Jim Hillan and Rachel Arnison, who both work in the tax team at CMS, comment on the Scottish appeal of Commissioners for Her Majesty’s Revenue and Customs v Taylor Clark Leisure Plc, on which judgment is currently awaited from the UK Supreme Court:


Can a member of a VAT group other than the representative member make a claim on behalf of that VAT group? On the face of it, a straightforward question, however this question has resulted in some not so straightforward answers, and a raft of litigation too.

Carlton Clubs Ltd (“Carlton”) was a subsidiary of Taylor Clark Leisure PLC (“Taylor Clark”), and following a group reorganisation , Taylor Clark’s bingo business was transferred to Carlton. Carlton was a member of the Taylor Clark VAT group from 1990 to 1998 before Carlton was sold.

Following a decision in 2005 by the Court of Justice of the European Communities (Finanzamt Gladback v Linneweber (Case C-453/02), [2005] ECR I-1131, [2008] STC 1069) which stated that VAT was not, and never had been, payable on income attributable to gaming machines, Carlton submitted several claims relating to overpayments of VAT to HMRC. Some of these overpayments related to the period of time in which Carlton was a member of the Taylor Clark VAT group, and for that reason HMRC paid the relevant requested sums to Taylor Clark.

However, in 2009 HMRC reached the conclusion that these sums were in fact repayable to HMRC as the claims had not been properly made before the required deadline set by Fleming (t/a Bodycraft) v HMRC [2008] UK HL 2, [2008] STC 324, [2008] 1 WLR 195. HMRC contended that the claims had not been properly made because they were made by Carlton rather than by Taylor Clark as the representative member of the Taylor Clark VAT group at the relevant time.

Taylor Clark disputed HMRC’s decision with regard to the validity of the claims, first by appeal to the First-Tier Tribunal and then to the Upper Tribunal ([2014 UKUT 0396 (TCC)). Both of these appeals were unsuccessful on the basis that the claims should have been made by the VAT group’s representative member, Taylor Clark. However, Taylor Clark’s appeal to the Inner House of the Court of Session was allowed (Clark Leisure Plc v A Decision of the Upper Tribunal (Tax and Chancery Chamber) [2016] CSIH 54).

Findings of the Inner House of the Court of Session

The Inner House disagreed with the lower courts and held that the claims submitted by Carlton should be regarded as claims properly made by the Taylor Clark VAT group. Therefore the Inner House came to the conclusion that Taylor Clark (as the representative member embodying the VAT group at the relevant time) should be entitled to the overpaid VAT referred to in the claims submitted by Carlton.

The crux of the Inner House’s decision was that the claims could not possibly have been made by Carlton itself as Carlton had no existence for VAT purposes at the relevant time. This is by virtue of article 11 of Council Directive 2006/1.2/EEC (the current Principal VAT Directive) which says that where bodies corporate are treated as members of a group under the relevant section of the Value Added Tax Act 1994, any business carried on by any member of the group shall be treated as carried on by the representative member. In the same vein, in the case of Skandia America Corp (USA) v Skatteverket, 17 September 2014 (Case C-7/13) the Court of Justice of the European Union held that that the entity in question, along with the other individual members of the VAT group in question, formed a single taxable person for VAT purposes.

The Inner House delved into the fiction of the single taxable person who is created only for fiscal purposes and has no existence in general law. On that basis, the Inner Court held that the only logical conclusion is that the claims were not made by Carlton. Carlton, as an individual member of the VAT group at the relevant time, had no independent fiscal existence. Therefore, the claims were more logically deemed to have been made on behalf of the notional single taxable person – the Taylor Clark VAT group (as embodied by its representative member, Taylor Clark). It follows that the claims were considered to have been validly made within the required time limits.

The Inner House’s decision appeared to be a sensible one. It was favoured by many as it would allow a certain degree of flexibility going forward by giving VAT group members the opportunity to make claims on behalf of the VAT group where administratively necessary and practically easier.

Submissions in the Supreme Court

The Supreme Court heard the submissions of the parties on 11 April 2018. HMRC’s appeal centred around the fact that, despite the Inner House’s conclusion that Carlton had made the claims on behalf of the VAT group and was therefore acting as an agent, there had been very little discussion surrounding the law of agency. HMRC set out the policy behind VAT grouping, which is essentially to promote simplicity of administration. With this in mind, if HMRC were to accept claims from several different sources then this policy would clearly not be fulfilled.

Taylor Clark on the other hand submitted extensive analysis as to the rights attributed to the notional single taxable person. This was followed by a submission relating to agency and ratification which appeared to carry little weight as the court questioned why new points were being raised at this stage given that in the lower courts Taylor Clark had denied the existence of any agency arrangement.

The awaited outcome

The Supreme Court’s decision is unlikely to impact the day to day functioning of many VAT groups, however it will clearly have significant effect in situations where claims need to be made after a group has broken up. Going forward, entities leaving VAT groups may need to carefully consider their contractual rights in the event of a future claim being made to HMRC. Furthermore, if the Supreme Court does allow HMRC’s appeal then it remains unclear what would happen in a situation where a representative member changes, as this is not immediately apparent from the legislation.