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Jim Hillan and Rachel Arnison, who both work in the tax team at CMS, comment on the judgment handed down by the UK Supreme Court in the Scottish appeal of Commissioners for Her Majesty’s Revenue and Customs v Taylor Clark Leisure Plc [2018] UKSC 35:

Further to our previous blog on this case, the Supreme Court has overturned the judgment of the Inner House of the Court of Session. In doing so, the Supreme Court has ruled that claims for overpayment of VAT cannot be made by anyone other than the representative member of that VAT group (unless potentially, if the claim has been assigned, or an agency arrangement is in place).

Background

This case revolves around Carlton Clubs Ltd’s claims for repayment of overpaid VAT following the change in VAT treatment of income generated from bingo and gaming machines.

Carlton was previously a member of a VAT Group, of which Taylor Clark Leisure Plc was the representative member. Following a group reorganisation, Taylor Clark’s bingo business was transferred to Carlton. Carlton was subsequently sold, and therefore ceased to be part of the Taylor Clark VAT group.

HMRC (who accepted that VAT had been overpaid) initially made the repayments to Taylor Clark but then recovered these payments on the basis that Taylor Clark itself had not made a valid claim. Taylor Clark argued that it could rely on the claims submitted by Carlton.

Although the First Tier Tribunal and the Upper Tribunal had held in favour of HMRC, the Inner House held that Carlton’s claims were valid claims for a repayment to Taylor Clark, since the acts of individual members of a VAT group should be treated as acts made on behalf of the representative member.

The Supreme Court’s Decision

The Supreme Court disagreed with the Inner House’s conclusion. It found that the UK’s implementation of the Principal VAT Directive does not result in the group being deemed to be a quasi-person. Instead, it treats the representative member as the person who has supplied or received the supply of goods or services.

The Supreme Court commented that the wording of the Value Added Tax Act 1994, s 43(1) is clear beyond question: “any business carried on by a member of the group shall be treated as carried on by the representative member.” The decision approved of an analogy drawn in the case of Revenue and Customs Comrs v MG Rover Group Ltd [2016] UKUT 434 (TCC); [2017] STC 41, which referred to a VAT group as akin to a corporation sole, whose role is fulfilled by whoever holds the relevant office at any time. In other words, s 43 of the 1994 Act does not make the group into a taxable person, instead it treats the group’s supplies and liabilities as those of the representative member at the relevant time. Although registration of a group is often said to give rise to a single taxable person, it is in fact the appointment of the representative member which provides the legal person, which is the taxable person. On that basis, the Supreme Court held that Taylor Clark could not rely on the claims made by Carlton, and therefore Taylor Clark was not entitled to a repayment of VAT.

The decision is unlikely to have a significant effect on the day to day functioning of VAT groups. This issue arose due to the particular situation of claims being made following the deadline set in the case of Fleming (t/a Bodycraft) v HMRC [2008] UK HL 2, [2008] STC 324, [2008] 1 WLR 195, and such situations are rare. However, the litigation has shed light on the proper interpretation of the UK’s VAT legislation and the application of the rules following the disbanding of a VAT group.