Fleming (trading as Bodycraft) v Revenue and Customs Commissioners; Condé Nast Publications Ltd v Revenue and Customs Commissioners [2008] UKHL 2, [2008] All ER (D) 151 (Jan)
House of Lords
Lord Hope, Lord Scott, Lord Walker, Lord Carswell and Lord Neuberger
23 January 2008
European Court of Justice (ECJ), it is for Parliament to legislate prospectively for a specific transitional period, or for HM Revenue & Customs (HMRC) to communicate in clear terms, a final period during which claims for input tax arising before 1 May 1997 can be made. Provided that HMRC allows a sufficiently long period, that is effectively communicated in sufficiently clear terms to those registered for VAT, that will suffice.
David Southern and Denis Edwards (instructed by Hepburns) for F.
Alison Foster QC and Adam Robb (instructed by the Solicitor for Revenue and Customs) for the Revenue in F’s appeal. Jonathan Peacock QC and Jolyon Maugham (instructed by Forbes Hall) for CN.
Christopher Vajda QC and Valentina Sloane (instructed by the Solicitor for Revenue and Customs) for the Revenue in CN’s appeal.
Claims for overpayment of output VAT and previously unclaimed deduction of input tax were provided for by the Value Added Tax Act 1994 (VAT 1994), s 80 and reg 29 of the Value Added Tax Regulations 1995 (SI 1995/2518). Originally, s 80 provided for a six year time limit for such claims unless the overpayment had been by reason of a mistake, in which case time ran for six-years from the date on which the taxpayer discovered the mistake or could with reasonable diligence have discovered it.
In the ordinary course input tax would be claimed as a deduction on the return for the accounting period to which it related. Regulation 29 permitted claims for a deduction to be made later. As originally drafted, it did not subject those claims to any time limit.
By the Finance Act 1997, s 47 however (which am
ended VAT 1994, s 80(4) with effect from 18 July 1996), the six-year time limit for the recovery of overpaid tax was reduced to three years, and the exception in relation to cases of mistake was removed. No provision was made for a transitional period during which a claim could be made in cases where a right to recovery of overpaid tax already existed. A new reg 29(1A) was inserted into reg 29 with effect from 1 May 1997, which provided that the commissioners were not to allow a claim for deduction of input tax made more than three years after the date of the return for the relevant period.
In the case of that amendment there was also no transitional period. Following the ECJ’s decision in Marks and Spencer plc v Commissioners of Customs and Excise (Case C-62/00) [2002] All ER (D) 183 (Jul) (Marks and Spencer II), HMRC introduced a transitional period for the making of claims for the recovery of overpaid tax under s 80. At first there was a transitional period of six months from 4 December 1996. Taxpayers were given until 31 March 2003 to submit claims. Following a second ECJ decision (Grundig Italiana SpA v Ministero delle Finanze (Case C-255/00) [2003] All ER (EC) 176 (Grundig II), the transitional period was extended by three months to 30 June 1997 and the period within which claims could be made was extended to 30 June 2003. This case concerned two claims for repayment of input tax.
It was common ground that the unmodified time limit in reg 29(1A) was incompatible with EU law because it was retrospective and made no provision for any transitional arrangements, and therefore should be disapplied. The issue therefore arose as to the proper characterisation and duration of the period of disapplication.
LORD NEUBERGER:
HMRC’s primary case was that the appropriate period of disapplication should be equivalent to the transitional period which the legislature ought to have accorded under community law, but had failed to do.
That solution failed on the very grounds that the problem existed, namely that it breached the principles of effectiveness and legitimate expectation. One year of disapplication expiring in May 1998 would come to an end before, indeed years before, it was established that: (i) the absence of a transitional provision meant that there had been a breach of Community law principles (Marks & Spencer II, in July 2002); (ii) there was nonetheless at least the possibility of a period of disapplication (Grundig II, in September 2002); and (iii) contrary to the firmly expressed opinion of the commissioners, the claims fell within reg 29 (University of Sussex v Customs and Excise Commissioners [2003] EWCA Civ 1448, [2004] STC 1, in October 2003).
Even if the possibility of a period of disapplication had occurred to someone with an accrued right to claim input tax as at 1 May 1997, the length of that period would have been a matter of speculation. A valid limitation period, in order to satisfy community law, had to be “fixed in advance” (Marks & Spencer II at para 39). The same principle had to apply to a transitional period which had to be included when a new retrospective time limit was introduced.
Transitional period
HMRC contended that only those people who could and would have made claims during the transitional period which ought to have been, but was not, accorded in May 1997, should be entitled to raise claims during the period of disapplication. That was both wrong in principle and inconvenient in practice.
The period of disapplication (or, to be strictly accurate, the beginning of the end of the period of disapplication) had not yet arisen. It would be a matter for Parliament to legislate prospectively for a specific transitional period, or for HMRC to communicate in clear terms, a final period during which claimed for input tax arising before 1 May 1997 could be made. The possibility of HMRC giving what amounted to an extra-statutory concession was said on behalf of the respondents to be insufficient. His lordship did not agree. Provided that HMRC allowed a sufficiently long period, which was effectively communicated in sufficiently clear terms to those registered for VAT, that would suffice.
His lordship dealt with the appeals on the facts.
Lord Hope, Lord Scott and Lord Carswell delivered concurring opinions and Lord Walker dissented in part.
