Gaming tax appeal gives guidance on UK VAT grouping rules

Out-Law News | 13 Jul 2018 | 6:30 pm | 3 min. read

HM Revenue and Customs (HMRC) has successfully appealed a decision by the Scottish Inner House that a representative member of a VAT group can rely on a timely claim made by a departed VAT group member when the representative member itself did not make a timely claim.

The unanimous decision by the UK Supreme Court "gives definitive guidance on the UK's VAT grouping regime and the status of the representative member as the embodiment of the VAT group", according to tax expert Maryse Heijnen of Pinsent Masons, the law firm behind

"This decision of the Supreme Court is a stark reminder for taxpayers of the importance of ensuring that the right entity brings the claim forward," she said.

"The court decided that it was not necessary or appropriate to make a reference to the Court of Justice of the European Union (CJEU) on the question of whether the interpretation of the UK VAT grouping provision is in line with the concept of the single taxable person within the European VAT directive, as requested by the taxpayer," she said.

Taylor Clark Leisure Plc (TCL) was the 'representative member' of the Taylor Clark VAT group between 1973 and 2009, in terms of article 11 of the EU's Principal VAT Directive. The idea of VAT grouping of companies was introduced to simplify the administration and collection of VAT. In about 1990, TCL undertook a group reorganisation which involved the transfer of its bingo business to another member of the VAT group, Carlton Clubs Ltd (Carlton). Carlton ceased to be part of the VAT group in 1998, when it was sold out of the Taylor Clark group of companies.

The dispute arose in relation to four claims for repayment of VAT submitted by Carlton to HMRC in November 2007, without the knowledge of TCL. The overpayments had been made by TCL in accounting periods between 1973 and 1996, when HMRC treated income generated from bingo and gaming machines as subject to VAT. The CJEU has now confirmed that this income is VAT exempt.

In 2008, the House of Lords held that UK legislation that imposed a shortened three-year time limit on claims for the refund of overpaid VAT between 1973 and 4 December 1996 without providing for an adequate transitional period, which was fixed in advance, was contrary to European law. Carlton submitted its VAT repayment claims to HMRC in anticipation of this decision. The UK parliament legislated for an extended time limit for claims relating to a prescribed accounting period ending before 4 December 1996 as part of the 2008 Finance Act.

The question for the Supreme Court was whether the claims made by Carlton, which had been made in time, could be treated as having been made on behalf of TCL as the representative member of the VAT group. TCL is now time barred from making its own claim. The First-tier Tribunal (FTT) found that Carlton had made the claims on its own behalf, and that these could not be relied upon by TCL. This was then overturned by the Scottish appeal court, the Inner House of the Court of Session.

The Supreme Court has now restored the decision of the FTT and found in favour of HMRC. Carlton, which had "long ceased to be a member of the VAT group", did not make a claim for repayment on behalf of TCL.

"Even if Carlton had remained a member of the VAT group, I would not have construed its letter as one on behalf of TCL, in the absence of an assertion that it was acting as TCL's agent, because the statutory scheme, which it was invoking, envisaged that HMRC would deal only with the representative member," said Lord Hodge, giving the unanimous judgment of the court.

Carlton had supplied the VAT registration number (VRN) of the VAT group in its repayment claims. However, the court found that the use of the VRN was not sufficient to indicate that the repayment claim was being made on behalf of the VAT group, and TCL as its representative member. Rather, the use of the number "was necessary in order to identify the original source of the allegedly overpaid VAT", he said. Carlton also claimed that the right to reclaim the overpaid VAT had been transferred to it by TCL.

"[I]n each of the claims ... Carlton was claiming repayment of sums paid from 1973, long before its incorporation in 1990, as well as in the period after 1990 when it was a member of the VAT group," Lord Hodge said in his judgment. "It clarified the basis on which it made those claims in its [revised claim letter] of 9 January 2009 ... Both parties would have readily understood Carlton to be claiming repayment in its own interest."

An additional argument by TCL that Carlton was acting as its agent was dismissed by the Supreme Court, as Carlton "had no actual authority to send the letters on TCL's behalf" and TCL was completely unaware that it had a potential claim.