In this post, Jack Prytherch, Of Counsel in the Tax team at CMS, previews the decision awaited from the Supreme Court in Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Health Board [2020] CSIH 14. The appeal was heard by the Supreme Court on 8 and 9 June 2022. The Supreme Court was asked to consider the correct approach that should be taken by HMRC and the courts to evidence, and the burden and standard of proof, in historical claims for the recovery of overpaid VAT.


The law in relation to VAT broadly confers a right to deduct the amount of any VAT on input expenditure for business activities. Where such ‘input tax’ is unrecovered so that VAT has been overpaid, it is possible to make a claim for prior periods (subject to any applicable statutory time limits).

Claims for overpaid VAT, potentially going back as far as the inception of VAT in 1973, are known as ‘Fleming claims.’ They are so called after the decision of the House of Lords in Fleming (trading as Bodycraft) and Condé Nast Publications Ltd v Commissioners for Her Majesty’s Revenue and Customs [2008] UKHL 2, which concerned the way in which the then UK statutory time limit on making claims for overpaid VAT had been introduced. Finance Act 2008, s 121 was subsequently introduced to limit the scope for making such claims by introducing a new transitional period ending 1 April 2009, before which any such claims had to be made.

The taxpayer, NHS Lothian Health Board (“NHS Lothian”), is an NHS trust responsible for the provision of health services within the Lothian area of Scotland. Together with its predecessors, NHS Lothian operated scientific laboratories during the period between 1974 and 1997. Most of the work performed in the laboratories was carried out for the clinical purposes of the taxpayer and therefore consisted of non-business activities for VAT purposes. Nevertheless, NHS Lothian also carried out work for persons outside the NHS, including local authorities and pharmaceutical companies, which constituted business activities for VAT purposes (meaning that input tax incurred for the purposes of such activities should have been recoverable). Unfortunately, prior to 1994, the VAT liability of NHS boards such as NHS Lothian was handled by the Scottish Office, and during that period (and until the year 1995/1996) it was the general practice of public bodies not to make claims to recover input tax on business activities.

Against that background, NHS Lothian made a global Fleming claim for the period from 1 April 1974 to 30 April 1997 which included the business activities of its laboratories. That claim was rejected by HMRC and NHS Lothian appealed to the First-tier Tribunal (Tax Chamber) (“FTT”).

Decisions of the Tribunals

The primary issue in Fleming claims is often not the existence of the taxpayer’s claim to recover overpaid VAT but instead whether that claim can be quantified with sufficient accuracy to permit an order for repayment to be made. The reason for this is that historical financial records are likely to have been destroyed or otherwise lost over time. Taxpayers are therefore reliant on some other evidence to support historical claims.

For the purposes of its Fleming claim, NHS Lothian had based its calculations on a separate claim made for the year 2006/2007 in respect of which financial records remained available and for which HMRC had agreed that the recoverable amount should be 14.7% of the total costs of the laboratories. NHS Lothian sought to extrapolate that same agreed percentage backward to earlier years and also presented detailed evidence, accepted by the FTT, that the activities of the laboratories had not changed significantly throughout the relevant period.

However, the FTT held that the evidence presented by NHS Lothian was not sufficiently precise to use as a basis for the quantification of the claim. For example, while NHS Lothian had presented witness evidence confirming that there had been no changes to the general pattern of activity over the relevant period, there had not been any reference to reliable primary data (e.g., sales ledgers or copy tax invoices), and the time-scale involved undermined the likely accuracy of the proposed extrapolation as amounts were bound to fluctuate. The FTT therefore dismissed NHS Lothian’s claim in its entirety, and that decision was subsequently upheld by the Upper Tribunal.

Decision appealed

On appeal to the Inner House of the Court of Session, two principal questions arose:

  • firstly, whether the fundamental right to repayment of overpaid VAT, guaranteed by EU law and the principle of effectiveness, means that, if the taxpayer’s methodology for calculating the amount of repayment were rejected, HMRC and the Tribunals were not permitted to reject completely the taxpayer’s claim solely on the basis of difficulties with identifying a satisfactory methodology or difficulties of proof; and
  • secondly, whether, having regard to the fundamental EU law requirement that the right to recover overpaid VAT should not be rendered excessively difficult or impossible in practice under domestic law (the principle of effectiveness), HMRC and the Tribunals should adopt a flexible approach to the burden and standard of proof in connection with historical claims for repayment.

The Inner House answered both questions in the affirmative and allowed NHS Lothian’s appeal, setting aside the FTT’s decision and remitting the case to a differently constituted FTT for reconsideration. It is that decision of the Inner House that is the subject of the appeal to the Supreme Court.

According to the Inner House, the FTT had imposed too high a test on NHS Lothian as the taxpayer. The existence of a claim to recover overpaid VAT was not in issue; all that was in dispute was the quantum. That meant that some amount of input tax must be due to the taxpayer (whereas, if the FTT were correct, none of that amount would be recovered). As such, where it is clear that some repayment of tax is due, the Inner House considered that it should normally be possible to arrive at some sort of quantification of the amount due and “exceptional circumstances” would be required to render such quantification impossible. If necessary, the FTT should perform the appropriate calculations itself or at least state the principles by reference to which the calculation should be made. As a last resort, it should also be possible to discount an estimated amount to reflect the uncertainty.

In this case, the reason for the lack of primary evidence was the historical nature of the claim, which the Inner House noted was in large part caused by the failure of the UK to properly implement the EU law right to reclaim input tax and also by the fact that NHS Lothian’s VAT affairs were at one time under direct government control. In such circumstances, a “reasonably generous approach” should be taken to historical claims and the failure of the taxpayer to produce primary evidence could not be given the level of significance as attributed by the FTT.

The Inner House determined, therefore, that the critical question should be whether, in the light of the absence of sufficient primary evidence, the taxpayer has succeeded in proving the quantification of its claim on the balance of probabilities by using such secondary evidence as exists and drawing inferences from that evidence. According to the Inner House, that is not a test of certainty or even near certainty, but instead a question of whether the taxpayer’s calculation of the repayment due is more likely to amount to a proper quantification of its claim than the alternative (i.e., no input tax being repayable whatsoever).


This case highlights the difficulties that can be faced by taxpayers in evidencing historical Fleming claims for overpaid VAT, as well as the tough approach taken by HMRC in respect of such claims. The number of outstanding Fleming claims, for obvious reasons, is diminishing. However, the upcoming decision of the Supreme Court should also have relevance to other situations where the taxpayer is required to produce evidence to quantify a claim for repayment and the general principles that should be applied by HMRC and the FTT in such circumstances.