UT/2024/000070 - [2025] UKUT 00210 (TCC)

In its written case the Appellant argues that the exclusion of boarding cards and other evidence obtained after the three-month period specified in paragraph 4.4 of VAT Notice 725 was contrary to EU law. It is submitted that procedural conditions imposed by a Member State could not be relied upon to deny the effect of EU law. The FTT erred in seeking conclusive proof of export, contrary to the approach adopted by the CJEU in Teleos (see [36] above) .

HMRC argue that VAT Notice 725 is consistent with EU law and points out that no argument to the contrary was advanced before the FTT. They accept that while failure to satisfy formal requirements under domestic law does not automatically lead to the loss of exemption the three-month time limit in paragraph 4.4 is not a mere formality but a substantive requirement.

In his oral submissions on behalf of the Appellant Mr Southern maintained that he had no quarrel with the content of VAT Notice 725 from an EU compliance perspective. He accepted that the compulsory provisions were compatible with EU law. Nonetheless, his submissions, which were put in terms of the FTT adopting a “disproportionate interpretation” of the Notice, appeared to us to challenge the EU law conformity of the three-month rule. We had difficulty understanding this position. It appeared to be dependent on the Appellant’s view under Ground 4 that HMRC are permitted to take account of evidence outside the three month time limit. We have already seen that there are circumstances where evidence obtained after the three-month period can be considered by HMRC, but the really important point to keep in mind here is that, while such evidence can be used by a taxpayer (and considered by HMRC), it will not have the effect of zero-rating the original removal ab initio; it may allow a taxpayer to make an entry in its VAT account which effectively balances the original standard rated transaction, but that later entry is only effective when made and it does not eliminate the original standard rated transaction, so that there will always be an interest (as in Musashi) or similar funding cost in not having obtained the required information in time. The requirement to obtain information within three months in order to zero-rate the original transaction is very clear and there was no suggestion that this requirement was being inconsistently applied.

As to whether the VAT Notice 725 requirements conform, there is no dispute that EU law permits Member States to impose procedural rules and evidential requirements by way of conditions for the application of the exemption provided they comply with general legal principles including proportionality (as set out at [25] of Twoh International BV (Case C-184/05). It is also established that making the right of exemption “subject to compliance with formal obligations without any account being taken of the substantive requirements and, in particular, without any consideration being given as to whether those requirements have been satisfied, goes further than is necessary to ensure the correct collection of the tax…” (Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH v Finanzamt Plauen (Case C-587/10)at [45]). Mr Southern’s point here appeared to be that the Appellant’s directly effective EU law right is to zero rate goods if they keep adequate evidence of removal, domestic law should not impose formal requirements in a prescriptive way which prevents a person who has effectively complied with that requirement being able to benefit from it.

To the extent the Appellant’s arguments under this ground seek to impugn the proportionality of VAT Notice 725 then we would reject that. Various features in the requirements and guidance set out in VAT Notice 725 indicate to us that it is consistent with EU principles of proportionality and does not go further than is necessary to ensure the correct collection of tax.

We consider the requirements, which also include the 3-month time limit, to be proportionate.

Mr Southern also referred to Vogtländische Straßen where it was held that, although a Member State might require information, such as a VAT identification number, provided the requirement is proportionate, not providing that information could not be the sole reason for denying exemption. We do not consider this case assists. The CJEU’s reasoning for its view was that, although the VAT identification number was “closely connected with capacity as taxable person”, that status did not depend exclusively on such person having that number but simply covered a person who carried out any economic activity as specified in the Directive ([48] and [49]). The requirement in that case for a VAT identification number is far removed from the present case, where the UK requirement for commercial documents sufficient to evidence removal was non-exhaustive.

As regards the Appellant’s written submissions suggesting a breach of the principle of effectiveness, nothing in VAT Notice 725 or the way the FTT applied that could in our view be said to meet the threshold of having rendered the exercise of the Appellant’s rights virtually impossible. The Notice contemplated for instance that a CMR with the consignee’s details and signature acknowledging receipt of goods might be completed and allowed for a reasonable period of time for that to be obtained. That would be a document which might reasonably be expected to be filled out for commercial reasons, e.g. a haulier would want to be able to prove the consignee had received the goods in case of any dispute.

We also reject the submission that the FTT was seeking conclusive proof of export, thus contravening what was said Teleos. It was simply looking for sufficient evidence but for the reasons it explained it was not satisfied that this had been produced.

The FTT correctly interpreted and applied VAT Notice 725 whose conditions were proportionate. There was nothing in the FTT’s interpretation or application of those conditions which the Appellant has persuaded us breached the principles of EU law and we therefore reject this ground of appeal.