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Supreme Court rules on recovery of overpaid output tax by VAT group

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The question posed by Lady Clark of Calton, in giving permission to Taylor Clark Leisure to appeal to the Court of Session, was admirably succinct: 'Can the VAT group, represented by [Taylor Clark Leisure], rely on the claims for repayment of VAT overpaid by the VAT group, when the claims were made in time but were made by another member of the same VAT group?' (HMRC v Taylor Clark Leisure Plc (Scotland) [2018] UKSC 35 at para 16).

The Court of Session held that it could; on appeal by HMRC, however, the Supreme Court held that it couldn't. The differing views arose from differing interpretations of what 'single taxable person' meant in the context of the European VAT legislation on VAT grouping from which the UK legislation is derived.

The Court of Session took the view that a single taxable person, in the context of VAT grouping, was a fiction, a 'quasi-persona' which was embodied in the form of the representative member. Thus 'the rights, obligations, powers and liabilities of the individual members are ascribed to the representative member so far as they relate to VAT. Equally, the acts of the individual members in relation to VAT are ascribed to the representative member as embodying the VAT group' (para 15).

As a result, a claim made by a member of the VAT group could only be made on behalf of the representative member; it could not be a claim made in the member's own right since it had paid no output tax in the first place, and therefore had nothing to claim.

The Supreme Court's view was that the UK legislation did not create a quasi-persona; it simply stipulated that all supplies to and by VAT group members were deemed to be supplied to and by the representative member, and it was the appointment of that representative member which provided the legal person which was the single taxable person. Consequently, a claim by a member other than the representative member could only be a claim on behalf of the VAT group if that member was appointed as agent for the representative member; if not, it could only be a claim on its own behalf.

The Supreme Court also made the point that, although the UK had gone down the 'representative member' route, the fact that VAT grouping was permissive rather than mandatory meant that other interpretations of 'single taxable person' were acceptable. For example, Swedish legislation provided that a VAT group was regarded as a single operator, ie the 'quasi-persona' approach. The result of that was that the inclusion of a Swedish branch of a US company in a Swedish VAT group meant that the branch lost its identity. Consequently, transactions between the US company and its Swedish branch were no longer transactions between the same legal entities; they were supplies from the US company to the Swedish VAT group. Under the UK grouping provisions, those same transactions would be disregarded.

Practical implications

As the Supreme Court pointed out, the decision in this case will have a bearing on other cases in the pipeline, involving such questions as:

  • who is entitled to a refund of overpaid VAT where the person who bore the economic burden of that VAT has left the VAT group? The decision in Taylor Clark Leisure would suggest that the entitlement remains with the representative member; and
  • who is entitled to a refund where the VAT group no longer exists? Again, Taylor Clark Leisure seems to indicate that the entitlement remains with the representative member.

David Rudling, Tolley (