TC09583 - [2025] UKFTT 00865 (TC)

For the purposes of appeal before this Tribunal, but otherwise reserving its position, the Appellant accepts that entitlement to claim tax/levy credit in the context of exported soft drinks accrues only to a liable person (as defined in regulation 2 of the Regs) who declared the liability for payment of levy on the soft drinks in respect of which the circumstances for credit arise. As such, the Appellant accepts for the purposes of argument that it had no statutory entitlement to the credits it claimed on its SDIL returns in the Relevant Period.

At the heart of the Appellant’s case is a contention that despite the acknowledged lack of entitlement to the credits claimed HMRC have no statutory power to raise the Assessments they have purported to raise.

The Appellant invites us to consider this appeal has been made against three separate decisions of HMRC:

Whilst the three decisions represent a continuum of analysis resulting in the asserted liability to collect £127,857.60, we are invited to carefully consider each of the three decisions in the context of the relevant underlying statutory provisions. It is submitted that the consequence of taking this approach reveals that HMRC have no power to issue the Assessments as HMRC have no statutory power to withdraw the tax credits even where there is no entitlement to those credits. The Appellant contends that the Regs are seriously defective and fail to introduce a self-enclosed regime for the collection and payment of SDIL. In the absence of an effective regime it is not for the Tribunal to “fill the gaps”. Rather, HMRC should prepare and lay a further statutory instrument through which the relevant and necessary powers are granted to HMRC by Parliament as envisaged under FA 17.

The Appellant notes that the Entitlement Decision has no independent effect. Whether or not the Appellant was legally entitled to the tax credits represents only a precondition for subsequent action associated with the withdrawal of the benefit of those credits. As set out further below, the Appellant contends there is no statutory basis for withdrawal of the credits even to the extent that there was no entitlement to them. Once the credits were applied to the account, and absent any statutory mechanism for withdrawal, the Appellant remains entitled to the benefit of the credits. The Appellant considers that the apparent right to appeal against a decision concerning entitlement and/or withdrawal as set out in paragraph 1(n) Schedule 10 FA 17, does not assume or confer a statutory power to HMRC to affect the withdrawal, particularly as the FA 17 predates the Regs and explicitly provided for a power to enact regulations “making provision for the withdrawal of a tax credit where any requirement of the regulations is not complied with” (section 39(3)(f) FA17).

By reference to the provisions of paragraphs 14 and 15 Schedule 10 FA 17 the Appellant submits that HMRC’s decision that there was no entitlement to tax credit on export will necessarily have been unreasonable in circumstances where there is no statutory power to affect a withdrawal of the credits, and any power to assess cannot be invoked independently of having withdrawn, at law, the credits.

Further, regarding the Assessments, the Appellant contends that HMRC have effectively sought to reassess for sums of levy which have already been declared by the Appellant on its SDIL returns. As the levy chargeable on importation has been duly declared as payable the terms of paragraph 4 Schedule 8 FA 17 are not met, as there is no amount due which has not been declared. The proper and only basis for an assessment would be to assess for the credits for which there was no entitlement. However, the Assessments have not been made for all periods in which credits were claimed on returns; they have been made only for the periods in which levy was declared as due. In substance therefore, the credits have not been withdrawn even by the Assessments, there has been a second charge to levy. It is asserted that what HMRC seek to achieve is to establish a liability for payment of sums previously declared as levy by reassessing that levy rather than withdrawing the credit which would then leave the levy previously declared as payable. This, the Appellant observes, arises as a direct consequence of HMRC’s inability, under the terms of the statute, to withdraw credits previously given.

The Appellant notes that there is no statutory right of appeal against any assessment issued by HMRC in accordance with its powers as set out in paragraphs 32 to 35 of the Regs (paragraphs 2 – 5 Schedule 8 FA 17).

Analysing section 39 FA 17 and regulations 15 - 18 of the Regs the Appellant contends in drafting and laying the Regs HMRC simply failed to provide for themselves a mechanism by which credits claimed on an SDIL return may be withdrawn. The Appellant notes that section 39(3) FA 17 provides for the tax credit to be brought into account when the person is accounting for SDIL in the prescribed accounting periods with regulation 15 prescribing the form and manner in which a claimed credit is required to be made.

A similar position is contended regarding amendment of a SDIL return. Whilst the Appellant, on HMRC’s invitation, submitted amendments to its returns, the amendments were not processed to withdraw the claims to credit, rather HMRC raised the Assessments to SDIL. The Appellant submits this is because there is no statutory mechanism for the correction/amendment of an SDIL account where tax credits have been overclaimed, thus rendering the amendments made of no effect.

A distinction is drawn between SDIL and VAT. In the latter context returns are rendered subject to verification by HMRC (certainly where output tax exceeds input tax, and the return seeks repayment of the VAT credit shown on such returns as defined in section 25 Value Added Tax Act 1994 (VATA)). Where SDIL credits are claimed on a return for an accounting period they are immediately and automatically set against the declared liability to SDIL with no entitlement to be repaid any balancing credit. That feature of the SDIL regime being confirmed by reference to the enabling power in section 39(3)(f) and (g) FA 17. The Appellant maintains that in order to be withdrawn the credit must have been definitely rather than provisionally obtained.

The Appellant sought to demonstrate that there was no statutory mechanism for HMRC to withdraw the credits claimed and given affect to. The Appellant notes that HMRC’s letter of 23 December 2022 simply states that the Appellant was not entitled to the credits applied to its account. Neither the Entitlement Decision nor the Assessments include the word “withdrawn” implicitly at least tending to a view that HMRC accepted that there was no power to withdraw and thereby no statutory justification for the Assessments, under paragraph 4 Schedule 8 FA17 or otherwise.

It is said, contrary to the invitation from HMRC, that this is not a situation in which it is open to the tribunal to infer a power for HMRC to withdraw credits on the basis that Parliament provided for the power to be enacted through regulations.

A distinction was drawn between the circumstances in which it is appropriate to imply powers and those in which it is right to conclude that regulations are simply defective. The Appellant referred to Oliver Fisher (a firm) v Legal Services Commission [2002] All ER (D) 140 concerning the Civil Legal Aid (General) Regulations 1989 in which the High Court determined that it was not possible to construe the regulations to imply a power to recover sums of legal aid paid in circumstances in which the Legal Services Commission had already paid the amounts claimed even where the sums were not due. Further, in the matter of R (oao Machi) v Legal Services Commission [2002] 1 WLR 983, the Court determined that where Parliament has prescribed a statutory basis for comprehensive regulations there is no room for the operation of general residual powers. It was contended that the provisions of section 39 FA17 intended to provide the basis on which tax credits were withdrawn and the failure to enact regulations in this regard did not permit the gap to be filled by a general power.

We were invited to conclude that a clear distinction could be drawn between the approach taken by the Supreme Court in its judgement in DCM (Optical Holdings) Ltd v HMRC [2022] UKSC 26 (DCM), in respect of VAT credit and the tax credits in this case, despite the superficially similar obligation resting on HMRC under whose care and management both VAT and SDIL rest.

Resisting HMRC’s position that the Appellant’s approach results in an absurd situation whereby credits are given but cannot be withdrawn, the Appellant submits that there is no legislative absurdity, merely a failure to legislate for the powers under regulations that were envisaged by Parliament when enacting FA17.

This is not, the Appellant contends, a situation meeting the terms of section 9 Commissioners for Revenue and Customs Act 2005 as section 39 FA 17 did not envisage the need for ancillary non-legislative powers.

As a defensive position, if the Tribunal finds that there is an implied power to withdraw which then justifies the Assessments, the Appellant contends that there should be no assessment for any period exceeding 2 years on the basis of parity between the time limit for claiming credit as prescribed in regulation 15(11) of the Regs and for the assessments issued to recover excessive repayment under paragraph 12 Schedule 8 FA 17.

A further jurisdictional point was advanced by the Appellant. So far as we understood the point, the Appellant contended that as there was no decision meeting the terms of paragraph 1(n) Schedule 10 FA17, there could be no appeal under that provision with the consequence that the provisions of paragraphs 14 and 15 Schedule 10 FA 17 limiting the powers of the Tribunal were not invoked such that we had a full appellate jurisdiction to cancel the Assessments and determine the appeal in the Appellant’s favour.