commissioners consider the circumstances to be exceptional.

The Respondents do not consider that the circumstances in this appeal are exceptional. In reaching that conclusion, the Respondents rely on Sales J (at paragraphs [16] and [42]) of R (on the application of Capital Accommodation (London) Ltd (in liquidation)) v HMRC [2012] UKUT 276 (TCC):

“…Hence, even when HMRC decide to direct under reg 35 that an error be corrected, they are not obliged to direct that that be done in such a way as to circumvent the limitation period to reclaim overpaid VAT set out in the primary legislation, in s 80.

…

(i)

Regulation 35 confers a discretion on HMRC to impose requirements as to the time in which a taxable person shall correct an error;

(ii)

HMRC may, in the exercise of that discretion, lay down requirements in advance as to the time within which a taxable person must bring forward a proposed correction. The discretion is not limited to issuing requirements once a taxable person has come forward to identify an error or after HMRC identifies in error. …

(iii)

By issuing the HMRC Guidance (and previous versions of it, such as Notice 700/45/93), with its requirements as to the time within which applications to correct errors should be made, HMRC has exercised its discretion in line with its powers identified in (ii), above. … The imposition of those time limits in the Guidance is therefore lawful and a proper exercise of HMRC's discretion under reg 35;

(iv)

Unless good reason can be shown why, on the facts of a particular case, the general time limit rules in the HMRC Guidance for correction of errors should not be applied, HMRC is entitled to point to those rules as the basis for a decision to decline to issue a direction under reg 35 for errors in a VAT account or in VAT returns to be corrected. …

(v)

Therefore, HMRC were lawfully entitled to refuse to give further consideration to possible correction of the 02/05 return by relying on their policy as to time limits for corrections set out in the HMRC Guidance. The net effect of this is to leave the claimant's claim to recover what the liquidator maintains was an overpayment of VAT time-barred by virtue of s 80(4) of VATA. There is nothing improper or wrong about this result.”

The discretion referred to in the VATR is contained within the Respondent’s published guidance. Mr Corps noted that the four year time limit is clearly stated in VAT Notice 700/45 “How to correct errors and make adjustments or claims” at paragraphs 4.6.1 and 4.7. Paragraph 5, on claiming a refund, also refers back to those time limits.

In a telephone call to the Respondents on 15th August 2023, the Appellant queried:

“is it not a problem because they’re older than four years?”

This indicated, Mr Corps submitted, that the Appellant was aware of the time limit at that point, prior to submitting its claim.

The Appellant failed to follow published guidance and register for VAT in Germany at the correct time. The Respondents contend that these circumstances are not exceptional.

The Appellant’s reliance on the Limitation Act 1980 does not assist; s39 provides as follows:

“This Act shall not apply to any action or arbitration for which a period of limitation is prescribed by or under any other enactment (whether passed before or after the passing of this Act) or to any action or arbitration to which the Crown is a party and for which, if it were between subjects, a period of limitation would be prescribed by or under any such other enactment.”

On behalf of the Appellant, Mr Davis submitted that the application of the appropriate limitation of time in the relevant legislation, restricting any legitimate errors in relation to errors in VAT, are too restricted in their application by the Respondents.

In addition, the provisions contained in the Limitation Act 1980 (“LA80”) provide the ability to extend the limitation periods therein and therefore has application to the issues in this appeal. It should be applied notwithstanding the authorities cited by the Respondents.

The legitimacy of the claim is demonstrated by the fact that the Respondents accepted the claim in relation to one period which was not time-barred. The consequence of the Respondent’s decision is that the Appellant has, in effect, paid VAT twice.

Mr Davis submitted that the Tribunal should interpret its discretionary power under Regulation 34 of the VATR and the limitation period of 4 years to extend that period.

Furthermore, the VATR suggest that the Respondents have a discretion and should extend the limitation period accordingly.

The consequences to the Appellant are significant. The Appellant has explained to the Respondents:

“We were informed by Amazon that we register for German VAT, we’ve paid previously all our VAT to the UK authorities rather than the German authorities. We didn’t know what it would be like. We had no idea that this was wrong. Amazon only informed us in 2019. And then when they informed us we didn’t pay anything previously to the German authorities. It was just from that day. And but it was like circa £185,000 how we paid to yourselves instead of the German Authorities as we hadn’t heard anything. So we thought we didn’t know if there was any problem until recently. We have had a letter from the German VAT authorities demanding nearly 300.000 euros. We had an accountant phone up yourselves in November last year so I don’t if there’s any notes on the system which said we’d get the money back from yourselves.”

The Appellant challenges the principle applied by the Respondents which flies in the face of natural justice.

In reaching my Decision, I have taken into account all of the written material before me together with the helpful oral submissions of Mr Davis and Mr Corps.

Section 80(1) VATA provides for a person to claim credit for output tax that has been wrongly accounted for to the Respondents. That the Appellant fell within this provision was not in dispute.

The difficulty for the Appellant is that the statute sets out a time limit for making such a claim. Again, there was no dispute that the Appellant’s claims in the periods which form the subject of this appeal fell outside the time limit.

Section 80(4) VATA is in mandatory terms:

“The Commissioners shall not be liable on a claim under this section—

(a)

to credit an amount to a person under subsection (1) …

if the claim is made more than 4 years after the relevant date.”

(my emphasis)

The Appellant sought to prey in aid the VATR. Regulation 34 specifies a 4 year time limit for the correction of errors by adjusting a person’s VAT account.

Regulation 35 provides that where the error has not been corrected in accordance with Regulation 34, a taxpayer “shall correct it in such manner and within such time as the Commissioners may require.”

I agree with the submissions of Mr Corps on behalf of the Respondent; to the extent that Regulation 35 provides discretion, the Regulations are subordinate to the primary legislation. Moreover, the exercise of that discretion is to be found in the Respondent’s published guidance, which stipulates a time limit of 4 years. As stated by Sales J in R (on the application of Capital Accommodation (London) Ltd (in liquidation)) v HMRC:

“By issuing the HMRC Guidance…with its requirements as to the time within which applications to correct errors should be made, HMRC has exercised its discretion in line with its powers identified in (ii), above. … The imposition of those time limits in the Guidance is therefore lawful and a proper exercise of HMRC's discretion under reg 35…”

I am bound by the Upper Tribunal authorities which are clear that the Tribunal has no jurisdiction or power to circumvent the limitation period set out in the primary legislation.

I considered the Appellant’s reliance on the Limitation Act 1980. However, as Mr Corps noted, the statute is expressly disapplied where “a period of limitation is prescribed by or under any other enactment”. In those circumstances, the Limitation Act cannot assist.

In my view, to accept the Appellant’s construction would be contrary the clear purpose of s.80 VATA, namely, to impose a limitation period within which any claim for repayment may be made.

The authorities by which I am bound have held that the time bar provisions contained within s80 VATA are compliant with EU law and do not contravene the principle of effectiveness.

I have concluded that the Appellant’s failure to follow published guidance cannot take it outwith the scope of the applicable legal provisions. The claims were made out of time and the Respondents’ decision to refuse them was therefore correct and I must uphold it. 

The appeal is therefore dismissed.  

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.