APPEAL TO THE COURT OF SESSION BY TAYLOR CLARK LEISURE PLC AGAINST A DECISION OF THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER) DATED 8 SEPTEMBER 2014
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 54
XA53/15
Lord Menzies
Lady Smith
Lord Drummond Young
OPINION OF THE COURT
delivered by LORD DRUMMOND YOUNG
in an appeal to the Court of Session
by
TAYLOR CLARK LEISURE PLC
Appellant;
against
A decision of the Upper Tribunal (Tax and Chancery Chamber)
dated 8 September 2014
in respect of an appeal by
THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS
Respondent:
Act: Simpson, QC; Burness Paull LLP
Alt: Young, QC; Office of the Advocate General
14 July 2016
[1] The appellant was incorporated in 1935 under the name Caledonian Associated Cinemas Ltd, and has been engaged since then in a range of trading activities, generally in the leisure sector. After VAT was introduced in the United Kingdom in 1973 the appellant charged VAT on its relevant supplies at the standard rate. It established a VAT group and became the representative member of that group. The VAT group continued in existence until 2009, when it was dissolved. The appellant remained the representative member of the group throughout that period. The concepts of the VAT group and the group’s representative member are of fundamental importance to the issues in the present appeal, and are discussed below at paragraphs [9] et seq, and in particular at paragraphs [14]-[17]. At this stage it is sufficient to note that when a VAT group is established all supplies made to or by members of the group that are subject to VAT are treated for the purposes of VAT as made by the representative member, which is regarded as embodying the group.
[2] The appellant’s business included bingo and similar games of chance. In 1990 Carlton Clubs Ltd (“Carlton”) was incorporated as a wholly‑owned subsidiary of the appellant, and the appellant transferred its bingo and related businesses to Carlton with effect from 1 April 1990. The related businesses included the operation of gaming machines and mechanized cash bingo. Carlton became a member of the appellant’s VAT group. It remained a member of the Taylor Clark VAT group until 1998, when it was sold to outside shareholders and left the group. Because of Carlton’s membership of the Taylor Clark VAT group during the period from 1990 to 1998, all of the VAT paid in respect of its activities during that period was accounted for to the Commissioners of Customs and Excise by the appellant as the representative member of the group. Similarly, all supplies made by Carlton were treated as made by the appellant as representative member.
[3] On 17 February 2005 it was established by the European Court of Justice that income from gaming machines was not subject to VAT: Finanzamt Gladback v Linneweber (Case C-453/02), [2005] ECR I-1131; [2008] STC 1069. HMRC did not accept that that decision was relevant to the United Kingdom, but they nevertheless invited claims for repayment of VAT in relation to gaming machines and analogous activities. HMRC’s view on this matter was challenged in a series of cases brought in the British courts, and on 10 November 2011 the European Court of Justice decided, in Rank Group PLC v HMRC, [2011] ECR I-10947, that bingo was not subject to VAT.
[4] Meanwhile, on 23 January 2008, the House of Lords decided in Fleming (t/a Bodycraft) v HMRC, [2008] UK HL 2; [2008] STC 324; [2008] 1 WLR 195, that the United Kingdom legislation that imposed a statutory time bar for the refund of overpaid VAT was contrary to EU law in respect of the period from the inception of VAT in 1973 to 4 December 1996. Following the Fleming decision, section 121 of the Finance Act 2008 was enacted, which permitted claims to be made for VAT overpaid in respect of accounting periods prior to 4 December 1996. Section 121 provided that such claims, which are generally referred to as “Fleming claims”, could be made until 31 March 2009.
[5] On 16 November 2007 Carlton submitted four claims to HMRC in respect of the VAT that was said to have been overpaid in accounting periods from 1973 to 1998; the claims related to VAT paid on mechanized cash bingo, gaming machines, participation fees for bingo played for cash prizes, and added prize money in bingo games (the latter having been revised on 8 January 2009). Those claims are discussed in detail below at paragraphs [20] et seq. All of those claims were rejected by HMRC, and Carlton appealed against them to the First-tier Tribunal. On 27 April 2009 HMRC sent a notice of voluntary disclosure addressed to the appellant which showed that £667,069 was due to the appellant in respect of overpaid VAT on additional prize money. On the same date HMRC gave notice to the appellant that the foregoing sum plus interest of £663,300 was to be repaid to it. On 11 May 2009 that interest was paid to the appellant, and the following day the claim for VAT in respect of additional prize money was also paid to the appellant. On 7 July 2009, however, HMRC made assessments on the appellant for repayment of the VAT and interest that had been repaid in this way. Thereafter, on 14 September 2009, the appellant sought review of the foregoing recovery assessments, and on 4 May 2010 it sought repayment of the VAT that formed the subject of the other claims that had been submitted by Carlton. All of these claims by the appellant were made after the expiry of the time limit for such claims on 31 March 2009.
[6] All of the claims made by the appellant were rejected by HMRC by letter dated 23 September 2010; in that letter HMRC reversed its earlier decision and confirmed the assessments made on 7 July 2009. At the same time payment of the claims made by Carlton was refused. On 28 February 2011 the appellant appealed to the First‑tier Tribunal against HMRC’s decision to uphold the assessments made on 7 July 2009. On 14 April 2011 the appellant asserted that it was entitled to repayment of the claims that had been submitted by Carlton; this was rejected by HMRC on 4 May 2011, and the appellant appealed to the First‑tier Tribunal against that decision on 2 June 2011. The appeals were heard together, and were rejected by the First‑tier Tribunal on 19 December 2012. By the time when the appellant’s appeals were heard Carlton’s appeals had been withdrawn. The appellant then appealed to the Upper Tribunal against the decision of the First‑tier Tribunal, but that appeal was rejected by decision dated 8 September 2014. Leave to appeal to the Court of Session was subsequently granted.
[7] A number of issues that are no longer relevant were debated before the First‑tier and Upper Tribunals. The issue that remains relevant is as follows. The only timeous claim for repayment of VAT paid by the appellant’s VAT group was made by Carlton. No timeous claim was made by the appellant itself, whether in its capacity as the representative member which embodies the VAT group or as an entity in its own right. The critical question is accordingly what the effect is of the claims by Carlton: can the VAT group embodied in the appellant as representative member rely on those claims for repayment of VAT overpaid by the group, when the claims were made timeously but by another member of the VAT group rather than the representative member?
[8] Before we address that question directly, we propose first to consider the European Union and domestic legislation that governs VAT groups and their members, and the implications that that has for assessment of claims made by members of a VAT group. This necessarily involves consideration of the concept of the VAT group and its legal effect; the position of the representative member of such a group; and the position of the members of the group apart from the representative member. Thereafter we will consider the claims made by Carlton in the present case, and will analyze those claims in the context of the legal framework governing VAT groups and their tax liability; we consider that context to be of vital importance. We address in particular the critical question: whether on a proper legal analysis the claims intimated by Carlton may be properly treated as made of behalf of the appellant as representative member of its VAT group. Thereafter we will consider certain aspects of the decisions of the First‑tier and Upper Tribunals, and finally certain aspects of the arguments raised by HMRC, particularly with regard to the practical consequences of our analysis.
Value added tax and groups of companies
Legislation in the European Union and the United Kingdom
[9] At the material time, the relevant European legislation was found in the principal VAT Directive, Council Directive 77/388/EEC (the Sixth Directive), which authorized Member States to:
“treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organizational links”.
That provision has been repeated in article 11 of Council Directive 2006/1.2/EEC, the current Principal VAT Directive. The United Kingdom made use of the foregoing power to enact provisions in the Value Added Tax Act 1994 dealing with groups of companies. The principal section is section 43, which in its present form is as follows:
“(1) Where under sections 43A to 43D any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and –
(a) any supply of goods or services by a member of the group to another member of the group shall be disregarded; and
(b) any supply which is a supply to which paragraph (a) above does not apply and is a supply of goods or services by or to a member of the group shall be treated as supplied by or to the representative member; and
(c) any VAT paid or payable by a member of the group on the acquisition of goods from another member State or on the importation of goods from a place outside the member States shall be treated as paid or payable by the representative member…;
and all members of the group shall be liable jointly and severally for any VAT due from the representative member”.
[10] Sections 43A-43D set out the conditions for treatment as a VAT group and the manner in which companies and partnerships may elect to become members of such a group. Section 43A permits bodies corporate to be treated as members of a group if each is established in the United Kingdom and either one of them controls each of the others or one person controls all of them or two or more individuals carrying on business in partnership control all of them. Section 43B deals with applications to be treated as members of a group; under subsection (3) any such application with respect to bodies corporate must be made by one of them or the person controlling them, and if the bodies apply to be treated as a group the application must appoint one of them as the representative member.
[11] The advantages of such an arrangement are fairly obvious. From the point of view of HMRC, and previously the Commissioners of Customs and Exercise, the result is a considerable administrative simplification. Intra-group transactions are not relevant for VAT purposes and can be ignored. All supplies by any member of the group to an outside party are treated as supplies by the representative member, and all supplies to any member of the group by an outside party are treated as supplies to the representative member. Thus so far as HMRC is concerned the VAT group constitutes a single taxpayer. From the point of view of the group members, the advantage is that intra-group supplies can be made without any liability to VAT, and the overall VAT position of the group members is simplified, in that all returns and payments of VAT are made by the representative member. It is obvious that financial transfers will be required among the companies in the group, because VAT from customers will be received by the individual members carrying on trade but will be paid to HMRC by the representative member. Nevertheless, those arrangements are a matter for the private arrangements of the group members, and have nothing to do with the incidence of VAT on the group.
Construction of the legislation
[12] The European legislation has been construed in a number of cases in the European Court of Justice, of which the most significant for present purposes is Case C-7/13 Skandia America Corp (USA) v Skatteverket, 17 September 2014. In that case the taxpayer company, SAC, which was incorporated within the United States, was the global purchasing company for information technology services for the Skandia group. It carried out activities in Sweden through a local branch, Skandia Sverige. SAC distributed externally‑purchased services to various companies in the group, including Skandia Sverige. Skandia Sverige was registered as a member of the Swedish VAT group. The Swedish tax authority decided to charge VAT on supplies of information technology services from SAC to Skandia Sverige, even though the latter entity was legally a branch of SAC. The European Court of Justice accepted that, as a branch of SAC, Skandia Sverige did not operate independently and did not bear the economic risks arising from its activity. Furthermore, its whole assets belonged to SAC. Nevertheless, Skandia Sverige was a member of a VAT group created on the basis of the VAT directive. It therefore formed with the other members of the group a single taxable person. For VAT purposes, the VAT group was allocated a registration number by the competent national authority (paragraph 28). The Court continued:
“29 In this connection, treatment as a single taxable person precludes the members of the VAT group from continuing to submit VAT declarations separately and from continuing to be identified, within and outside the group, as individual taxable persons, since the single taxable person alone is authorized to submit such declarations…. It follows that, in such a situation, the supplies of services made by a third party to a member of a VAT group must be considered, for VAT purposes, to have been made not to that member but to the actual VAT group to which that member belongs”.
The result was that, for VAT purposes, the services supplied by SAC to a branch belonging to the Skandia Sverige VAT group were considered not to be supplied to the branch but were treated as being supplied to the VAT group and thus constituted chargeable transactions. Consequently, where a VAT group is established, the individual identity of the members under national law must be disregarded for the purposes of VAT. The case is a particularly striking example of the consequences of incorporation in a VAT group, because a single company, SAC, was treated for VAT purposes as if it were two separate entities, one part of the VAT group and the other outside it.
[13] The same legal concepts, in the context of the domestic legislation of the United Kingdom, have been considered by the First‑tier Tribunal (Tax Chamber) in the present case and a number of others, notably Standard Chartered PLC; Lloyds Banking Group PLC v HMRC, [2014] UKFTT 316 (TC), and Gala Leisure Ltd v HMRC, [2015] UKFTT 516, and by the Upper Tribunal in the present case. We do not think that it is necessary to analyze those decisions in detail; they demonstrate a number of material differences among the Tribunals. We have taken the Tribunal decisions into account, however, and we refer to relevant passages in the opinions where appropriate. The decision of the First‑tier Tribunal in Standard Chartered contains a valuable discussion of the concept of the single taxable person, as used in the European Directives, at paragraph 39 et seq, and especially paragraphs 69 ‑ 75. Nevertheless that concept is not used directly in the United Kingdom VAT legislation but is rather mediated through the structures found in sections 43 et seq of the Value Added Tax Act 1994. In considering the construction of the legislation, in particular sections 43 et seq and section 80, which deals with the right to recover overpaid VAT, we have had regard to the wording of the legislation and to its fundamental purposes and the commercial context in which it operates; we consider that such an approach, apart from its obvious practical and conceptual advantages, is required by the reasoning of the House of Lords in Barclays Mercantile Business Finance Ltd v Mawson, [2004] UKHL 51; [2005] STC 1, per Lord Nicholls of Birkenhead at paragraphs [32]-[36]. Furthermore, so far as EU law is concerned it is required by decisions of the European Court of Justice such as NCC Construction Danmark A/S v Skatteministeriet (Case C 174/08), [2009] STC 532. We have attached particular importance to the conceptual structure of the legislation, in sections 43 et seq, regulating VAT groups; we consider that that conceptual structure is of fundamental importance in analyzing the facts of the present case.
VAT groups and representative members
[14] In the light of those considerations, we are of opinion that the underlying scheme of section 43 of the Value Added Tax Act 1994, read in the light of the Sixth Directive, is as follows. The underlying concept is that of the single taxable person, as found in article 11 of the Principal VAT Directive. The single taxable person is, however, a fiction; it exists only for the purposes of VAT, and has no existence in the general law. In order to translate the notion of the single taxable person into the domestic legal system of the United Kingdom. Section 43 of the 1994 Act uses three basic concepts: the VAT group, the ordinary group member, and the representative member of the group. The single taxable person, as contemplated in the Directive, is the VAT group as embodied in the representative member. For the purposes of the VAT, but only for those purposes, the VAT group comprising all the members is treated as if it were embodied in the representative member, and the VAT group as so embodied is treated as if it were a legal person in its own right. The group as so embodied might be described as a quasi-persona, since it lacks legal personality for any other purposes, and in relation to the general law the constituent members of the group continue to enjoy their own personality. In relation to liability for VAT, therefore, all supplies made by and to members of the VAT group are treated as made to the group embodied in the representative member as a quasi-persona. Equally, we consider that any liability of HMRC to repay VAT must be owed to the VAT group so embodied as a quasi-persona; that is plain from the general scheme of the legislation.
[15] The concept of the representative member is central to the structure of section 43. It is a device used in the United Kingdom legislation to permit the VAT group to be treated as a single taxable person – a quasi-persona - for VAT purposes while still respecting the independent legal personality of the constituent members of the group for all other purposes. The precise relationship of the representative member to the VAT group has been the subject of differing opinions in the First‑tier Tribunal. In our opinion the best formulation is that the representative member embodies the group as a single taxable person. The VAT group as so embodied is a quasi-persona for VAT purposes, but otherwise it has no personality, and consequently 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. Furthermore, it is the representative member which has the group’s VAT registration number, and the individual members of the group will use that number in all their dealings with other persons to the extent that a transaction is subject to VAT.
[16] It follows that, so far as VAT is concerned, the individual members of the group have no independent existence; they function merely as part of the quasi-persona embodied in the representative member. Nevertheless they continue to function for all other legal purposes, including the methods used to regulate the incidence of VAT among the various entities forming part of the VAT group. Thus VAT will normally be paid by the representative member as embodying the group (or conceivably by another entity operating as an agent for the representative member, for example where the debts of a group of companies, in the domestic law sense, are in practice paid by one of their number; any such payment, however, is made on behalf of the representative member). The representative member will be entitled to recover the tax so paid from the individual member of the VAT group whose activities generated the tax, either contractually or using restitutionary remedies, or simply by exercising the power of the holding company in the group to direct subsidiaries to make payments. None of that, however, has any bearing on the payment of VAT to HMRC by the representative member as embodying the VAT group. This is subject, however, to one express statutory exception: under the final part of section 43(1) the individual members of the VAT group are liable to HMRC jointly and severally for any VAT due from the representative member.
[17] When an individual member leaves a VAT group, it may acquire its own VAT registration number for the future; if it intends to trade in goods or services that are subject to VAT it will require to do so. Nevertheless, leaving the group and acquiring its own registration have no effect on the transactions that took place when the individual member was a member of the VAT group. As a matter of tax law, those transactions were the transactions of the representative member as embodying the VAT group, and to the extent that they still have tax consequences they remain the transactions of the representative member embodying the VAT group. Even if the VAT group ceases to exist, the tax consequences of transactions that took place while the group existed remain those of the group, embodied in the representative member. If the representative member has itself ceased to exist exceptional treatment would obviously be required, but for present purposes it is unnecessary to consider that possibility. As long as the representative member remains in existence, it can continue to embody and represent the affairs of the group. In the present case Carlton left the appellant’s VAT group on 23 January 1998, and the appellant ceased trading and applied for deregistration from VAT in February and March 2009. Neither of these events is relevant to the status of the appellant as representative member in respect of transactions that took place during the period when the VAT group existed; all liability for VAT on trading activities during that period remains that of the appellant as representative member. Correspondingly, any entitlement to a VAT repayment in respect of trading activities during that period must remain that of the appellant as representative member. That appears to us to be inherent in the very notion of the representative member as embodying the VAT group: all rights, obligations, powers and liabilities in relation to VAT are, so far as HMRC are concerned, those of the representative member and no one else, subject only to the joint and several liability imposed by the final part of section 43(1).
Claims for repayment
[18] The right to reclaim overpaid VAT is recognized as a basic principle of European Union law: Marks & Spencer PLC v HMRC, Case C-62/00, [2003] QB 866, at paragraph 13. In the United Kingdom, provision for repayment of overpaid VAT is made by section 80 of the Value Added Tax Act 1994. So far as material that is in the following terms:
“(1) Where a person –
(a) has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended), and
(b) in doing so, has brought into account as output tax an amount that was not output tax due,
the Commissioners shall be liable to credit the person with that amount.
…
(2) The Commissioners shall only be liable to credit or repay an amount under this section on a claim being made for the purpose.
…
(3) It shall be a defence, in relation to a claim under this section, by virtue of subsection (1)… above, that the crediting of an amount would unjustly enrich the claimant.
…
(6) A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioner’s prescribed by regulations….
(7) Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them”.
[19] Regulation 37 of the VAT Regulations 1995 (SI 1995/2518) provides as follows:
“Any claim under section 80 of the Act shall be made in writing to be Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which the amount is calculated”.
Otherwise no special form is prescribed for the making of claims.
Application of the law to the present case
The claims made by Carlton
[20] As has been indicated, the fundamental issue in the present case is whether the VAT group embodied in the appellant as representative member can rely on the claims for repayment of VAT that were submitted by Carlton on 16 November 2007 and 8 January 2009, prior to the expiry of the transitional period for Fleming claims on 31 March 2009. Those claims were in broadly similar form, subject to the distinctions mentioned below. The first of the claims submitted on 16 November 2007 related to mechanized cash bingo takings. The letter from Carlton to HMRC was on Carlton’s writing paper. The heading to the text of the letter was in the following terms:
“Taylor Clark Leisure – 265 7918 16
Claim for overpaid VAT on Mechanized Cash Bingo takings – protective claims for VAT”.
The number given against “Taylor Clark Leisure” was the VAT registration number of the Taylor Clark VAT group. The text of the letter begins:
“In advance of the impending hearing of Conde Nast and Fleming t/a Bodycraft v H.M. Revenue & Customs in the House of Lords, we hereby submit protective claims for overpaid output tax in respect of mechanized cash bingo takings”.
Reference was made to a previous voluntary disclosure for overpaid output tax in respect of mechanized cash bingo takings, submitted in September 2006. It was then stated:
“This further protective claim therefore serves to extend the scope of the previous disclosure, which as you are aware is currently awaiting a decision pending the outcome of forthcoming litigation in the VAT & Duties Tribunal. The basis for calculation is therefore exactly the same as before. The previous approved approach has simply been applied to earlier VAT periods to ascertain the exact amounts of VAT involved, and where a right to reclaim overpaid output tax would exist subject to a favourable judgment”.
Documentary evidence was enclosed in the form of summary schedules supporting the claim for repayment of VAT in periods ending in months from June 1973 to January 1998. The letter was addressed to a member of the Voluntary Disclosure Team at HMRC in Edinburgh. It was signed by the finance director of Carlton. It was written in the first person plural throughout, which on a literal reading might be taken to indicate that the claim was made of behalf of Carlton and no one else. Nevertheless, for reasons discussed below at paragraphs [23] et seq, we are of opinion that it is not appropriate to take a wholly literal approach; the letter must be read in the context of the VAT legislation, and in particular the VAT group structure that is specified in section 43 of the 1994 Act.
[21] A claim relating to overpaid VAT on gaming machine takings was submitted on the same date. The letter was in generally similar terms, including the reference to Taylor Clark Leisure Ltd and the Taylor Clark VAT group’s registration number. Obviously the claim related to different overpayments of VAT that were said to have occurred and the schedule appended to the letter was different, although it covered the same period, from 1973 to 1998. Yet a further claim relating to overpaid VAT on bingo participation fees was submitted on 16 November 2007. In this case the heading to the text of the letter was different; it read
“Carlton Clubs plc – 265 7918 16
Participation fees – protective claims for VAT”.
Thus on this occasion the heading to the claim was in the name of Carlton rather than the appellant; nevertheless the VAT registration number given was that of the appellant’s VAT group. The text of the letter was broadly similar to that of the other two letters submitted on the same date, although obviously the subject matter and the figures claimed in the schedule were different. As in the letter relating to mechanized cash bingo takings, in each of these letters the wording of the claim was framed in the first person plural.
[22] The fourth relevant claim was submitted, in a revised form, on 8 January 2009. This related to added prize money and participation fees in respect of cash bingo. It proceeded in part as a revisal of the claim for bingo participation fees that had been submitted on 16 November 2007. On this occasion the heading to the text of the letter read as follows:
“Carlton Clubs plc – 734 9975 75
Taylor Clark Leisure Ltd – 265 7918 16
Added Prize Money (“APM”) and participation fees – protective claims for VAT”.
The first of the VAT registration numbers was that of Carlton, and the second, as in two of the previous letters, was that of the appellant’s VAT group. The letter was in somewhat different terms from the earlier letters because the case of Conde Nast and Fleming t/a Bodycraft v HMRC, which had been pending in the earlier letters was written, had been decided by this time, and the three‑year cap for claiming repayment of VAT had been superseded by provisions in the Finance Act 2008. The letter further asserted that under an asset transfer agreement concluded when Carlton was incorporated, it purchased trade and assets from the appellant, and any claim for repayment of overpaid VAT was thereby transferred to Carlton. An argument based on that assignation was rejected by the First‑tier Tribunal, and was not maintained in the proceedings before the court. Otherwise the letter sought to revise the earlier submission. Again, the claim was framed in the first person plural.
Status of claim for repayment made by individual member of a VAT group
[23] As we have indicated, the critical question is whether the foregoing claims made by Carlton can properly be considered to have been made on behalf of the VAT group embodied in the appellant as representative member. In our opinion they must be so construed. The relevant statutory provision is section 80 of the Value Added Tax Act 1994, read together with sections 43 et seq of the same Act. Section 80(1) applies where a “person” has accounted for output tax that was not due, and it imposes on HMRC an obligation to credit “the person” with the amount overpaid. In the case of a VAT group, the “person” referred to is the representative member as embodying the group; that is the clear import of section 43, interpreted in the manner that we have indicated.
[24] Before the obligation to credit or repay any amount arises under section 80, however, a claim must be made for the purpose. When the claim relates to the activities of an individual member of a VAT group, we are of opinion that it must be made by or on behalf of the representative member as embodying the VAT group. That appears to us to follow from the structure of section 43, under which all of the activities of any member of a VAT group are treated as the activities of the quasi-persona, in the form of the representative member which embodies the group. Accounting for tax and payment of that tax to HMRC are carried out by the representative member, and our opinion exactly the same must apply to any sums that HMRC are due to pay to the taxpayer. Consequently, under the scheme of section 43, it is the representative member embodying the group, and the representative member alone, that has any interest in making the claim.
[25] We are nevertheless of opinion that the claim need not be advanced by the representative member itself. Claims in relation to taxation are frequently made by professional advisers ‑ for example solicitors or accountants ‑ and we can see no reason why a claim advanced by such an adviser should not be treated as made by its client. In such a case the professional adviser functions as the agent of its client, and on ordinary principles of the law of agency the act of the adviser is considered to be the act of the client. For present purposes it is the signification of the act for VAT purposes that matters, rather than its import under the general law. Nevertheless, the notion of agency is essentially simple: one person acts on behalf of another, in such a way that the agent’s act is attributed to the principal for a particular legal purpose. When an agent makes a claim for repayment of overpaid VAT under section 80, we consider that that claim must be regarded as properly made on behalf of the principal. Any other view would fly in the face of ordinary commercial practice. The fact that the principal in such a claim is a VAT group, or the representative member as the embodiment of that VAT group, does not in our view make any difference. For VAT purposes the VAT group as so embodied is treated as a quasi‑persona, and the representative member is merely the embodiment, having a personality in domestic law, of that quasi-persona. Thus the agent is acting for a principal that has a form of legal personality for VAT purposes.
[26] It cannot in our opinion make any difference that the person acting for the VAT group is itself a member of that group other than the representative member. To hold otherwise would involve unwarranted formalism. Furthermore, there is nothing in the wording of section 80 to suggest that an individual member of the group cannot make a claim on behalf of the group as embodied in its representative member. There are, moreover, practical reasons why it may be advantageous for an individual member to make such a claim. In some cases, of which the present is an example, it is the individual member that may have the financial records necessary to establish the claim. If the individual member has left the VAT group, the practical advantages of permitting it to make the claim of behalf of the representative member are very clear, especially in a case where the former member and the group are not in regular contact. The same is true if the representative member enters an insolvency regime or is dissolved, although these cases raise complexities that are not relevant to the present case. We do not think that any risk to public funds can occur if an individual member, as against the representative member, is entitled to advance the claim on behalf on the VAT group; the claim will obviously be scrutinized by HMRC, and if there is any uncertainty as to the person entitled to payment it can be expected that payment will be refused until that is clarified. Furthermore, if the crediting or repayment of overpaid VAT would result in the unjust enrichment of the claimant, payment may be refused on the basis of the defence found in section 80(3).
[27] In the context of section 43, and in particular the structures and relationships required by that section, we are of opinion that a claim for repayment or crediting of tax by an individual member of the VAT group must normally be construed as a claim made on behalf of the representative member as embodying the group. Otherwise the claim would have no meaning: the individual member does not pay VAT while it is in the group and is not entitled to any repayment of VAT. The only entity that pays VAT in that situation is the quasi-persona, the representative member as embodying the group, and consequently any repayment of tax must be due to exactly the same quasi-persona. That is so even if the literal wording of the claim is to the effect that repayment is sought by the individual member, because the context of section 43 makes it clear that the claim cannot be made by the individual member in its own right; nor can repayment be made to the individual member. Consequently a literal interpretation of such a claim is plainly inconsistent with the scheme of the legislation. In that situation we are of opinion that the claim must be construed purposively. It is clearly designed to secure a repayment of VAT paid as a result of the trading activities of a member of a VAT group, and the obvious import is that the claim should proceed in the name of the representative member of that VAT group. Nothing else makes sense in the legislative context. This assumes that the representative member still exists; if it does not, complications will arise, but it is unnecessary to consider those further for present purposes.
Import of the claims made by Carlton
[28] On the foregoing basis, the critical question comes to be whether the person who has made the claim, in this case Carlton, can be said to have done so on behalf of ‑ as agent for ‑ the appellant as representative member of the VAT group of which Carlton was a member from 1990 to 1998. When the letters summarized above at paragraphs [20]‑[22] are considered in the legislative context summarized in paragraph [27], we are of opinion that Carlton’s claims must be so regarded. Carlton was a member of the VAT group for a substantial part of the period to which the claim relates. During that period it had no independent existence for VAT purposes; all that it did was, for VAT purposes, attributed to the appellant as the representative member of the VAT group. Thus Carlton could not make the claim on its own behalf; all that it could do was to make the claim on behalf of the appellant as representative member of the VAT group. Furthermore, the appellant as representative member was the person that had been treated for VAT purposes as having carried on all trading activities during the existence of the group, and the appellant was the person that had actually made payment to HMRC of the overpaid tax claimed in the letters. By contrast, it could not be said that Carlton had paid any of that tax. Consequently, notwithstanding that the letters bear to be claims written in the first person, we consider that the full legislative context taken together with a purposive interpretation of the letters requires that they be treated as claims made on behalf of the representative member of the VAT group.
[29] The reasoning in the previous two paragraphs is based on the nature of a VAT group, the representative member as embodying that group and the notion of the individual member of a group, which for VAT purposes is generally treated as having no existence. The conclusion is strengthened by the fact that in two of the four letters the heading, which summarizes what the claim is about, refers to the appellant by name and gives the VAT reference number of the appellant as representative member of its VAT group. In the fourth letter, the revised claim submitted in respect of added prize money and participation fees on 8 January 2009, two names and references are given, those of Carlton and of the appellant. Nevertheless, the import is clear: the claim was made in respect of periods which ended in 1998, when Carlton left the appellant’s VAT group. In the third letter of 16 November 2007, that relating to bingo participation fees, the only company referred to is Carlton, although the VAT registration number that is provided is that of the appellant’s VAT group and HMRC’s reply states only the appellant’s name in its heading. Furthermore, the letter of 16 November 2007 was superseded to some extent by the letter of 8 January 2009, which does refer to the appellant, together with the group VAT number. When the various letters intimating the claims are taken together, and are looked at in the context of section 43 of the Value Added Tax Act 1994, we are of opinion that all four of the letters must on a reasonable construction be taken to relate to the appellant’s VAT group, and not to Carlton as an individual entity.
[30] The claims in the letters for repayment of overpaid VAT extend over the period from 1973 to 1998. The significance of 1998 is, as we have already remarked, that Carlton left the appellant’s VAT group in that year. The claims extend to a period before Carlton was incorporated and joined the group, which occurred in 1990. If the claims are properly construed as being on behalf of the group as embodied in its representative member, however, it cannot matter that they relate to a period when the individual member putting forward the claim was not a member or did not exist. Provided that the VAT group existed at the relevant time, the claim is properly made on behalf of the group.
Decisions of the First-tier and Upper Tribunals
[31] We are accordingly of opinion that this appeal must be allowed. For the reasons already discussed, we consider that the claims made by Carlton must be regarded as having been made on behalf of the Taylor Clark VAT group. The result is that the appellant, as the representative member embodying the group at the relevant time, is entitled to repayment of any VAT that has been overpaid. We should, however, say something about the approach adopted by the First‑tier and Upper Tribunals in their carefully reasoned decisions. Our principal disagreement is the approach to construction of the claims set out at paragraphs [27] and [28] above: we hold, in essence, that the claims could not be made by Carlton on its own behalf, and that the only reasonable construction when purpose and context are taken into account is that the claims were made on behalf of the appellant’s VAT group.
[32] The First‑tier Tribunal accepted that a claim for repayment of VAT might be made by an agent of the taxpayer such as a professional adviser, or by a successor or assignee of the taxpayer or a liquidator, administrator or receiver (paragraphs [67] and [70]). It was observed, however, that the relationship between Carlton and the appellant did not fall into any of these categories. For the reasons that we have set out in some detail at paragraphs [23]-[30] above, we are of opinion that the claims made by Carlton must, in the legislative context of section 43, be construed purposively as importing a claim by the appellant as representative member of the VAT group and as embodying that group. The First‑tier Tribunal attached some importance to the wording of subsection (2) of section 80, which only requires the Commissioners to credit or repay an amount “on a claim being made for the purpose”. That purpose, they observed, is the purpose of repayment to the claimant of amount paid to HMRC which was not VAT due to them (paragraph [71]). Similar observations were made about subsection (3), to the effect that the defence of unjust enrichment could not easily be applied if there were a mismatch between the claimant and the person entitled to repayment. In our opinion the answer to these considerations is that the “claimant” for the purposes of section 80 is the person on whose behalf the claim is made ‑ the person who is said to be entitled to repayment of VAT. It is of no import that the document embodying the claim is put forward by another person as an agent for the claimant. On that basis, in the present case, the “claimant” is the appellant as embodying the Taylor Clark VAT group.
[33] The critical passage in the reasoning of the Upper Tribunal (paragraphs 30 and 31) is based on the wording of section 80 of the 1994 Act, and in particular on the provision in subsection (2) of that section that HMRC should only be liable to credit or repay an amount under the section “on a claim being made for the purpose”. A “claim… made for the purpose” of subsection (1) is described as:
“an assertion by a person (the claimant) (a) that he has accounted for VAT for a prescribed accounting period; (b) that he has brought into account an amount of output tax not due; and that, accordingly, the Commissioners are liable to credit him with that amount: ‘him’ in this context means the person who accounted for VAT or his agent, assignee or certain successors”.
That involves an equiparation of the person who makes the claim with the person who is entitled to repayment. There is, however, an ambiguity in the concept of the person who makes the claim: is that the person who puts forward the document embodying the claim, or is it the person on whose behalf the claim is made ‑ the person who is said to be entitled to the repayment when it is made? In the Upper Tribunal the expression appears to be given the former meaning, but in our opinion the notion of a “claimant” in section 80 must be construed in the latter sense. It is on this basis that we have concluded that, in the legislative context of section 43, a claim for repayment of VAT paid by the representative member of a VAT group must normally be construed as a claim for repayment to the representative member.
Significance of findings by the First-tier Tribunal
[34] HMRC placed considerable reliance in their submissions on certain findings made by the First‑tier Tribunal, at paragraphs of [54] and [55]. These are as follows:
“[54] Throughout 2006-09, Carlton and its advisers submitted a number of claims to HMRC for repayment of overpaid output tax. These claims concern various aspects of the bingo business, which Carlton had operated as part of Taylor’s VAT group from 1990 to March 1998, and thereafter under its own registration number. During these periods, Taylor made no approaches to HMRC seeking to reclaim overpaid VAT in respect of the bingo business formerly operated as part of its VAT group.
[55] Taylor neither instructed or authorized any of the voluntary disclosure letters (updated 16 November 2007 and 8 January 2009 referred to above) sent by Carlton seeking repayment under s 80. These claims were made by Carlton and were not claims made by or behalf of Taylor, or behalf of both of them. Whether Carlton was entitled to make these claims is a different issue. Taylor has not submitted any s 80 claim in its own name in relation to any of the appeals referred to above”.
On the basis of those two paragraphs, the First‑tier Tribunal later observed:
“[78] It was at one stage suggested by [counsel for the taxpayer] that something could be made of the fact that two of the 16 November 2007 claim letters submitted by Carlton… and the amending claim letter dated 8 January 2009 referred to Taylor in the headings of the letters. It was argued that they should be construed as having been submitted on behalf of or having arisen out of the VAT group of which Taylor was at least until later in 2009 the group representative. However, it is clear from the text of each of these letters that Carlton was claiming, in its own right, repayment of sums alleged to have been overpaid by way of VAT. In any event, our findings of fact preclude any conclusion that these letters were somehow submitted behalf of Taylor in whatever capacity”.
Counsel for HMRC submitted that appellant’s ground of appeal was bound to fail in view of the findings in fact, contained in the first two of those paragraphs, that Carlton made the claim on their own behalf and not behalf of the VAT group. The question of who had made the claim was, it was argued, a simple factual one: the identity of the claimant is a matter of fact.
[35] In our opinion it cannot be said that the identity of the claimant is a straightforward issue of fact. Clearly the facts are relevant to the issue, but the question as to who is the claimant for the purposes of a section 80 claim involves the application of a legal test to the facts, and in the present case it is the application of that legal test that is in dispute. We reach this view for two reasons. First, as we have indicated, the notion of a “claimant” in the present context can mean either the person who advances the claim or the person on whose behalf the claim is made. The first of these is essentially formal, and might, if it were correct, amount to a relatively straightforward issue of fact. The second meaning, by contrast, goes to the substance of the claim and allows for the possibility of a claim made by an agent. In the context of section 43, this may even be an unwitting agent. In our opinion it is this second construction that must be given effect. That involves the application of a legal test to the correspondence that admittedly passed between Carlton and HMRC. Secondly, while the letters sent by Carlton to HMRC are in themselves facts, the critical question for present purposes is the interpretation of those letters. In particular, on the basis of the letters it must be determined who is the claimant for the purposes of section 80. That form of interpretation involves the application of legal tests to the basic facts. That type of exercise is properly the subject of reconsideration by an appellate court.
Further arguments for HMRC
[36] In deference to the able argument advanced in behalf of HMRC, we should comment on two further matters raised in the course of that argument. First, it was submitted that by the time when Carlton made the claims between 2007 and 2010 it had not been a member of the appellant’s VAT group for nine years. There was no reason for concluding that a former member of the group must be deemed to be making a claim of behalf of the group; to suggest that would fail to recognize the limitations of the single taxable person concept. The legal fiction involved in that concept had no part to play, it was submitted, in determining who had made the section 80 claim. The answer to this point is in our opinion the analysis at paragraph [17] above: even after a member of a VAT group has left it, tax liabilities during the period when it was a member of the group are still subject to the principles enacted in section 43 of the Value Added Tax Act 1994, and any claim for repayment of tax in respect of that period, or indeed any claim for the payment of further tax for that period, must be made by or against the representative member as embodying the group. The legal fiction of the quasi-persona still applies, to the extent that the transactions that underlie the VAT in question were transactions carried out while the VAT group was in existence.
[37] As to the limitations of the single taxable person concept, we recognize that the concept is limited: it has no application beyond the incidence of VAT as between HMRC and the taxpayer. Nevertheless, we consider that the concept must be applied consistently in relation to the incidence of VAT. A claim made under section 80 of the 1994 Act is a claim that VAT has been overpaid to HMRC and should be repaid by them. The VAT in question was paid, in consequence of section 43, by the representative member as embodying the single taxable person. Any repayment will be due to the representative member as embodying the single taxable person. The notion of a claim for the purposes of section 80 must in our opinion be interpreted in that context. That means that in interpreting such a claim regard must be had to the existence of the VAT group as a single taxable person and the representative member as embodying the VAT group.
[38] Counsel for HMRC further drew attention to what were said to be significant practical problems if the appeal were to be successful. First, it was suggested that HMRC might have problems in dealing with the type of claim advanced by Carlton. It was asked whether HMRC would require to inform the claimant that the claim was only recognized as one on behalf of the VAT group of which the claimant was formerly a part. On our analysis, that is exactly what HMRC must do. We think that the logic of the VAT group as single taxable person must be followed through on claims for repayment of tax as well as in assessing liability for tax. It was suggested that there might be situations where the taxpayer (presumably the representative member) might have deliberately decided not to make a claim as it might have adverse effects on the partial exemption calculation. On our analysis, in making a claim the individual member makes a claim as agent for the representative member as embodying the VAT group. In the sort of situation under consideration, before the claim has been given effect, the representative member as principal would be entitled to negate the agent’s authority and refuse to pursue the claim. It was further suggested that HMRC cannot and do not hold claims “on file”, but uphold or reject them as soon as possible. The question was raised as to what would happen if the representative member decided to resurrect a claim that had been rejected: would such a claim be made timeously? In that event, it seems to us that the representative member attempting to resurrect the claim would require to produce adequate evidence that the claim had been made timeously. That does not appear to us to be an insuperable burden.
[39] It was further argued that, when any ex‑group member submitted a claim, HMRC would have to consider whether the claim fell to be regarded as an individual taxpayer’s claim or as a group claim. On our analysis, to the extent that the claim relates to a period when the individual member was a member of a VAT group, the claim must be on behalf of the representative member who embodies the VAT group, because that is the single taxable person at that time. HMRC also argued that, when a section 80 claim is refused or paid and the time periods for appeal have passed, the claim is regarded as a completed claim. Once completed, the claim cannot be used as a vehicle for amendment to expand its nature. It was suggested that if HMRC refused a claim on the basis that the ex-group member that made it was not the correct claimant, the claim could not be viewed as completed because the representative member could then make use of the claim, possibly in a manner that went beyond the terms of the original claim. In our view there are two issues here. First, if HMRC take the view that the claim is properly regarded as a group claim (the normal position in relation to a period when the individual member was a member of the group), it should treat the representative member of the group as the claimant, and act accordingly. If the claim is well founded, it follows that payment should normally be made to the representative member. Secondly, if the claim is considered as a group claim and rejected, that should be intimated to the representative member as well as to the individual claimant. We do not think that there are any insuperable practical difficulties in this analysis.
Conclusion
[40] For the foregoing reasons we are of opinion that the claims made by Carlton must properly be regarded as claims made by the appellant as representative member of the VAT group. On that basis the appellant’s claims are not out of time. Consequently we will allow the appeal.