The Commissioners for HMRC v Colaingrove Limited

HMRC contend that the FTT erred in law in the following respects.

Ground 1: under the heading ‘Meaning of “paid”’, the FTT wrongly decided that section 84(8), where it continues to apply, applies to any situation in which, on an appeal, it is determined that amounts have been paid to HMRC which were not due to HMRC: FTT [136]. The FTT wrongly decided that the application of section 84(8) was not limited to the situations in section 84(3) VATA: FTT [136], but ‘imposes the mandatory obligation ‘shall be repaid’ in all situations in which tax has been paid’: FTT [137].

Ground 2: further or alternatively to Ground 1, under the heading ‘Are the amounts which have been repaid amounts determined as payable by HMRC in respect of an appeal under section 83(b)’, the FTT wrongly decided that the principal amounts in issue in the Section 80 Appeals (Footnote: ⁵) were amounts ‘paid in pursuance of section 84(3)’ and that the conditions for the application of section 84(8) were met because the FTT wrongly decided that they were amounts ‘which the Commissioners have determined as payable’ in connection with an appeal under section 83(b) and which were thereby required to have been paid in order that the appeal be entertained: FTT [141].

Consequently, the FTT erred in law in deciding at FTT [148] and [155(2)] that the Section 80 Objection –

Ground 1: The post-April 2009 Objection is wrong as a matter of domestic law. The FTT erred in law at FTT [94]-[105] when it determined that, as a matter of statutory interpretation, it had no jurisdiction to award additional interest pursuant to section 84(8) VATA in respect of an appeal filed after 1 April 2009 but which depended upon a pre-1 April 2009 decision of principle as to the underlying VAT liability.

Section 84(8) VATA 1994 is preserved where no appeal has yet been brought but where “HMRC have notified a decision relating to a matter to which section 83 of [VATA] applies”, pursuant to paragraph 4 of Schedule 3 of the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009/56 (‘TTFO’). Section 83(1)(b) VATA provides that one such matter is “the VAT chargeable on the supply of any goods or services”.

The FTT erred in failing to give these words their natural meaning in context (FTT [86]-[97]). A decision of principle as to the liability of a particular supply to taxation predating 1 April 2009 – which is given effect in subsequent assessments postdating 1 April 2009 – is a matter to which section 83 applies and therefore in respect of which section 84(8) is preserved.

The FTT wrongly failed to recognise that this construction reflects the deliberately broad language of the saving provision, as well as its purpose, which is to ensure that taxpayers are not prejudiced in long running disputes about decisions of principle with HMRC which started before 1 April 2009 and continue thereafter.

Ground 2: post-April 2009 Objection is wrong as a matter of EU law. The FTT erred in law when it declined to give a Marleasing (Footnote: ⁶) compliant interpretation to Schedule 3, paragraph 4 TTFO and/or section 85A VATA.

Those provisions must be read in compatibility with EU law in respect of each of the decisions in this case, which long predated IP Completion Day: see Lipton v BA Cityflyer [2024] UKSC 24, SC at [66]-[68]; [91], [94], [95] and [100].

EU law requires an “adequate indemnity” for wrongfully being kept out of money by the tax authorities: Case C-591/10 Littlewoods Retail Ltd v HMRC EU:C:2012:478, [2012] S.T.C. 1714, at [27] (“Littlewoods CJEU”). A discretion is required for those cases (such as this case) where the statutory interest rate fails to give “adequate indemnity”. The FTT erred in finding FTT [62-64] that the Supreme Court’s judgment in Littlewoods Limited v HMRC [2017] UKSC 70 (“Littlewoods Limited”) concluded otherwise FTT [62-64].

The FTT fell into error in its analysis of the Appellant’s accrued EU law right to interest FTT [98–103]. The accrued right in question is a right to interest under EU law in respect of ongoing disputes about liability which start before 1 April 2009, as recognised in Emblaze Mobility Solutions Ltd v HMRC [2014] UKFTT 0679 (TC) and on appeal in Emblaze Mobility Solutions v HMRC [2018] UKUT 373 (TCC). HMRC did not appeal the conclusion that the taxpayer had a right under EU law to interest on repayments of tax wrongly withheld and that ruling is binding on HMRC. The FTT erred in failing to give effect to this accrued right.

Further, paragraph 4 TTFO and/or s. 85A VATA must be read in light of general principles of EU law, which were directly effective at the time: Lipton v BA Cityflyer at [66]-[68]. In particular, it runs counter to EU law principles of equivalence and effectiveness artificially to guillotine the interest that an Appellant can recover in the course of an ongoing and long-running dispute. The FTT erred in failing to give effect to these EU general principles when interpreting paragraph 4 TTFO and/or s. 85A VATA.

Accordingly, the FTT erred in law when it failed to give a Marleasing compliant interpretation to paragraph 4 TTFO and/or s. 85A VATA.

Ground 3: the FTT found as a fact that the Company’s cost of borrowing was the Bank of England base rate plus 2.27%. However, the FTT held at FTT [75] that the company was entitled to interest at base rate plus 1.5%. The Company appeals on the basis that the FTT erred in law when it found that the Company was only entitled to interest at base rate plus 1.5%.

Mr Moser KC, appearing with Mr Macnab for HMRC, submitted that the FTT had no jurisdiction to award interest under section 84(8) VATA in respect of the section 80 Appeals. The scheme of the legislation, Mr Moser submitted, was that section 84(8) provided a restitutionary remedy for repayment of principal and payment of interest only where appeals fall within section 84(3), i.e. where HMRC had compelled a trader to pay VAT rather than where a trader had self-assessed itself to the VAT in question. Where a trader had overpaid VAT section 80 represented the only and exclusive restitutionary remedy. Furthermore, there had to be a causal connection between the demand issued by HMRC and the payment in order to bring the appeal within the provisions of section 84(8).

The Company’s repayment claims, Mr Moser said, were made pursuant to section 80. Since 1 January 1990 (when the predecessor of section 80 – section 24 Finance Act 1989 – came into effect) section 80 was the exclusive remedy for obtaining a refund of over-declared and overpaid VAT from HMRC (Investment Trust Companies (in liquidation) v HMRC [2017] UKSC 29 (“Investment Trust Companies”) and Littlewoods Limited). An appeal against a refusal of a section 80 claim had to be made pursuant to section 83(t). Section 84(3) contained no reference to appeals against decisions in respect of matters mentioned in section 83(t) (i.e. section 80 claims). Instead, section 84(8) referred only to “any amount paid or deposited in pursuance of [section 84(3)]” and imposed an obligation on HMRC to repay “so much of that amount as is found not to be due.”

Therefore, Mr Moser contended, that because section 84(8) imposed no obligation on HMRC to repay overpaid principal in a successful section 83(t) appeal, it followed that section 84(8) imposed no obligation and gives no discretion to pay interest on that overpaid principal (FJ Chalke Ltd and another v HMRC [2009] EWHC 952 (Ch) at [70]).

Furthermore, Mr Moser submitted that the Company’s appeals were not against any decision with respect to any of the matters mentioned in section 83 (b), (n), (q), (ra) or (zb). In particular, the Company’s appeals were not against any decision of HMRC as to “the VAT chargeable on the supply of any goods or services” for the purposes of section 83(b). HMRC did not determine any amount to be payable as VAT by the Company within the meaning of section 84(3). Moreover, the Company did not pay or deposit any amount with HMRC in pursuance of section 84(3). Therefore, there was no relevant “amount” for the purposes of section 84 (8) in respect of which the FTT could award interest. Mr Moser also submitted that there was a discrete threshold jurisdictional condition in section 84(3) to pay to or deposit an amount of tax which HMRC had determined. Section 84(3) imposed no similar discrete threshold jurisdictional condition in relation to tax repayment claims under section 83 (t) appeals, since the tax would, by definition, have already been paid.

Therefore, Mr Moser submitted, section 84(8)(a) provided a specific restitutionary remedy as regards repayment of principal and payment of interest only where (1) HMRC had determined that an amount was payable as VAT, in the context of an appeal under section 84 (3), and (2) consequently, the trader paid or deposited that amount with HMRC as a condition of appealing i.e. the trader paid or deposited the VAT in pursuance of that determination.

Thus, Mr Moser contended that section 84(3) and section 84(8), on the one hand, addressed different situations from section 80(1) on the other, reflecting the fact that VAT was a self-assessed tax. Section 84(3) and section 84(8) concerned a situation where a taxable person has correctly accounted for and paid VAT and successfully resists (incorrect) enforcement action by HMRC. Section 80(1) concerns a situation where a taxable person, for whatever reason, accounted for and paid VAT that was not properly due (and who may have passed on the charge to its customers).

Mr Moser submitted that the FTT failed to appreciate that section 80 was the exclusive remedy for recovery of over-declared output tax, whether or not that over-declaration also caused the taxpayer to overpay VAT to HMRC. The FTT’s conclusion, Mr Moser contended, would result in a difference in treatment between (1) a “payment trader” who over-declares output tax and consequently overpays VAT to HMRC and (2) a “repayment trader” who over-declares VAT, but who does not pay VAT to HMRC, because his allowable input tax exceeds his output tax liability. The repayment trader claiming credit for over-declared output tax has, ex hypothesi, not paid or overpaid any sum to HMRC. The repayment trader’s claim cannot, therefore, fall within the scope of section 84 (3) since there would be no relevant amount that HMRC have determined to be payable as VAT and no question of the trader paying or depositing any sum with them. Further, section 84 (8) could not be engaged, because no sum has been paid, whether pursuant to section 84 (8) or otherwise.

In circumstances where the disputed tax had already been accounted for and paid to HMRC (in circumstances outside the scope of section 84(3), where HMRC had not determined the amount to be payable as VAT and the taxpayer had not paid or deposited that amount pursuant to the determination), Mr Moser argued that the conclusion of the Court of Appeal in Cresta was that the FTT (the successor to the VDT) was, necessarily, that the previous practice, either that outlined in Williams & Glyn's or Customs and Excise Commissioners v Fine Art Developments plc [1989] 1 AC 914 (Footnote: ⁷) (“Fine Art Developments”) did not survive the enactment of section 80. Moreover, the Supreme Court’s decisions in Littlewoods Limited and Investment Trust Companies made it clear that section 80 provided an exclusive remedy for recovery of over declared and overpaid VAT.

Mr Beal KC, appearing with Mr Lowenthal for the Company, submitted that the FTT's conclusion, that it had jurisdiction to award additional interest in relation to Section 80 Appeals, was consistent with both the text and purpose of section 84(8). By contrast, HMRC's interpretation gave rise to absurd consequences.

Section 84 (8) makes it clear that the power to award additional interest is available where an amount which is not due is either “paid” or “deposited in pursuance of” section 84(3). The first of these conditions, Mr Beal submitted, was met in the present case.

The FTT was correct (at FTT [136]), Mr Beal argued, to hold that section 84(8) empowers the FTT to award additional interest to “any situation in which, on an appeal, it is determined that amounts have been paid to HMRC which were not due to HMRC.” It was necessary to identify the meaning borne by the words in question in the particular context: R (O) v SSHD [2022] UKSC 3 per Lord Hodge at [29].

Mr Beal contended that HMRC wrongly argued that the natural meaning of section 84(8) should be disregarded and instead, contrary to the natural syntax, hold that the words “in pursuance of” should qualify both limbs (i.e. both the word “paid” and the word “deposited”). HMRC’s interpretation rendered at least one of those words redundant. The Company’s interpretation of those words, by contrast, reflected the two concepts in the VATA and gave meaning both to cases where money had to be deposited before an appeal could be brought pursuant to section 84 (3) (i.e. “deposit”) and other cases where money has been paid and an appeal is subsequently successful. The word “paid” was used because there may not be, in such a case, a direct relationship between the payment and the appeal proceeding.

HMRC’s interpretation would lead to the absurd result that taxpayers who have wrongly accounted for VAT (but in accordance with an HMRC interpretation) and who then submit a reclaim under section 80 would be disadvantaged when compared with a taxpayer who did not account for such contested amounts but who successfully challenged assessments wrongly raised by HMRC. Such a regime would wrongly favour a taxpayer, who deliberately chose not to pay the assessed amounts under protest, thereby incurring the additional risk of HMRC also imposing non-compliance penalties, over a taxpayer who paid amounts under, in accordance with HMRC’s views, but subsequently sought to recover those amounts on appeal. Moreover, the evident statutory purpose behind section 84(3) was to ensure that appeals were not entertained without the relevant tax having been accounted for (unless “hardship” was shown). There could be no room for showing “hardship” in a section 80 claim since the tax had already been paid.

As regards HMRC’s argument, that the obligation on HMRC to pay or repay overpaid principle was exclusively contained in section 80 itself, with provision for an award of statutory interest on section 80 claims in section 78(1) (so that section 84(8) had no application to an appeal against a refusal of the section 80 claim) was, Mr Beal submitted, simply wrong. VATA 1994 distinguished between section 80 claims (governed by section 80 and section 78(1)) and section 80 appeals. Where there was a successful appeal – and in the present case HMRC wrongly refused a repayment claim and the Company was required to appeal to vindicate its position – the duty to make repayment and power to award additional interest were laid down by the express terms of section 84(8): Infinity Distribution v HMRC [2010] EWHC 1393 (Ch) per Simon J at [30].

Furthermore, HMRC’s reliance on FJ Chalke Ltd v HMRC [2009] EWHC 952 (Ch) at [70] and Prudential Assurance Co Ltd v HMRC [2019] AC 929 at [69]-[80] was misplaced. Those cases both concerned whether the statute had ousted a common law remedy, rather than how the various parts of VATA interacted.

Mr Beal submitted that the FTT had been correct to conclude that section 80 creates a right to repayment, subject to the unjust enrichment defence, but that the situation before the FTT would always be that HMRC had wrongly refused to honour that right. The FTT had held that, in circumstances where HMRC’s refusal had been appealed and found wrongful, that section 84(8) “imposes the mandatory obligation “shall be repaid” in all situations in which tax has been paid.” With the proceedings concluded and the taxpayer vindicated, the unconditional “mandatory obligation” to repay (or credit) per the FTT’s decision arose pursuant to section 84(8) and with it, the jurisdiction to award additional interest.

Mr Beal took issue with HMRC’s assertion that where output tax was due on an erroneous basis, they had not “determined” the amount to be paid when that basis is applied to the taxpayer to subsequent accounting periods, with the excess output tax then being reclaimed pursuant to section 80. In such circumstances, Mr Beal argued, the taxpayer applied HMRC’s basis of assessment, believing it to be wrong and it follows that it is HMRC – not the taxpayer – that “determines” the amount to be paid within the meaning of section 84(8)(a).

The procedural history of the Contents, Verandas, Bingo and Gaming Disputes, summarised in FTT [4], demonstrated, in Mr Beal’s submission, that in each case HMRC had determined that certain supplies were standard-rated. They were dealing with actual supplies which had taken place, not prospective ones. The value of the VAT paid on those supplies was notified to HMRC. HMRC’s decisions were targeted at those specific supplies and refused repayment of identified bouts of output tax. This was not a case where the Company had made an unnoticed clerical error in its accounting and sought a repayment of overpaid VAT as a result of its mistake. The tax in all cases had been disputed, with HMRC contesting the VAT treatment of all the supplies all the way to the Upper Tribunal or beyond. It was only after HMRC had admitted defeat that the sums had been repaid.

The Company’s primary case was, Mr Beal submitted, that all of their appeals were against either assessments (section 83(p)) or determinations of liability (section 83(b)). The fact that there were claims for repayment of VAT does not mean that the appeals were not engaging with determinations of liability, since the two heads of appeal were not mutually exclusive.

Construing section 84 (4) in accordance with its ordinary terms, its clear purpose was to empower the FTT to make an award of discretionary interest where the VAT had been overpaid as output tax, the taxpayer has been out of pocket and that situation had arisen as a result of a dispute between HMRC and the taxpayer as to the treatment of the liability in question. The fact that the consequences of a dispute about liability were addressed through a combination of assessments, rulings and claims for repayment did not alter the basis for the FTT’s jurisdiction. Indeed, it was telling that section 80(1A) also envisaged that an overpayment of VAT may occur where HMRC had assessed the taxpayer for too much output tax. Thus, since all the appeals could be classified as appeals under section 83(b) or section 83(p), HMRC’s objection based on appeals under section 83(t) was not determinative.

In response to Mr Moser’s argument that the FTT’s conclusion gave rise to unequal treatment between payment and repayment traders, Mr Beal submitted that no such unequal treatment arose. Section 84(8) VATA 1994 made specific provision for the taxpayer who claimed to be entitled to more VAT credit than it had received (regardless of whether or not a separate claim was made under Regulation 29).

Both parties relied on the decision of the Court of Appeal in Customs & Excise v Cresta Holidays Ltd & Ors [2001] EWCA Civ 215 (“Cresta”). This was a case involving Insurance Premium Tax (“IPT”) the statutory provisions concerning which were closely analogous to the VAT provisions involved in the present appeal. (Footnote: ⁸) In our description of the relevant statutory provisions, for ease of reference, we state the corresponding provisions of VATA in square brackets.

IPT was payable by insurers and certain intermediaries. Cresta and other companies (“the tour operators”) were tour operators who sold holidays and travel insurance. Under arrangements made between the tour operators and insurers, the tour operators funded the payment by the insurers to HMRC of IPT on premiums on policies sold to their customers. The Finance Act 1997 introduced two different rates of IPT: a higher rate was chargeable on travel insurance where the insurance was sold by a tour operator and a lower (standard) rate which was otherwise chargeable on travel insurance. During the relevant period the insurers paid IPT at the higher rate and the tour operators paid equivalent sums to fund the insurers. In 1998, by decisions of the Divisional Court and the Court of Appeal, it was established that the application of differential rates of IPT was unlawful. The tour operators requested from HMRC a decision confirming how much IPT was properly payable and a decision on their claim for repayment. HMRC decided that: (i) that the amount paid during the relevant period was the amount of IPT chargeable; and (ii) that the claim for repayment should be rejected. The tour operators requested a review of both HMRC’s decisions. HMRC confirmed their decisions. The tour operators appealed. HMRC sought to strike out the appeals on the grounds that the reviewed decisions were not on matters lying within sections 59(1)(b) or (l) [sections 83(b) or (t)]. The tribunal refused the application and HMRC appealed. The tour operators contended, inter alia, that they were persons affected by a decision on a matter within section 59(1)[section 83] and might as such require reviewed decisions under section 59(2) and appeal under s 60 [section 84].

Lightman J allowed HMRC’s appeal, holding: (i) that there were two distinct and mutually exclusive regimes applicable where the entitlement of HMRC to IPT was in issue. A question on the amount chargeable in respect of a premium could only fall within section 59(1)(b) [section 83(b)] if it were raised before the payment of the tax had been made. Then the taxpayer could appeal against the reviewed decision under section 59(1)(b) [section 83(b)] (subject to the provisions of section 60(4) [section 84(3)]). That regime was quite separate from the provisions for repayment under section 59(1)(l) [section 83(t)] where a payment in respect of which there was a claim to repayment had already been made to HMRC and where para 8 of Sch 7 [section 80(3)] gave HMRC a defence of unjust enrichment. HMRC’s decisions on the amount chargeable (which were required and given after the IPT which HMRC had determined to be chargeable had been paid) were not, therefore, decisions on matters falling within section 59(1)(b) [section 83(b)]. Moreover, only the taxpayer could require a decision on the amount chargeable to be reviewed and appeal against a reviewed decision. The tour operators appealed to the Court of Appeal.

At [7]-[8] Simon Brown LJ, with whom Robert Walker LJ agreed (Keene LJ dissenting), set out the historical background to the appeals jurisdiction. Simon Browne LJ disagreed with Lightman J’s conclusion that the two regimes (section 59(1)(b) [section 83(b)]) and section 59(1)(l) [section 83(t)] were distinct and mutually exclusive:

“Conclusion 2 - paragraphs (b) and (l) are mutually exclusive

6.

In arriving at this conclusion the Judge appears to have been influenced by two considerations in particular: first, the language and scheme of the legislation (paragraph 15); second, the apparent incompatibility between sub-sections (4) and (6) of s.60 [section 84(3) and section 84(8)] with regard to paragraph (b) [section 83(b)] appeals on the one hand and the unjust enrichment defence provided for by paragraph 8(3) of Schedule 7 [section 80(3)] with regard to paragraph (l) [section 83(t)] appeals on the other…Mr Lasok [Counsel for HMRC] argues that the Judge was right in both respects and right too to reject Mr Barling QC's [Counsel for Cresta] reliance on two Tribunal decisions in the cognate field of VAT appeals.

7.

I have not found this at all an easy point but in the end have concluded that Mr Barling is right and that s.59(1)(b)[section 83(b)] is not to be read as restrictively as Mr Lasok contends and the Judge below held. The argument has to be considered in a historical context. When initially VAT was introduced by the Finance Act 1972, the appeal provision, s.40, provided only for appealing the CCE's decisions with regard to the tax chargeable and the like, not for a specific restitutionary claim equivalent to that provided for under the IPT scheme by s.59(1)(l)[section 83(t)]. On its face s.40 appeared to contemplate appeals only by the taxpayer (i.e. the supplier of the relevant goods or services). In addition it contained provisions (now substantially re-enacted as sub-sections (3) and (8) of s.84 of the VAT Act 1994) equivalent to sub-sections (4) and (6) of s.60 of the Finance Act 1994 with regard to IPT. Nevertheless, despite those provisions, the VAT Tribunal in Processed Vegetable Growers Association Limited v CCE [1973] VATTR 87 and Williams & Glyn's Bank Limited v CCE [1974] VATTR 262 permitted appeals to be brought (a) by the recipient of the supplies (provided only that he had a sufficient interest) and not merely by the supplier, and (b) did so notwithstanding that the disputed tax had already been paid and accounted for to [HMRC]. In the second of the two cases it was held in addition that the [HMRC] were bound to give effect to the Tribunal's decision by repaying the tax to the (non-appellant) supplier (or allowing the supplier to take credit for it in his next tax return) whereupon the supplier would hold the monies so repaid or credited as constructive trustee for the appellant recipients.

8.

Whether or not [HMRC] followed that approach with regard to repayment is unclear. What, however, is clear is that a practice developed whereby taxable persons recovered overpaid tax by using the machinery made available for correcting errors, a practice challenged by [HMRC] but ultimately vindicated by the House of Lords in CCE v Fine Art Developments PLC [1989] 1 AC 914. That decision proved to be the springboard for an amendment to the VAT legislation by way of s.24 of the Finance Act 1989 to introduce specific provision for the recovery of overpaid tax subject to a defence of unjust enrichment together with a related right of appeal. These provisions, substantially re-enacted, are now s.80 of the VAT Act 1994 (the equivalent of paragraph 8 of Schedule 7 of the Finance Act 1994 with regard to IPT), and s.83(t) of the VAT Act 1994 (equivalent to our section 59(1)(l)).

9.

Against this background it would seem to me inappropriate to confine s.59(1)(b)[section 83(b)] to what Mr Lasok describes as "current, on-going or contemporaneous disputes" (Footnote: ⁹) unless there are compelling reasons to do so and unless the Court takes the view that the 1989 amendment to the VAT scheme operated to overturn the two longstanding Tribunal decisions. I recognise, of course, that the VAT scheme and the IPT scheme are not in all respects identical, but there appears to me no sound basis for contending that they should be construed and operated differently in the respects now at issue.

10.

For my part I can see no compelling reason to confine paragraph (b) [section 83(b)] in the way Mr Lasok invites. True, the paragraph is couched in the present tense but, as I understand to be common ground, this has no temporal connotation: the words "is chargeable" here refer to the incidence of the tax which is "charged" on receipt of the premium by reference to the "chargeable amount". Mr Lasok's argument is rather that, once the tax has been paid (otherwise than under the provisions of s.60(4)[section 84(3)]), it will in any event be necessary for the taxpayer to claim its repayment so that any issue that might originally have arisen under paragraph (b) [section 83(b)] will now inevitably be subsumed in an appeal under paragraph (l) [section 83(t)]. In these circumstances a paragraph (b) [section 83(b)] appeal becomes, submits Mr Lasok, "futile", "of no utility", "wholly otiose". S.59(1)(b) [section 83(b)]) is simply not necessary and so should not be available for "historical disputes".

11.

Generally speaking I have no doubt that this will be so. In Gil, for example - the "white goods" case also concerning the consequences of imposing differential rates of IPT, in which the Tribunal's judgment is currently awaited - the appeal to the Tribunal (which Richards J held on the merits to have been rightly not struck out - CCE v Gil Insurance [2000] STC 204) was brought (by the insurers) under paragraph (l) [section 83(t)] alone. But there may perhaps be other cases in which the taxpayer will wish to have some point of principle resolved before finally formulating his repayment claim or before deciding whether to involve himself in expensive unjust enrichment litigation. And if, say, the dispute arises whilst the tax at issue is still being charged (as it would have been here had the reviewed decisions been sought whilst the differential rates remained in force), and then the tax regime changes before the appeal is heard, it would seem quite wrong to have to discontinue an existing paragraph (b) [section 83(b)] appeal so as to replace it with a retrospective paragraph (l) [section 83(t)] appeal. How, one wonders, would that affect the taxpayer's rights to recover any tax paid under s.60(4) [section 84(3)]?

12.

That brings me to the conundrum presented by the contrast between sub-sections (4) and (6) of s.60 [section 84(3) and (8)] which apply in a s.59(1)(b)[section 83(b)] case and the unjust enrichment defence available to the CCE [HMRC] in a repayment case. Various possible solutions were suggested to us. To my mind, however, it is unnecessary for present purposes to resolve this difficulty. If it were not regarded as insuperable in the two Tribunal cases in the 1970s, still less should it be so regarded here. After all, in a case like this, by definition the disputed tax will have been paid.

13.

In short, I would hold that those affected by a [HMRC] ruling on the chargeability of tax are entitled to bring and maintain a paragraph (b) [section 83(b)] appeal irrespective of whether they or others have brought or are entitled to bring in addition an appeal under paragraph (l)[section 83(t)].”

Keene LJ, dissenting, said:

“[27] It is clear that s 60(6) [section 84(8)] requires repayment of the tax found not to be due, together with interest, when the s 59(1)(b) [section 83(b)] mechanism is used, and nothing in those provisions makes the commissioners' obligation to repay subject to any defence of unjust enrichment. There is no reference to para 8(3) of Sch 7 [section 80(3)] if Parliament had intended this obligation to be subject to that defence, it would have so provided. But if that is right, then if the s 59(1)(b) [section 83(b)] mechanism could be used even when the tax had already been paid, it would provide an alternative for the taxpayer to a para 8 of Sch 7[section 80(3)] claim and an easy means of circumventing the unjust enrichment defence which might otherwise be available to the commissioners.

[28] The response of Mr Barling QC, for the Airtours companies, to this difficulty was twofold. First, he contended that the s 60(6) [section 84(8)] obligation on the commissioners to repay only arises where the money has been paid or deposited 'in pursuance of' s 60(4) [section 84(3)] and that that would not be the case if it had been paid in the normal course of making quarterly returns. It was argued that s 60(6) [section 84(8)] only operates if the reason for the payment was in order to comply with s 60(4) [section 84(3)]. The fact that the terms of s 60(4) [section 84(3)] had been met would not be enough.

[29] I find that unpersuasive. The object of s 60(4) [section 84(3)] is simply to ensure that the taxpayer's request for a decision as to whether or how much tax is chargeable does not become, through the review and appeal process, a device for delaying payment. Once payment has been made, irrespective of the taxpayer's motive, the precondition for an appeal set out in s 60(4) [section 84(3)] would have been met. That would then bring s 60(6) [section 84(8)] into play. There would be considerable practical difficulties in applying the interpretation suggested by Mr Barling, with its need for an investigation into the motive behind the payment.

[30] The second response by [Cresta] to this dilemma was to argue that s 60(6) [section 84(8)] is in the statute only to provide for the payment of interest on sums found not to be due. On such a construction one might then be able to regard the obligation to repay as subject to para 8(3) of Sch 7 [section 80(3)], the unjust enrichment provision. Apart from the difficulties with such an argument already referred to earlier, the structure of s 60 [section 84] indicates that the point is not a good one. Section 60(6) [section 84(8)] has its counterparts in s 60(7) and (8), which provide for the payment by the taxpayer of amounts found to be due, together with interest. It seems impossible to confine the effect of these three provisions simply to the interest part of each of them. They create obligations as to payment of the capital sums as well.

[31] It seems to me that there must be a clear distinction between the two regimes, that is to say, between s 59(1)(b) [section 83(b)] with its associated provisions in s 60(4) and (6) [section 84(3) and (8)] on the one hand and the restitutionary mechanism of para 8 of Sch 7 [section 80(3)], with the possibility of a review under s 59(1)(l) [section 83 (t)] on the other. The latter will apply where money has been paid by way of tax before there has been any decision by the commissioners on what is due. That will be a common situation, because normally this tax is paid by registered persons without the need for any decision by the commissioners. The former regime is there where the taxpayer seeks a decision from the commissioners before he pays the tax. Hence the need for s 60(4) and (6) [section 84(3) and (8)].”

In our view, with respect, we consider that there are significant difficulties with the Court of Appeal’s majority analysis in Cresta. In the first place, there appears to be little discussion of, or the significance of, the counterpart of (in VAT legislation), section 80(7) VATA, which provides (Footnote: ¹⁰):

“(7)

Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.”

In our view, this supports HMRC’s contention that when section 80 was introduced (by section 24 Finance Act 1989 in the wake of the House of Lords decision in Fine Arts Development) it was intended to be an exclusive remedy for the repayment of VAT that had already been paid (otherwise than pursuant to section 84(8)).

We accept, of course, that section 84(8) provides for a repayment of VAT paid pursuant to section 84(3). We do not, however, accept that the repayment obligation contained in that provision goes beyond a payment made in order to bring about an appeal under section 84(3).

Moreover, we also consider that section 80(7) excludes any other common law claim in respect of unjust enrichment. This was, effectively, the conclusion of the Supreme Court in Littlewoods Limited and Investment Trust Companies.

Against this background, in our respectful view, we find that the points made by Lightman J and Keene LJ in relation to the unjust enrichment defence provided by paragraph 8 (3) Schedule 7 to the Finance Act 1994 [section 80(3)] are compelling. These arguments are in substance made by reference to the legislative context. In short, if a trader is always allowed to claim a repayment of tax pursuant to section 83(b) (rather than under section 80) in relation to a tax dispute where the tax has already been paid (otherwise than pursuant to section 84(3)), the unjust enrichment defence is effectively undermined. We consider, in respectful agreement with Lightman J and Keene LJ, that Parliament cannot have intended this result.

We acknowledge that the equivalent provision to section 80(3) in the IPT legislation (paragraph 8 (3) Schedule 7 to the Finance Act 1994) was fully before and was considered by the Court of Appeal. It is therefore not possible to conclude that the decision in Cresta on this point was per incuriam. Nonetheless, we consider the views of Lightman J and Keene LJ to point clearly towards the conclusion that HMRC are correct on Ground 1, when the legislative framework is considered as a whole.

Can the majority decision in Cresta properly be distinguished in the present case? In our view it can.

It is clear from Simon Brown LJ’s judgment at [11] (Footnote: ¹¹) that the court was envisaging that usually an appeal for a repayment of VAT would fall within section 80 and section 83(t). He did, however, give examples of other cases which might fall within section 83(b). For example, also at [11], Simon Browne LJ gave the example of a point of principle being resolved before a repayment claim was formulated or before a taxpayer decided whether to involve itself in expensive unjust enrichment litigation. A further example was of a change in law. None of these examples apply in the present case. In our view, the majority decision in Cresta can fairly be confined to these examples. We consider that Cresta should not be given a more general interpretation. Thus, in the present case, in our view, section 80 and section 83 (t) provide the exclusive basis for a reclaim in the circumstances of the present appeals.

We also acknowledge that VATA has been continually amended and re-amended, to the extent that in some cases it is difficult to discern a clear legislative purpose. However, in the present case we entertain no such doubts. We consider that section 80 was originally introduced in order not only to provide persons who were not the taxpayers making the supplies (in other words, the recipient of the supplies) a statutory means of reclaiming overpaid tax (not just tax overpaid by means of an administrative error but also tax which was wrongly considered to be payable by HMRC) but also to provide a comprehensive statutory basis for reclaiming tax which had been unduly paid. Otherwise, the defence of unjust enrichment makes no sense and can easily be circumvented.

Mr Beal argued that such an interpretation produces an absurd result, viz that taxpayers who have wrongly accounted for VAT (but in accordance with a HMRC interpretation) and who then submit a reclaim under section 80 would be disadvantaged when compared with a taxpayer who did not account for such contested amounts but who successfully challenged assessments wrongly raised by HMRC. That is a powerful argument but it is not, in our view, sufficient to displace what we consider to be the plain statutory scheme enacted as section 80 and section 83 (t).

Similarly, as regards Mr Beal’s further argument that “paid” and the word “deposited” must be read disjunctively, so that an overpayment of VAT for which repayment is now being sought can constitute VAT which has been “paid” for the purposes of section 84 (3), we do not think that the language can override the statutory scheme whereby claims for repayment of VAT must be made exclusively under section 80.

Accordingly, whilst paying tribute to the FTT’s careful analysis of a difficult issue, we allow HMRC’s appeal on Ground 1, set aside the Decision and remake it on the basis that (i) the Company’s applications for further interest in relation to the appeals listed at 9-17, 21-22 and 25-27 (1) of the Appendices are dismissed, and (ii) the Company’s applications for further interest in relation to the appeals listed at lines18-20, 23-24 and 27 (2) are dismissed.

Ground 2 of HMRC’s appeal poses the question whether the amounts which have been repaid were amounts determined as payable by HMRC in respect of an appeal under section 83(b)? In the light of our conclusion in respect of Ground 1, it is strictly unnecessary to consider HMRC’s Ground 2) but since it was fully argued before us, we shall express our views in outline.

Mr Moser submitted that the FTT had wrongly decided that the amounts in issue in the appeals were amounts “paid in pursuance of section 84(3)” and that the conditions for the application of (8) were met. In short, Mr Moser’s argument was that the FTT wrongly decided that they were amounts “which the Commissioners have determined as payable” in connection with an appeal under section 83 (b).

Mr Moser argued that where HMRC did not assess the Company, and where the company’s appeals were brought under section 80(1) (i.e. lines 17 to 27 (1)) the FTT’s reasoning and conclusions were inconsistent with Cresta and BUPA No 2. (Footnote: ¹²) Secondly, Mr Moser submitted that in those cases where HMRC did assess the Company and where the Company’s appeals were brought under section 80(1A), the appeals were against refusals of claims under section 80(1A) not against the underlying assessments. The requirement under section 84(3) was for a determination to be made in relation to a specific supply and a specific VAT period.

Furthermore, Mr Moser contended that the FTT had erred in relying on HBOS plc and others v HMRC [2023] STC 245 (“HBOS”). That case concerned the interpretation of section 78 VATA and, in particular, whether the opening words “where due to an error on the part of the Commissioners” were limited to an error by HMRC as a body or included a statutory error. In that case, the taxpayer would have no right to interest unless it had an entitlement under section 78. By contrast, in the present case if, as HMRC contended, the Company has no right to interest under section 84 (8), it has a right to statutory interest under section 78, which right has already been exercised by the Company and satisfied by HMRC by payment.

Mr Moser also relied on a decision of the VDT in Peoples Bathgate & Livingston Ltd v CCE [1996] Lexis Citation 1656 and Seaton Sands v HMRC [1998] Lexis Citation 783 to support his argument that the Company did not pay or deposit any amount with HMRC in pursuance of section 84(3).

Mr Beal submitted that all the appeals were against decisions in principle of the “VAT chargeable on the supply of any goods or services” and were properly brought under what is now section 83(1)(b). The majority of the appeals were brought either against assessments or were expressly made under section 83(1)(b). Moreover, each of the relevant appeals related to decisions by HMRC as to “the VAT chargeable on the supply of any goods or service” (the relevant supplies being removable contents of caravans, verandas, bingo participation, and gaming machines). Sections 83(1)(b) and section 83(1)(t) were not mutually exclusive (Cresta). (Footnote: ¹³)

HMRC’s submissions to the contrary were wrong. It depended entirely on HMRC’s submission that HMRC had not, in the section 80 claims at issue, determined any amount to be payable.

There had been, according to Mr Beal, rulings as to the standard rating of each of the supplies is a necessary precursor to each of the relevant decisions. The reasoning of the FTT at [140]-[148] discloses no error of law. Moreover, claims for repayment will inevitably involve a determination of the underlying liability to tax, except in cases of purely clerical error (which was not relevant in the present case).

This was not a case where there was no decision. As the FTT noted in Mather, a refusal to process a repayment claim was a rejection of the repayment claim and could be appealed. In that case (see [27]), it was a deliberate refusal to give a decision of any type. (Footnote: ¹⁴)

We accept the submission that Mather at [19] was correct in that a refusal to process a repayment claim was, in effect, a rejection of that claim. In relation to the Contents Dispute HMRC refused to process the Company’s claims for repayment stating “your claim for £2,177,925.16 will be withheld from payment until the underlying liability query has been resolved.” In our view, the continued refusal to pay the Company’s claims constituted a rejection of those claims and, accordingly, constituted a determination by the Commissioners of amounts of VAT payable for the purposes of section 84(3).

We were not taken through, in any detail, the voluminous correspondence between HMRC and the Company and its advisers in relation to the main four issues in dispute, summarised above under the heading “Factual Background”. Nonetheless, as Mr Beal submitted, claims for repayment and appeals against assessments will necessarily involve determination of the underlying liability to tax. To say that HMRC has not determined an amount of VAT payable, against that background, seems to us unrealistic. HMRC appears to have indicated that the various supplies should be or should have been standard rated and that each appeal or reclaim of overpaid VAT effectively addressed HMRC’s position.

Therefore, if we had been required to decide HMRC’s Ground 2 we would have decided in favour of the Company.

Accordingly, had it been necessary to do so, we would have dismissed HMRC’s appeal on Ground 2.

Mr Beal submitted that the FTT had erred in law when it concluded that as a matter of statutory interpretation it had no jurisdiction to award additional interest pursuant to section 84(8) in respect of an appeal filed after 1 April 2009, but which depended on a pre-1 April 2009 decision of principle (assessments and refusals) as to VAT liability. As we shall see, in relation to the Company’ s Ground 2, it is also contended that the FTT erred not just as a matter of domestic law but as a matter of EU law as well.

In the light of our decision on HMRC’s Ground 1, it is strictly unnecessary for us to consider the Company’s Ground 1 and, accordingly, we dismissed the Company’s appeal on this Ground. However, because the point was fully argued before us, we set out briefly below the reasons why we would have dismissed the Company’s appeal on Ground 1 in any event.

Mr Beal argued that, as a matter of domestic law, the TTF Order preserved the FTT’s power to award interest in relation to decisions taken on or after 1 April 2009 which either depended upon a prior decision taken before that date or which related to VAT incurred and repaid prior to that date. This was, Mr Beal said, a matter of statutory construction.

First, the ordinary and natural meaning of the words used in paragraph 4 of Schedule 3 to the TTF Order preserve the power to award additional interest where no appeal has yet been brought but where “HMRC have notified a decision relating to a matter to which section 83 applies.” Section 83 (1) (b) provides that one such matter is “the VAT chargeable on the supply of any goods or services.” Accordingly, Mr Beal submitted that there had to be (i) a “decision” notified (ii) which must “relate to” (iii) “the VAT chargeable on the supply of any goods or services.”

Thus, in Mr Beal’s submission, there was a “decision” notified to the Company i.e. a decision of principle as to the liability of a particular supply predating 1 April 2009 – which was given effect in subsequent assessments postdating 1 April 2009. This was a matter to which section 83 applied and therefore in respect of which section 84(8) was preserved. The Company’s post-April 2009 appeals were not against an “abstract or notional” decision of principle, as HMRC suggested. It was entirely normal for HMRC to reach a decision of principle and which is then applied in future assessments on an ongoing basis. The Company appealed against decisions applying the disputed decision of principle, and in doing so brought into issue the decision of principle predating April 2009 (to which every subsequent application “relates”).

Secondly, the words used in the TTF Order were, according to Mr Beal, intended to be deliberately broad – Parliament had used the word “decision” which was broader than “assessment” or “rejection”. The issue in the present case, which HMRC’s submissions failed to address, was the treatment by the TTF Order of the relationship between a decision of principle and a (properly appealed) subsequent decision applying that earlier decision of principle.

The FTT erred when it concluded (FTT [96]) that the “decision” needed to be “adverse to the [Company] in a specific and identified in regard being an assessment or rejected claim” and (FTT [97]) that “there must be an amount which is identified within the scope of the appeal by reference to the decision under appeal i.e. the individual decision of HMRC adverse to the taxpayer in a specific and identifiable amount.” There was, Mr Beal submitted, no such requirements in the TTF Order.

Thirdly, the FTT failed to have regard to the purpose of the TTF Order which was to ensure that taxpayers were not prejudiced in longer-running disputes about decisions of principle with HMRC which started before 1 April 2009 and continue thereafter.

Thus, a taxpayer which finds itself in a lengthy dispute with HMRC receives only partial protection, despite the fact that the dispute started at a time when there was a power in the Tribunal to award additional interest. The FTT’s interpretation effectively rewarded HMRC for delaying the conclusion of the statutory appeal process.

Furthermore, a taxpayer is incentivised to settle the dispute of principle, rather than insist on their legal rights, in order to avoid HMRC issuing further assessments in respect of which no additional interest can be claimed.

Mr Moser submitted that the FTT had made no error of law on this issue. The FTT correctly concluded that the effect of Schedule 3 to the TTF Order was that section 84 (8) cannot in any event apply to any of the relevant decisions or to any (relevant) “decision” of HMRC notified to the Company on or after 1 April 2009.

The FTT was correct, Mr Moser said, in its conclusions recorded at FTT [96]-[97]. The Company’s contention that the relevant appealable “decisions” were taken before 1 April 2009 failed both as a matter of primary fact and as a matter of law. The Company did not appeal against some abstract or notional “decision of principle” nor could it had done so as a matter of law and having regard to the jurisdictional basis on which it seeks to base its claim for additional interest.

First, Mr Moser submitted that, as a matter of fact, the Company appealed against specific identified decisions made by HMRC. As to the Company’s section 80 claims, the Company appealed against HMRC’s specific decisions rejecting the Company’s section 80 claims, which were made in respect of specific prescribed accounting periods.

Secondly the Company’s case was inconsistent with the scheme of the VAT legislation, whereby VAT was accounted for and paid by reference to prescribed accounting periods. HMRC was only liable to credit or repay an amount under section 80 on a claim being made for the purpose by reference to individual prescribed accounting periods.

Thirdly, the Company’s argument depended on an interpretation of section 83(b) which gives the FTT jurisdiction in respect of a decision as to “the VAT chargeable on the supply of any goods or services…”. However, section 83(b) is subject to the jurisdictional requirement in section 84 (3) that an appeal shall not be entertained unless HMRC “have determined [the amount] to be payable as VAT.” The scenario put forward by the Company was premised on a “pre-1 April 2009 decision of principle as to the underlying VAT liability” having been taken in advance of (i) any supply by the Company, (ii) any over-declaration and overpayment of VAT by the Company, (iii) any section 80 claim by the Company and (iv) any decision on that claim by HMRC. In the circumstances, HMRC could not have determined any amount to be payable as VAT.

In the course of the hearing, we were provided with a schedule of the decisions relevant to the post-April 2009 Objection. The post-April 2009 objection applied to lines 18-20 (Removable contents), 23-24 (Verandas) and 27(2) (Gaming machines). The relevant decisions of HMRC were as follows:

We have no doubt that the FTT was correct in its conclusions recorded at FTT [96]-[97].

As the FTT noted, each of the appeals in lines 18-20, 23-24 and 27 (2) were made in respect of individual appealable decisions, being assessments or rejected claims. In each case the decision post-dates 1 April 2009. The FTT correctly concluded, therefore, that the appeals in respect of those decisions were not within the terms of the transitional provisions of Schedule 3 TTF Order.

As the FTT correctly observed a “decision” for the purposes of paragraph 4 Schedule 3 to TTF Order means a decision “relating to a matter to which section 83 of the Value Added Tax Act 1994 applies. In other words it must be an appealable decision in the sense that it relates, as the FTT stated, to “matters within section 83 VATA which are adverse to the Appellant.”

We agree that the individual decisions listed above cannot be disregarded in favour of a more generalised disputed decision concerning the correct generic VAT treatment of the supplies in question. As the FTT said at FTT [97]:

“… For present purposes in order for there to be an amount determined as repayable on an appeal there must be an amount which is identified within the scope of the appeal by reference to the decision under appeal i.e. the individual decision of HMRC and first of the taxpayer in a specific and identifiable amount. It is such a decision which must’ve been made and notified prior to 1 April 2009 in order for section 84(8) Interest to be payable.”

We regard the FTT’s reasoning in this regard to be unimpeachable.

Accordingly, had it been necessary to do so, we would have dismissed the Company’s appeal on its Ground 1.

Again, in the light of our decision on HMRC’s Ground 1, it is unnecessary for us to consider the Company’s Ground 2, and we formally dismissed the Company’s appeal on this Ground. However, we summarise below the reasons why we would have dismissed the Company’s appeal on Ground 2 in any event.

Mr Beal argued that the FTT erred in failing to give a Marleasing compliant interpretation to Schedule 3, paragraph 4 TTFO and/or s. 85A VATA. Even if the FTT lacks jurisdiction to award additional interest as a matter of domestic law, it was nevertheless required as a matter of EU law to read the relevant provisions in such a way as to grant it that power in order to protect the Company’s accrued rights to an “adequate indemnity” in the form of interest under EU law. In finding that statutory interest would always be sufficient, the FTT failed to give effect to the Company’s accrued right. The FTT did not properly analyse the case through the lens of the principles of equivalence and effectiveness.

The accrued right is a right to interest under EU law in respect of ongoing disputes about liability which start before 1 April 2009 (Emblaze (FTT and UT)). National law must provide an “adequate indemnity” for wrongfully being kept out of money and the FTT erred in its interpretation that Littlewoods CJEU precluded any argument that statutory interest did not provide an adequate indemnity. The finding by the Supreme Court in Littlewoods Limited that some (Company’s emphasis) interest is prescribed by domestic law does not exempt the national judicial authorities from their task of determining whether there has been an adequate indemnity in this case.

The FTT’s interpretation of paragraph 4 TTFO and/or s.85A VATA 1994 breaches the principles of equivalence and effectiveness by applying different regimes for enforcing rights to interest recovery under EU law in an ongoing dispute involving linked decisions pre and post April 2009 without objective justification and makes the enforcement of taxpayers’ rights excessively difficult by closing off consideration of whether there was an adequate indemnity post April 2009.

Mr Moser submitted that this Ground is without merit. The FTT correctly concluded that the Company’s EU argument is conclusively determined by Littlewoods Limited which establishes that statutory interest satisfies the requirements of EU law, specifically the principle of effectiveness. The Company has no EU law right to additional interest and the issue must be determined solely by reference to UK law.

Section 84(8) was repealed, subject to savings and transitional provisions to preserve accrued rights. It was replaced by s. 85A which satisfied the principle of effectiveness.

The Company’s reliance on Emblaze for the proposition that it had an accrued EU law right to interest is misguided. In that case, the VDT’s jurisdiction had been engaged before 1 April 2009. Moreover, whether or not the Company had an accrued EU law right to interest is irrelevant in circumstances where the Company did not satisfy the conditions under section 84(8) and it had a right to statutory interest which itself satisfies the principle of effectiveness (relying on Test Claimants in the FII Group Litigation v RCC [2021] UKSC 31).

Lipton v BA CityFlyer added nothing to the Company’s argument: the FTT decided the EU law issues correctly by reference to the correct principles of EU law. A Marleasing interpretation would concern the interpretation of domestic law intended to implement EU directives and rights derived therefrom, not interpretation of, for instance, national procedural rules whereby effect is given to a claimant’s directly effective rights derived from general principles of EU law.

The FTT’s reasoning is set out at FTT [61 – 64] as follows:

“61.

HMRC rightly did not dispute that in light of Littlewoods CJEU where, as here, there has been an overpayment of VAT in consequence of the misapplication/misinterpretation of EU law the taxpayer has a right to be repaid the overpaid VAT with interest.  The dispute between the parties centres on the amount of interest and in particular whether having received interest under s78 at the statutory rate of Bank of England base rate minus 1% the Appellant's EU law rights have been satisfied.

62.

Resolution of that dispute is, in our view, to be found in Littlewoods SC.  In our view the Supreme Court has clearly and unequivocally confirmed that where sums have been overpaid by way of VAT contrary to EU law an adequate indemnity must be provided through the payment of "some form" of interest (see paragraph 53) and that what represents an adequate indemnity or reasonable redress will fall within a range of possible outcomes (see paragraph 55).  The Supreme Court has also confirmed that it is ultimately a question for Parliament to set the parameters by reference to which interest is payable and has done so through the enactment of s78 which provides for the payment of simple interest at the statutory rate (see paragraphs 34 and 54).  Prior to its repeal s84(8) also provided a statutory route for interest to be payable at the discretion of the VDT/FTT in respect of sums determined as repayable to appellants who had been required to litigate a dispute whilst HMRC held disputed tax.  In the period from 1 April 2009 and 1 January 2023 section 85A VATA provided an alternative vehicle for the payment of simple interest at the statutory rate.  These provisions were noted by the Supreme Court as being part of the statutory infrastructure for providing an adequate indemnity (see paragraphs 38 and 39).

63.

As we interpret the judgment in Littlewoods SC the Supreme Court was confirming that the statutory regime adopted by the UK principally through s78 but also s84(8) and, importantly, section 85A VATA meets the UK obligation under EU law to provide for an adequate indemnity and/or reasonable redress. 

64.

That conclusion closes out any asserted scope for a conforming interpretation.”

At FTT [98] – [104] the FTT stated:

“98.

We have also considered whether, to the extent that the decisions which post-date 1 April 2009 relate to prescribed accounting periods prior to that date, an inchoate right to interest had accrued.  In this regard we have carefully considered the FTT judgment in Emblaze. 

99.

We have concluded that there was no such right. 

100.

In Emblaze the taxpayer had been given an appealable decision by which it was denied input tax credit to which it was entitled and it had appealed that decision.  The inchoate or contingent right accrued "when HMRC wrongly refused to pay the amount of input tax claimed" (see paragraph 31 of the FTT judgment).  The fact that the right was contingent on an appeal being brought and a positive judgment from the Tribunal requiring repayment of the VAT claimed did not preclude a conclusion that there was an inchoate right which was then protected by virtue of section 16 IA on the repeal of s84(8).

101.

By contrast, in the present case the Appellant had overpaid the VAT in question period by period pre-dating 1 April 2009 but the inchoate right arising from such overpayment was the right to be repaid the tax with an adequate indemnity by way of statutory interest under s78.  Further inchoate rights accrued to those who had overpaid VAT but who had received an appealable decision from HMRC prior to 1 April 2009 and in respect of which an appeal had been bought or the time limit for appeal was running.  Those inchoate rights were protected by section 16 IA as per Emblaze. 

102.

For the reasons given at paragraph 96 such rights had not accrued to the Appellant regarding lines 18 - 20, 23 - 24 and 27(2).

103.

Such rights did however accrue in respect of the decision in the Gaming Dispute at line 27(1).  That appeal relates to HMRC's refusal of a section 80 claim (the Section 80 Objection is considered below), the appealable decision was issued prior to 1 April 2009 and an appeal was lodged in time and before 1 April 2009.  The Appellant therefore had the inchoate right to invite the Tribunal to exercise its discretion to pay interest in the event that sums were repayable in the appeal. On or shortly before 20 April 2011 HMRC repaid sums due to the Appellant on the claims made.  Without reference to the protective assessment the Appellant thereby succeeded in their appeal.  We are therefore of the view that the Appellant's inchoate right to seek a direction for the payment of further interest had crystalised.  There is no time limit by reference to which an application for additional interest must be made under s84(8).  There is not even a requirement that the appeal remain live, though in this case the Tribunal's file on the line 27(1) appeal was never closed.  It is therefore our view that the Appellant's invitation that the payment of further interest be directed in respect of the appeal at line 27(1) is not barred under the Post-1 April 2009 objection.  We deal below with the broader implications for the payment of interest on that appeal.

104.

For the reasons already stated above on the Adequacy issue we see no basis for applying a conforming interpretation as invited by the Appellant as the statutory provisions provide an adequate indemnity.”

The FTT carefully considered the relevant authorities. In Littlewoods Limited, the Court held at [53]- [55]:

“53.

In the courts below, emphasis was placed on the CJEU’s use of the word “reimbursement” in para 25 when it speaks of the reimbursement of losses constituted by the unavailability of money. We do not attach such significance to a single word, considered in isolation. It is necessary to consider para 25 in the context of the judgment as a whole. In our view, consistently with the conclusion expressed in para 26, reimbursement of loss means no more than recompense or compensation, which is achieved through the payment of some form of interest. In relation to the principal sums, whether of tax, interest or penalties levied by the member state, the compensation would be full compensation in order to achieve restitution of those principal sums. But interest is a means of compensating a person for being kept out of his money. The measure of such compensation is not as straightforward as the calculation of the principal sums which must be repaid. The Court does not specify the level of the compensation for the unavailability of money which that interest is to provide. Instead, the CJEU confirms in this first part that there is an EU principle that a member state must repay with interest charges which it has levied in breach of EU law. It is in the second part that the CJEU lays down what EU law requires member states to provide by way of interest.

54.

In the second part, which is paras 27 to 29, the CJEU restates the principle that it is for the internal order of each member state to lay down the conditions in which such interest must be paid. The member state is given a discretion both as to the interest rate and also as to the method of calculation, in particular whether it is simple or compound interest. That discretion is qualified by the established EU law principles of equivalence and effectiveness…

55.

The phrase, “an adequate indemnity” has a less definitive meaning than “full reimbursement”. The French text of the judgment speaks of “une indemnisation adéquate” and the German text refers to “eine angemessene Entschädigung”. In both languages, as in English, the words chosen can support a range of meanings, including the meaning of “adequate compensation” or “reasonable redress”, which are not tied into the idea of full compensation for the time value of money.”

(our emphasis)

In light of the above, we do not accept that the FTT was incorrect in its interpretation and application of Littlewoods SC and we do not find any error of law in its approach or conclusion that there was no scope for a conforming interpretation

We do not accept the Company’s submission that the FTT erred in treating Littlewoods Limited as finding that section 78 interest and section 85A interest (the latter was not addressed by the Supreme Court) are adequate regardless of the facts. The FTT clearly gave careful consideration to the judgment which stated at [56] and [59]:

“56.

In using the principle of effectiveness to require the existence of “an adequate indemnity” but not expressing a definitive view on the adequacy of simple interest, the CJEU was less categorical than Advocate General Trstenjak, who opined (paras 33 and 34) that the payment of simple interest clearly complied with that principle and that that principle would be breached only if the interest rate were so low as to deprive the claim of substance. In support of that view she recited (para 37) the amounts of principal and interest which HMRC had paid and recorded that the latter exceeded the former by over 25%. But it would be wrong to overstate the extent of the CJEU’s departure from the Advocate General’s approach. In what we see as the third part of the relevant passage in its judgment (para 30) the CJEU, after stating that it was for the referring court to decide whether the national rules for the calculation of interest would deprive the taxpayer of “an adequate indemnity”, recorded what HMRC had already paid and repeated the comparison which the Advocate General had made between the amount of principal and the amount of interest on that principal.

59.

In summary, we interpret the CJEU’s judgment as (i) requiring the repayment of tax with interest, without specifying the form of that interest (ii) stating that the principle of effectiveness requires that the calculation of that interest, together with the repayment of the principal sum, should amount to reasonable redress for the taxpayer’s loss, and (iii) suggesting that the referring court might consider that interest which is over 125% of the amount of the principal sum might be such reasonable redress.”

(Our emphasis)

The FTT recognised that the issue of adequacy would be a question of fact, stating at [65]:

“…it is our view that our role is to apply the statutory provisions as drafted to the facts of the present case… However, and by reference to the conclusion in Littlewoods SC, we consider that the remedy provided under section 85A VATA and subsequently under section 102 FA 09 to be an adequate indemnity simply at a lower point in the range of possible but nevertheless adequate remedies.”

Similarly, we consider that the FTT’s reasons for distinguishing the facts of Emblaze from those in the present case on the basis that in Emblaze the VDT’s jurisdiction had been engaged before 1 April 2009 and therefore its inchoate rights were protected whereas, in contrast, the appeals referred to at FTT [96] each related to an identified decision which post-dated 1 April 2009 and consequently inchoate rights had not accrued to the Company, was a finding open to it and a conclusion it was entitled to reach.

Accordingly, had it been necessary to do, we would have dismissed the Company’s appeal on Ground 2.

Ground 3 avers that the FTT erred in holding that the Company was only entitled to interest at base rate plus 1.5%.

It is submitted that, the FTT having found that the Company’s cost of borrowing was BoE base rate plus 2.27% and that the sums overpaid “were not available to the Appellant in the running of its business and therefore either directly or indirectly the borrowing requirements of the Appellant were increased as a consequence of the overpayments”, the FTT erred in concluding that the Company “is entitled to interest at base plus 1.5%”.

Mr Beal submitted that the correct approach in determining whether to award additional interest is set out in Emblaze. The FTT erred in concluding that anything less than reimbursement of the actual costs of borrowing provided an adequate indemnity as a matter of EU law. There was no particular reason to justify a lower figure.

Furthermore, the FTT erred in having regard to the Settlement Agreement in reaching its Decision. The FTT accepted the evidence of Mr MacMillan on behalf of the Company and to reduce the interest payable below the Company’s true cost of borrowing without any challenge to that evidence is unfair.

HMRC submitted that whether, and if so at what rate, to award additional interest under s. 84(8) were matters for the FTT in the exercise of its discretion.

The FTT analysed the evidence, both oral and documentary, and made findings of fact at FTT [30] – [33]. The general principles applicable to the exercise of discretion in awarding interest were fully set out from FTT [34] – [46].

The FTT set out its application of the relevant principles and authorities to the facts at FTT [68] – [76]. In doing so, the FTT took into account the evidence of Mr MacMillan, however the FTT took the view (at FTT [75]) that:

“…we consider it more appropriate to use the rate set in the settlement agreement agreed between these parties in respect of the Contents Dispute  The Appellant considered base plus 1.5% an appropriate rate to apply in that context and that was a rate that HMRC considered to be reasonable in the event that there was a further delay in repayment of the overpaid tax in circumstances in which it might have been considered appropriate to apply a penal rate.  We do not consider base plus 1.5% to be a penal rate in the context of the rates that the Appellant was paying at the time (as per the table at paragraph 33(7) the Appellant was paying 2.51% against a base rate of 0.5% i.e. a margin of 2.01%).”

The settlement agreement formed part of the evidence before the FTT, and we consider that it was entitled to have regard to this evidence in reaching its Decision.

In exercising its discretion, we are entirely satisfied that there was no error of law in the FTT’s application of the legislation and relevant authorities to the facts of the present case, as found by the FTT. The Decision reached fell within the FTT’s discretion and we see no basis upon which to interfere with it. Accordingly, we dismiss the Company’s appeal on Ground 3.

For the reasons set out above, we allow HMRC’s appeal in relation to its Ground 1 and set aside the FTT’s decision on this Ground and remake it on the basis that (i) the Company’s applications for further interest in relation to the appeals listed at 9-17, 21-22 and 25-27(1) of the Appendices are dismissed, and (ii) the Company’s applications for further interest in relation to the appeals listed at lines 18-20, 23-24 and 27 (2) are dismissed.

The Company’s appeal is dismissed on all Grounds.

Any application for costs in relation to this appeal must be made in writing and served on the Tribunal and the person against whom it is made within one month after the date of release of this decision as required by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.

APPENDIX 1

APPENDIX 2