UT-2024-000123 - [2025] UKUT 00360 (TCC)

Both parties relied on the decision of the Court of Appeal in Customs & Excise v Cresta Holidays Ltd & Ors [2001] EWCA Civ 215 (“Cresta”). This was a case involving Insurance Premium Tax (“IPT”) the statutory provisions concerning which were closely analogous to the VAT provisions involved in the present appeal. (Footnote: ⁸) In our description of the relevant statutory provisions, for ease of reference, we state the corresponding provisions of VATA in square brackets.

IPT was payable by insurers and certain intermediaries. Cresta and other companies (“the tour operators”) were tour operators who sold holidays and travel insurance. Under arrangements made between the tour operators and insurers, the tour operators funded the payment by the insurers to HMRC of IPT on premiums on policies sold to their customers. The Finance Act 1997 introduced two different rates of IPT: a higher rate was chargeable on travel insurance where the insurance was sold by a tour operator and a lower (standard) rate which was otherwise chargeable on travel insurance. During the relevant period the insurers paid IPT at the higher rate and the tour operators paid equivalent sums to fund the insurers. In 1998, by decisions of the Divisional Court and the Court of Appeal, it was established that the application of differential rates of IPT was unlawful. The tour operators requested from HMRC a decision confirming how much IPT was properly payable and a decision on their claim for repayment. HMRC decided that: (i) that the amount paid during the relevant period was the amount of IPT chargeable; and (ii) that the claim for repayment should be rejected. The tour operators requested a review of both HMRC’s decisions. HMRC confirmed their decisions. The tour operators appealed. HMRC sought to strike out the appeals on the grounds that the reviewed decisions were not on matters lying within sections 59(1)(b) or (l) [sections 83(b) or (t)]. The tribunal refused the application and HMRC appealed. The tour operators contended, inter alia, that they were persons affected by a decision on a matter within section 59(1)[section 83] and might as such require reviewed decisions under section 59(2) and appeal under s 60 [section 84].

Lightman J allowed HMRC’s appeal, holding: (i) that there were two distinct and mutually exclusive regimes applicable where the entitlement of HMRC to IPT was in issue. A question on the amount chargeable in respect of a premium could only fall within section 59(1)(b) [section 83(b)] if it were raised before the payment of the tax had been made. Then the taxpayer could appeal against the reviewed decision under section 59(1)(b) [section 83(b)] (subject to the provisions of section 60(4) [section 84(3)]). That regime was quite separate from the provisions for repayment under section 59(1)(l) [section 83(t)] where a payment in respect of which there was a claim to repayment had already been made to HMRC and where para 8 of Sch 7 [section 80(3)] gave HMRC a defence of unjust enrichment. HMRC’s decisions on the amount chargeable (which were required and given after the IPT which HMRC had determined to be chargeable had been paid) were not, therefore, decisions on matters falling within section 59(1)(b) [section 83(b)]. Moreover, only the taxpayer could require a decision on the amount chargeable to be reviewed and appeal against a reviewed decision. The tour operators appealed to the Court of Appeal.

At [7]-[8] Simon Brown LJ, with whom Robert Walker LJ agreed (Keene LJ dissenting), set out the historical background to the appeals jurisdiction. Simon Browne LJ disagreed with Lightman J’s conclusion that the two regimes (section 59(1)(b) [section 83(b)]) and section 59(1)(l) [section 83(t)] were distinct and mutually exclusive:

“Conclusion 2 - paragraphs (b) and (l) are mutually exclusive

6.

In arriving at this conclusion the Judge appears to have been influenced by two considerations in particular: first, the language and scheme of the legislation (paragraph 15); second, the apparent incompatibility between sub-sections (4) and (6) of s.60 [section 84(3) and section 84(8)] with regard to paragraph (b) [section 83(b)] appeals on the one hand and the unjust enrichment defence provided for by paragraph 8(3) of Schedule 7 [section 80(3)] with regard to paragraph (l) [section 83(t)] appeals on the other…Mr Lasok [Counsel for HMRC] argues that the Judge was right in both respects and right too to reject Mr Barling QC's [Counsel for Cresta] reliance on two Tribunal decisions in the cognate field of VAT appeals.

7.

I have not found this at all an easy point but in the end have concluded that Mr Barling is right and that s.59(1)(b)[section 83(b)] is not to be read as restrictively as Mr Lasok contends and the Judge below held. The argument has to be considered in a historical context. When initially VAT was introduced by the Finance Act 1972, the appeal provision, s.40, provided only for appealing the CCE's decisions with regard to the tax chargeable and the like, not for a specific restitutionary claim equivalent to that provided for under the IPT scheme by s.59(1)(l)[section 83(t)]. On its face s.40 appeared to contemplate appeals only by the taxpayer (i.e. the supplier of the relevant goods or services). In addition it contained provisions (now substantially re-enacted as sub-sections (3) and (8) of s.84 of the VAT Act 1994) equivalent to sub-sections (4) and (6) of s.60 of the Finance Act 1994 with regard to IPT. Nevertheless, despite those provisions, the VAT Tribunal in Processed Vegetable Growers Association Limited v CCE [1973] VATTR 87 and Williams & Glyn's Bank Limited v CCE [1974] VATTR 262 permitted appeals to be brought (a) by the recipient of the supplies (provided only that he had a sufficient interest) and not merely by the supplier, and (b) did so notwithstanding that the disputed tax had already been paid and accounted for to [HMRC]. In the second of the two cases it was held in addition that the [HMRC] were bound to give effect to the Tribunal's decision by repaying the tax to the (non-appellant) supplier (or allowing the supplier to take credit for it in his next tax return) whereupon the supplier would hold the monies so repaid or credited as constructive trustee for the appellant recipients.

8.

Whether or not [HMRC] followed that approach with regard to repayment is unclear. What, however, is clear is that a practice developed whereby taxable persons recovered overpaid tax by using the machinery made available for correcting errors, a practice challenged by [HMRC] but ultimately vindicated by the House of Lords in CCE v Fine Art Developments PLC [1989] 1 AC 914. That decision proved to be the springboard for an amendment to the VAT legislation by way of s.24 of the Finance Act 1989 to introduce specific provision for the recovery of overpaid tax subject to a defence of unjust enrichment together with a related right of appeal. These provisions, substantially re-enacted, are now s.80 of the VAT Act 1994 (the equivalent of paragraph 8 of Schedule 7 of the Finance Act 1994 with regard to IPT), and s.83(t) of the VAT Act 1994 (equivalent to our section 59(1)(l)).

9.

Against this background it would seem to me inappropriate to confine s.59(1)(b)[section 83(b)] to what Mr Lasok describes as "current, on-going or contemporaneous disputes" (Footnote: ⁹) unless there are compelling reasons to do so and unless the Court takes the view that the 1989 amendment to the VAT scheme operated to overturn the two longstanding Tribunal decisions. I recognise, of course, that the VAT scheme and the IPT scheme are not in all respects identical, but there appears to me no sound basis for contending that they should be construed and operated differently in the respects now at issue.

10.

For my part I can see no compelling reason to confine paragraph (b) [section 83(b)] in the way Mr Lasok invites. True, the paragraph is couched in the present tense but, as I understand to be common ground, this has no temporal connotation: the words "is chargeable" here refer to the incidence of the tax which is "charged" on receipt of the premium by reference to the "chargeable amount". Mr Lasok's argument is rather that, once the tax has been paid (otherwise than under the provisions of s.60(4)[section 84(3)]), it will in any event be necessary for the taxpayer to claim its repayment so that any issue that might originally have arisen under paragraph (b) [section 83(b)] will now inevitably be subsumed in an appeal under paragraph (l) [section 83(t)]. In these circumstances a paragraph (b) [section 83(b)] appeal becomes, submits Mr Lasok, "futile", "of no utility", "wholly otiose". S.59(1)(b) [section 83(b)]) is simply not necessary and so should not be available for "historical disputes".

11.

Generally speaking I have no doubt that this will be so. In Gil, for example - the "white goods" case also concerning the consequences of imposing differential rates of IPT, in which the Tribunal's judgment is currently awaited - the appeal to the Tribunal (which Richards J held on the merits to have been rightly not struck out - CCE v Gil Insurance [2000] STC 204) was brought (by the insurers) under paragraph (l) [section 83(t)] alone. But there may perhaps be other cases in which the taxpayer will wish to have some point of principle resolved before finally formulating his repayment claim or before deciding whether to involve himself in expensive unjust enrichment litigation. And if, say, the dispute arises whilst the tax at issue is still being charged (as it would have been here had the reviewed decisions been sought whilst the differential rates remained in force), and then the tax regime changes before the appeal is heard, it would seem quite wrong to have to discontinue an existing paragraph (b) [section 83(b)] appeal so as to replace it with a retrospective paragraph (l) [section 83(t)] appeal. How, one wonders, would that affect the taxpayer's rights to recover any tax paid under s.60(4) [section 84(3)]?

12.

That brings me to the conundrum presented by the contrast between sub-sections (4) and (6) of s.60 [section 84(3) and (8)] which apply in a s.59(1)(b)[section 83(b)] case and the unjust enrichment defence available to the CCE [HMRC] in a repayment case. Various possible solutions were suggested to us. To my mind, however, it is unnecessary for present purposes to resolve this difficulty. If it were not regarded as insuperable in the two Tribunal cases in the 1970s, still less should it be so regarded here. After all, in a case like this, by definition the disputed tax will have been paid.

13.

In short, I would hold that those affected by a [HMRC] ruling on the chargeability of tax are entitled to bring and maintain a paragraph (b) [section 83(b)] appeal irrespective of whether they or others have brought or are entitled to bring in addition an appeal under paragraph (l)[section 83(t)].”

Keene LJ, dissenting, said:

“[27] It is clear that s 60(6) [section 84(8)] requires repayment of the tax found not to be due, together with interest, when the s 59(1)(b) [section 83(b)] mechanism is used, and nothing in those provisions makes the commissioners' obligation to repay subject to any defence of unjust enrichment. There is no reference to para 8(3) of Sch 7 [section 80(3)] if Parliament had intended this obligation to be subject to that defence, it would have so provided. But if that is right, then if the s 59(1)(b) [section 83(b)] mechanism could be used even when the tax had already been paid, it would provide an alternative for the taxpayer to a para 8 of Sch 7[section 80(3)] claim and an easy means of circumventing the unjust enrichment defence which might otherwise be available to the commissioners.

[28] The response of Mr Barling QC, for the Airtours companies, to this difficulty was twofold. First, he contended that the s 60(6) [section 84(8)] obligation on the commissioners to repay only arises where the money has been paid or deposited 'in pursuance of' s 60(4) [section 84(3)] and that that would not be the case if it had been paid in the normal course of making quarterly returns. It was argued that s 60(6) [section 84(8)] only operates if the reason for the payment was in order to comply with s 60(4) [section 84(3)]. The fact that the terms of s 60(4) [section 84(3)] had been met would not be enough.

[29] I find that unpersuasive. The object of s 60(4) [section 84(3)] is simply to ensure that the taxpayer's request for a decision as to whether or how much tax is chargeable does not become, through the review and appeal process, a device for delaying payment. Once payment has been made, irrespective of the taxpayer's motive, the precondition for an appeal set out in s 60(4) [section 84(3)] would have been met. That would then bring s 60(6) [section 84(8)] into play. There would be considerable practical difficulties in applying the interpretation suggested by Mr Barling, with its need for an investigation into the motive behind the payment.

[30] The second response by [Cresta] to this dilemma was to argue that s 60(6) [section 84(8)] is in the statute only to provide for the payment of interest on sums found not to be due. On such a construction one might then be able to regard the obligation to repay as subject to para 8(3) of Sch 7 [section 80(3)], the unjust enrichment provision. Apart from the difficulties with such an argument already referred to earlier, the structure of s 60 [section 84] indicates that the point is not a good one. Section 60(6) [section 84(8)] has its counterparts in s 60(7) and (8), which provide for the payment by the taxpayer of amounts found to be due, together with interest. It seems impossible to confine the effect of these three provisions simply to the interest part of each of them. They create obligations as to payment of the capital sums as well.

[31] It seems to me that there must be a clear distinction between the two regimes, that is to say, between s 59(1)(b) [section 83(b)] with its associated provisions in s 60(4) and (6) [section 84(3) and (8)] on the one hand and the restitutionary mechanism of para 8 of Sch 7 [section 80(3)], with the possibility of a review under s 59(1)(l) [section 83 (t)] on the other. The latter will apply where money has been paid by way of tax before there has been any decision by the commissioners on what is due. That will be a common situation, because normally this tax is paid by registered persons without the need for any decision by the commissioners. The former regime is there where the taxpayer seeks a decision from the commissioners before he pays the tax. Hence the need for s 60(4) and (6) [section 84(3) and (8)].”

In our view, with respect, we consider that there are significant difficulties with the Court of Appeal’s majority analysis in Cresta. In the first place, there appears to be little discussion of, or the significance of, the counterpart of (in VAT legislation), section 80(7) VATA, which provides (Footnote: ¹⁰):

“(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.”

In our view, this supports HMRC’s contention that when section 80 was introduced (by section 24 Finance Act 1989 in the wake of the House of Lords decision in Fine Arts Development) it was intended to be an exclusive remedy for the repayment of VAT that had already been paid (otherwise than pursuant to section 84(8)).

We accept, of course, that section 84(8) provides for a repayment of VAT paid pursuant to section 84(3). We do not, however, accept that the repayment obligation contained in that provision goes beyond a payment made in order to bring about an appeal under section 84(3).

Moreover, we also consider that section 80(7) excludes any other common law claim in respect of unjust enrichment. This was, effectively, the conclusion of the Supreme Court in Littlewoods Limited and Investment Trust Companies.

Against this background, in our respectful view, we find that the points made by Lightman J and Keene LJ in relation to the unjust enrichment defence provided by paragraph 8 (3) Schedule 7 to the Finance Act 1994 [section 80(3)] are compelling. These arguments are in substance made by reference to the legislative context. In short, if a trader is always allowed to claim a repayment of tax pursuant to section 83(b) (rather than under section 80) in relation to a tax dispute where the tax has already been paid (otherwise than pursuant to section 84(3)), the unjust enrichment defence is effectively undermined. We consider, in respectful agreement with Lightman J and Keene LJ, that Parliament cannot have intended this result.

We acknowledge that the equivalent provision to section 80(3) in the IPT legislation (paragraph 8 (3) Schedule 7 to the Finance Act 1994) was fully before and was considered by the Court of Appeal. It is therefore not possible to conclude that the decision in Cresta on this point was per incuriam. Nonetheless, we consider the views of Lightman J and Keene LJ to point clearly towards the conclusion that HMRC are correct on Ground 1, when the legislative framework is considered as a whole.

Can the majority decision in Cresta properly be distinguished in the present case? In our view it can.

It is clear from Simon Brown LJ’s judgment at [11] (Footnote: ¹¹) that the court was envisaging that usually an appeal for a repayment of VAT would fall within section 80 and section 83(t). He did, however, give examples of other cases which might fall within section 83(b). For example, also at [11], Simon Browne LJ gave the example of a point of principle being resolved before a repayment claim was formulated or before a taxpayer decided whether to involve itself in expensive unjust enrichment litigation. A further example was of a change in law. None of these examples apply in the present case. In our view, the majority decision in Cresta can fairly be confined to these examples. We consider that Cresta should not be given a more general interpretation. Thus, in the present case, in our view, section 80 and section 83 (t) provide the exclusive basis for a reclaim in the circumstances of the present appeals.

We also acknowledge that VATA has been continually amended and re-amended, to the extent that in some cases it is difficult to discern a clear legislative purpose. However, in the present case we entertain no such doubts. We consider that section 80 was originally introduced in order not only to provide persons who were not the taxpayers making the supplies (in other words, the recipient of the supplies) a statutory means of reclaiming overpaid tax (not just tax overpaid by means of an administrative error but also tax which was wrongly considered to be payable by HMRC) but also to provide a comprehensive statutory basis for reclaiming tax which had been unduly paid. Otherwise, the defence of unjust enrichment makes no sense and can easily be circumvented.

Mr Beal argued that such an interpretation produces an absurd result, viz that taxpayers who have wrongly accounted for VAT (but in accordance with a HMRC interpretation) and who then submit a reclaim under section 80 would be disadvantaged when compared with a taxpayer who did not account for such contested amounts but who successfully challenged assessments wrongly raised by HMRC. That is a powerful argument but it is not, in our view, sufficient to displace what we consider to be the plain statutory scheme enacted as section 80 and section 83 (t).

Similarly, as regards Mr Beal’s further argument that “paid” and the word “deposited” must be read disjunctively, so that an overpayment of VAT for which repayment is now being sought can constitute VAT which has been “paid” for the purposes of section 84 (3), we do not think that the language can override the statutory scheme whereby claims for repayment of VAT must be made exclusively under section 80.

Accordingly, whilst paying tribute to the FTT’s careful analysis of a difficult issue, we allow HMRC’s appeal on Ground 1, set aside the Decision and remake it on the basis that (i) the Company’s applications for further interest in relation to the appeals listed at 9-17, 21-22 and 25-27 (1) of the Appendices are dismissed, and (ii) the Company’s applications for further interest in relation to the appeals listed at lines18-20, 23-24 and 27 (2) are dismissed.