Whether Section 78 VATA 1994 allowed successive claims for VAT interest on input tax wrongly withheld so that the taxpayers appeals to the tribunal had been in time?

The case concerned five unconnected taxpayers, all raising the same issues in a joint appeal. All five were motor dealers and all had made successful claims for repayment of excessive VAT following the judgments in the Elida Gibbs and EC Commission v Italy cases that the UK's tax treatment of manufacturers’ bonuses and demonstrator car sales respectively had been wrong.

Repayment of the excess tax had been made to the taxpayers together with simple interest. However, the taxpayers argued that simple interest was not sufficient recompense and that HMRC should instead pay a sum which would effectively amount to compound interest.

The time-limit for bringing an appeal to the VAT and Duties Tribunal under r. 4(1) of the Value Added Tax Tribunal Rules 1986 was 30 days ‘after the date of the document containing the disputed decision of HMRC’. The Upper Tribunal held that the relevant decisions giving rise to a right of appeal under section 83 were those received when the payments of simple interest were made and on this basis, the appeals were out of time.

The Tribunal also refused to extend the time for bringing the appeals on the basis that, even if permission had not been refused, when section 78 was given its natural construction, only simple interest was due, so that the appeals would have been dismissed anyway.

The taxpayers appealed against the decision that their notices of appeal had been issued outside the time limit and also appealed the Tribunal's refusal to exercise its power to extend the time for bringing appeals.

They submitted that the Tribunal was mistaken that there could only ever be one claim in relation to statutory interest under section 78 in respect of the same capital overpayment and this resulted from the incorrect view that there could not be more than one relevant decision. The taxpayers' view was that, if a claim was made for a greater amount than was due, had been offered, or was paid, it was that particular claim which was the relevant decision for the purposes of determining the time for appealing. The issue was whether section 78 VATA 1994 permitted successive claims for interest due in a single period with associated appeal rights.

The Court of Appeal allowed the taxpayer's appeal by a majority. The critical issue was the identification of the ‘disputed decision’ made by HMRC. Under r. 2(1) of the 1986 Rules, this expression meant the decision of HMRC against which a taxpayer appealed or proposed to appeal. It was a question of law which turned on the proper interpretation of the correspondence in the context of the proper scope of r. 4. There was nothing in VATA 1994 to show that there might not be successive claims. The only formal requirement for a claim was that it be made in writing.

Accordingly, HMRC had to justify a limitation upon the operation of section 78 which could not be found in the statutory language. Given the informality of the procedure contemplated by the statute, there was no reason why a claimant who had received an unfavourable letter in response to his claim should not, subject to the three-year limitation period in section 78(11), be able to write again to HMRC, restating his claim and seeking to explain why HMRC's letter was wrong.

If repeat claims under section 78 were permissible in principle, there was no reason why they had to be predicated upon the emergence of some new fact showing the original claim or decision to be wrong, and need not necessarily be based on a new decision of the court which clarified the law in such a way as to demonstrate, or lend support to, the claimant's contention that HMRC's rejection of the earlier claim was wrong.

In this case, there was a proper basis for a second section 78 claim being made as a result of the Court of Appeal's decision in Sempra Metals Ltd as it was that case which raised the realistic possibility of a claim for compound interest.

Although it was the Tribunal's view that the taxpayers had a duty to act promptly, even if they failed to do so the reality was that following Sempra, the taxpayer had taken steps which were entirely normal in VAT disputes.

The full text of this case is available at http://www.bailii.org/ew/cases/EWCA/Civ/2010/923.html