Revenue and Customs v Taylor Clark Leisure Plc (Scotland) [2018] UKSC 35

Taylor Clark Leisure sought to rely on VAT repayment claims made by Carlton, a former member of its VAT group. The Supreme Court held Carlton made the claims on its own behalf, not for TCL, so TCL's claim was time-barred.

Facts

Taylor Clark Leisure PLC (“TCL”) was the representative member of the Taylor Clark VAT Group from 1973 until its disbandment on 28 February 2009. In 1990, TCL transferred its bingo business to Carlton Clubs Ltd (“Carlton”), then a fellow VAT group member. Carlton left the VAT Group in 1998.

Following the CJEU’s decisions in Linneweber (2005) and subsequently Rank Group (2011), which established that certain gaming machine and bingo income was exempt from VAT, HMRC invited repayment claims. After the House of Lords’ decision in Fleming [2008] 1 WLR 195, section 121 of the Finance Act 2008 disapplied the three-year time limit for overpaid VAT claims relating to periods before 4 December 1996, provided claims were made before 1 April 2009.

On 16 November 2007, Carlton submitted four protective claims under section 80 VATA for repayment of output VAT overpaid between 1973 and 1998, using TCL’s VAT Group VRN but on Carlton’s own letterhead. Carlton did not inform TCL. A revised claim dated 8 January 2009 relied on the 1990 Asset Transfer Agreement as assigning historic claim rights to Carlton. HMRC initially paid £667,069 to TCL, then assessed to recover it, then withdrew the assessment, then reinstated it. TCL subsequently asserted its own entitlement to all the claims.

Issues

The sole issue before the Supreme Court was the “Claimant Issue”: whether the VAT Group, represented by TCL, could rely on claims for repayment of overpaid VAT which had been made in time by another (former) member of the same VAT group, namely Carlton.

Arguments

HMRC

HMRC submitted that the Inner House erred in holding that a claim by an individual VAT group member must normally be construed as made on behalf of the representative member. Carlton’s claims were made on its own behalf, and TCL could not rely on them to avoid the statutory time bar under section 121 FA 2008.

TCL

TCL argued that the VAT Group was the single taxable person in EU law with sole fiscal personality, so Carlton’s claims must be treated as made on behalf of the VAT Group, upon which TCL as representative member could rely. Alternatively, TCL argued it had ratified Carlton’s claims. TCL also sought a reference to the CJEU on the compatibility of the UK’s implementation with article 11 of the Principal VAT Directive.

Judgment

The Supreme Court (Lord Hodge delivering the leading judgment, with whom Lord Mance, Lord Reed, Lord Carnwath and Lord Briggs agreed) unanimously allowed HMRC’s appeal.

The UK’s implementation of article 11

Article 11 of the Principal VAT Directive is permissive and not prescriptive. The UK, through section 43 VATA, implemented the single taxable person concept not by deeming the group itself to be a quasi-person, but by treating the representative member as the person making or receiving supplies. Lord Hodge endorsed the analysis in Customs and Excise Comrs v Thorn Materials Supply Ltd [1998] 1 WLR 1106, noting that the representative member is the single taxable person under UK law. He also endorsed the FTT’s analysis in Standard Chartered plc v Revenue and Customs Comrs, including Judge Berner’s statement that the representative member is “the domestic law embodiment of the single taxable person” and not the agent or trustee of constituent members.

Section 80 VATA

Section 80(1) makes clear that HMRC’s liability to credit or repay overpaid output tax is owed to the person who accounted for the VAT. Section 80(2) requires a claim “for the purpose”. During the currency of a VAT group, the party entitled to submit a repayment claim is the current representative member, or an agent acting on its behalf, unless the claim has been assigned.

Construction of Carlton’s claims

The Court rejected the Inner House’s presumption that a claim by an individual group member should normally be construed as made on behalf of the representative member. The FTT had found as fact that Carlton made the claims in its own right. Lord Hodge identified four reasons why that finding contained no error of law: (1) Carlton had long ceased to be a member of the VAT Group when it sent the letters; (2) Carlton had presented the new claims as extending previous disclosures relating to its own post-group business; (3) the VAT Group’s VRN was used simply to identify the source of the overpaid tax, not to identify the claimant; and (4) Carlton’s letter of 8 January 2009 made plain that it was claiming in reliance on the 1990 Asset Transfer Agreement and the Triad Timber decision, asserting entitlement in its own interest.

Agency and ratification

TCL’s agency arguments failed. The FTT had found that TCL neither instructed nor authorised Carlton to submit the claims, and the 2009 repayment “came out of the blue”. Ratification was impossible because Carlton’s letters did not purport to be written as agent for TCL, a requirement established in Keighley, Maxsted & Co v Durant [1901] AC 240.

Request for CJEU reference

The Court refused TCL’s late application for an article 267 reference. Applying CILFIT, a ruling on the nature of the single taxable person was unnecessary: whichever view was taken of the UK’s implementation, Carlton had made its claims in its own interest, not on behalf of the representative member or the VAT Group.

Implications

The decision confirms that, under UK law, the representative member of a VAT group is the single taxable person for the purposes of section 43 VATA, and is the party entitled to make claims for repayment of overpaid VAT during the currency of a VAT group (unless the claim has been assigned or an agent acts on the representative member’s behalf). The notion that a VAT group is itself a separate quasi-person in UK law was rejected as an unnecessary complication.

The judgment makes clear that a claim submitted by an individual member (particularly one which has left the group) will not automatically be treated as made on behalf of the representative member. Whether such a claim is made on the representative member’s behalf is a question of construction to be approached without any presumption in favour of that characterisation.

The decision is significant for practitioners advising on historic Fleming-type claims and for corporate groups considering who holds the right to claim repayment of overpaid VAT. The Supreme Court expressly declined to decide the distinct questions (then pending in the Court of Appeal) of which entity holds the right to claim after a VAT group has been dissolved or after a member with the economic burden has left, although its statutory analysis will have an indirect bearing on those issues. The case also reinforces that principles of agency and ratification apply strictly: a claim cannot be retrospectively treated as made on another party’s behalf where it was originally made for the claimant’s own benefit.

Verdict: Appeal allowed. The Supreme Court held that Carlton’s claims were made in its own interest and not on behalf of TCL or the VAT Group, so TCL could not rely on them. TCL’s claim was therefore time-barred under section 121 of the Finance Act 2008.

Source: Revenue and Customs v Taylor Clark Leisure Plc (Scotland) [2018] UKSC 35