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

We explain the complex background to these appeals below. Because of the involved nature of the underlying VAT disputes, we have set out in full the FTT’s description of the background, chronology and findings of fact. References in our decision to “FTT [**]” are references to the Decision, unless otherwise specified.

The facts are fully set out by the FTT at FTT [3]-[33] and the FTT summarised the outline of the dispute at FTT [3]-[10]:

“3.

The Appellant is part of a group of companies supplying leisure services, operating under the Haven and Warner Leisure Hotels brands. During the VAT periods in question, Butlins was also part of this group of companies.

4.

The parties were engaged in a series of disputes concerning the VAT treatment of certain of the Appellant's activities as follows:

(1)

For VAT prescribed accounting periods 03/87 to 12/11 HMRC considered that supplies of removable contents, when sold together with static caravans, should have been standard rated.  The Appellant considered the supplies were zero rated.  The matter was finally resolved following various stages of litigation with a partial settlement pursuant to which HMRC made a payment (as recorded in the settlement agreement) of £13.8m together with statutory interest.  These sums were repaid on 15 December 2014.  (Contents Dispute)

(2)

For VAT prescribed accounting periods 03/89 to 12/11 HMRC considered that verandas sold with caravans too should be standard rated whereas the Appellant considered them to be zero rated.  Again, following litigation HMRC repaid to the Appellant a sum of £2.6m; the payment being made on 7 May 2015.  (Verandas Dispute)

(3)

VAT was overpaid in VAT prescribed accounting periods 06/73 to 09/08 in connection with bingo participation fees.  In the relevant periods HMRC considered bingo participation and session fees to be standard rated.  However, following litigation conducted by others it was established that such charges were properly exempt from VAT.  On 4 May 2010 HMRC repaid £3.4m in respect of VAT overpaid in the period 03/75 to 09/08.  (Bingo Dispute)

(4)

VAT was also overpaid in respect of prescribed accounting periods 12/02 to 12/05 in relation to certain gaming machine income.  Again, such income had been considered to be subject to VAT at the standard rate when properly it should have been exempt from VAT.  That resulted in a repayment of VAT in the sum of £5.6m, such payment being made on 16 November 2020.  (Gaming Dispute)

5.

HMRC accepted that for the full period for which the Appellant had been denied the correct VAT treatment, and had thereby been kept out of the associated funds, interest was due under section 78 VATA (s78)  i.e. that due to an error on the part of the Commissioners the Appellant had accounted to HMRC for an amount by way of output tax which was not output tax due from the Appellant and/or had paid assessments to VAT which was not due.  The total interest paid by HMRC under s78 is £9,321,655.75 calculated by reference to the period for which HMRC withheld funds properly due to the Appellant and applying the statutory rate for such interest.

6.

However, and in consequence of their having bought a series of appeals before initially the VAT and Duties Tribunal (VDT) and subsequently to this Tribunal (FTT), the Appellant claims it is entitled to invite the Tribunal to direct that additional interest is paid in accordance with s84(8).  The Appellant contends that it should be paid £8,244,823.19 in additional interest.  That sum has been calculated, by reference to the evidence adduced (and in the main accepted by HMRC), as the margin between the statutory rate paid under s78 and the estimated true cost of borrowing incurred by the Appellant in the period in which it was wrongfully denied the funds by HMRC.  The additional interest is not claimed in respect of the full sums repaid and referred to in paragraph 4 above.  The Appellant accepts that part of the sum repaid in settlement of the Contents Dispute related to claims which were never appealed and in respect of which no s84(8) Interest entitlement accrues.  We understand that certain appeals may also have been excluded from the additional interest claim; Mr Beal did not know why that was the case and indicated it may have been in error.  In any event, as they are not included in the application, we do not consider them.

7.

HMRC contend that no additional interest is due.  In the alternative they contend that the maximum rate at which it should be payable is the conventional rate i.e. Bank of England base rate plus 1%.

8.

Attached as Appendix 1[attached as Appendix 1 to this decision] to this judgment is a table of each of the relevant appeals lodged by the Appellant in respect of which the payments referred to in paragraph 4 were made.  The Appendix identifies the appeal reference for each of the appeals as originally lodged with the VDT/FTT, the category of dispute, the consolidated appeal reference as appropriate, the nature of the underlying decision (i.e. whether the sums were collected/repayment was withheld by HMRC through the raising of an assessment or denial of a repayment claim), the date of the assessment/claim, date of rejection of any claim, VAT periods concerned, VAT repaid, gross interest claimed, statutory interest paid, and additional interest now claimed. 

9.

Lines 1 - 20 of Appendix 1 concern the Contents Dispute; 21 - 24 the Verandas Dispute, 25 - 26 the Bingo Dispute and 27 the Gaming Dispute.

10.

For the reasons set out below we allow the appeal in part. Attached as Appendix 2 is a table [attached as Appendix 2 to this decision] setting out the summarised reason for our decision on an appeal-by-appeal basis (by reference to Appendix 1). The parties are to recalculate the interest due in consequence of our decision.”

The FTT then described at FTT [11]-[29] the chronology of the various appeals as follows:

“Contents Dispute

11.

Examination of the chronology of the Contents Dispute demonstrates that it originated in correspondence in at least early 2000 to which reference was then made in a claim made by the Appellant for recovery of sums considered to have been overpaid as output tax. That claim was made on 30 June 2000 and, consistent with the limitation period which applied to VAT output tax overpayment claims made under section 80(1) VATA as it then stood, was limited to the three preceding years i.e. the claim was for periods 06/97 – 09/99. The value of the claim was £2,177,925.16. The claim was rejected on 12 July 2000 “until the underlying liability query” had been resolved. The notice of appeal referred to the decision of 12 July 2000 and appealed on grounds that the decision was “wrong in law … and that the voluntary disclosure [was] properly made and repayable by [HMRC]” (line 17(1) in Appendix 1).

12.

It appears that the Appellant began accounting for VAT on the basis that removable contents were zero rated from VAT prescribed accounting period 03/01. This prompted HMRC to assess for the VAT which would have been due on the basis that the supplies were standard rated. The assessments were appealed on the grounds that there was no output tax due on the supplies. It is not clear from the documents which were made available to us whether these early assessments were issued on a protective basis whilst HMRC continued to consider the underlying liability of removeable contents (lines 1 – 4 of Appendix 1).

13.

Following the judgment of the CJEU in Marks & Spencer plc v CEC C-62/00 which indicated that the Appellant was entitled to make claims for periods earlier than 06/97, further claims to over paid VAT were made in August 2002. These claims were rejected on 23 August 2002 expressly on the basis that the underlying supplies were properly subject to VAT. The appeal was stated to be bought under section 83(t) VATA and against a rejected claim to overpaid VAT. However, the grounds of appeal challenge HMRC’s conclusion as to the liability of the supplies (line 17(2) Appendix 1).

14.

Further assessments continued to be issued post August 2002. Some assessments were appealed. The grounds of appeal brought into challenge the liability of the supplies in the context of having been assessed (lines 5 – 8 Appendix 1).

15.

For some periods it appears that the Appellant did not appeal the assessments when made; but, approximately once per annum, made claims for VAT overpaid in a connection with the assessments. Section 80 VATA was amended by section 4(6) Finance (No 2) Act 2005 with effect from 20 July 2005. That amendment had the effect of bifurcating what had been section 80(1) (providing the basis of a claim to overpaid VAT) into provisions which separately provided for claims in respect of output tax over paid/declared on a return (which became subsection (1)) and sums over declared in consequence of an assessment raised by HMRC (subsection (1A)). The terms of the amendment provided that claims submitted on or after 26 May 2005 in respect of sums over declared by way of assessment were treated as submitted pursuant to section 80(1A) VATA. In the present case therefore, as the claims were submitted from 1 July 2005 they were all were treated as submitted pursuant to section 80(1A) VATA. Those claims were rejected, and the rejections appealed. The notice of appeal states such appeals were bought under section 83(b) and (p) VATA. We note that whilst these appeals did represent appeals against HMRC’s decision as to the VAT chargeable on a supply (thus within section 83(b)) they cannot have been section 83(p) VATA appeals as the decision appealed is the rejection of the claim to overpayment on the assessments and not the assessments themselves despite the effect of a claim against an overpaid assessment being the same as a challenge to the assessment (lines 9 – 16 Appendix 1).

16.

It appears that in or about period 06/06 the Appellant reverted to treating removable contents as standard rated when rendering its VAT returns such that for all periods from 06/06 through to 12/11 claims were made pursuant to section 80(1) VATA which, at the time of those claims, provided for claims in respect of sums bought into account on a VAT return as output tax which was not due. The claims for periods from 06/07 were submitted after 1 April 2009 and were made on the basis that there was no longer a dispute that the supply of some items of removable contents was properly zero rated. When HMRC rejected the claims, they did so on the basis that they were “unable to accept the claim because agreement has yet to be reached on what is a fair and reasonable method of valuing the removable contents within the supply of a caravan”. The grounds of appeal used were apparently a cut and paste of previous appeals and did not reflect the basis on which the claim had been rejected and thereby did not reflect the true issue between the parties at that time i.e. that the basis of apportionment had not been agreed rather they implied a continuing dispute as to liability (lines 18 – 20 Appendix 1).

17.

All the appeals relating to the Contents Dispute were either consolidated or joined under Tribunal reference LON/2000/0765 (the first appeal lodged and referred to in paragraph 11 above).

Verandas Dispute

18.

The first claim for verandas was made on 17 December 2007 for periods 12/04 to 06/07, it formed part of a contents claim for the same period. The second claim was made on 22 January 2008 for periods 03/89 to 09/04 with an additional claim for periods 12/04 to 06/07. The letters of claim form part of a series of correspondence. As regards the verandas the assertion was that where a veranda is supplied at the same time as the caravan it should be zero rated as a structure adjacent and fixed to a new dwelling. It was however, accepted that the later supply of a veranda would be standard rated. HMRC’s position on that assertion was invited.

19.

HMRC’s response to both claims was dated 23 May 2008. It identified the information considered and communicated: “having considered that documentation and taken legal advice, I have concluded that the zero-rate which applies to caravans under VATA 1994 Schedule 8 Group 9 Item 1 should not be extended to verandas, as they do not form part of the caravan or fall within the scope of what Parliament intended when the zero rate provisions was enacted”. It proceeded to provide a fuller explanation of the reason for reaching that conclusion.

20.

The notice of appeal identified the letter of 23 May 2008 as the decision appealed and contended that it was wrong in law being based on an incorrect construction of the legislation. The Appellant applied for the appeal to be joined to the earlier contents appeal (lines 21 – 22 Appendix 1).

21.

On 21 September 2011, again forming part of additional claims in respect of contents, veranda claims were submitted for periods 09/07 to 06/08. Perhaps understandably given the duration of the dispute, there is no specific narrative of the basis on which the VAT was overpaid. However, the claim was rejected by HMRC on the basis that, in their view, the supply of verandas was subject to VAT at the standard rate. The notice of appeal narrated the nature of claim, basis for refusal and the challenge to HMRC’s liability decision as grounds of appeal (line 23 Appendix 1).

22.

Further veranda claims were submitted on 30 September 2012 in respect of periods 09/08 to 11/12 and as part of a wider claim including contents. The claim does not explicitly refer to verandas. The claim was rejected on 30 September 2012 on the basis that litigation was ongoing. The substance of the grounds set out in the notice of appeal addressed the question of liability in the context of the identified decision of HMRC to reject the additional claims (line 24 Appendix 1).

23.

The Veranda Dispute appeals too were consolidated with the Contents Dispute appeals under VDT reference LON/2000/0765. During the course of the litigation the verandas issue was hived off for separate determination but remained part of the consolidated appeal.

Bingo Dispute

24.

The first claim in the Bingo Dispute was submitted on 14 November 2007 for periods 03/75 to 12/02. The claim narrates the legislative analysis at domestic and EU level which it was claimed justified a conclusion that bingo participation fees should be exempt from VAT. The quantum of the claim was extrapolated. Claims were then submitted for period 03/03 on 31 March 2006 and periods 06/03 to 09/05 on 30 June 2006. The letters for these claims were in identical form. Neither explicitly referenced the basis on which it was asserted that the VAT had been overpaid.

25.

All three claims were rejected on 2 October 2008. The explanation given was that HMRC did not agree that the relevant supplies were exempt from VAT. It was this decision which was appealed to the Tribunal and the grounds of appeal provide a full explanation of the basis on which the liability of the bingo supplies should have been exempt (lines 25 and 26 Appendix 1).

Gaming Dispute

26.

On 19 October 2005 the Appellant submitted a claim for overpaid VAT on certain gaming machine turnover which domestic law treated as taxable whereas it should have been exempt from VAT. The letter recites the basis on which the claim is predicated by reference to the then disputed liability of the gaming supplies. That claim was for periods 03/04 – 09/05. A second claim was submitted on 9 December 2005 for periods 03/03 – 12/03. The claim followed the same form as the earlier claim with an identical narrative as to the challenge to the VAT liability of the supplies. Further claims were submitted in the same form on 30 June 2006 for periods 03/04 – 12/05. The claims were revised by letter dated 14 November 2007.

27.

HMRC rejected the claims by letter dated 2 October 2008 on the basis that the Appellant had failed to show that the gaming machines in question were similar and in competition with machines/gaming which was exempt from VAT. The refusal of the claim was appealed on 17 October 2008 (line 27(1) Appendix 1).

28.

However, on 20 April 2011 HMRC wrote to the Appellant confirming that a repayment would be made against the claim but subject to the issue of a recovery assessment raised pursuant to section 80(4A) VATA. That assessment was issued on a “protective” basis such that HMRC informed the Appellant that it would not be enforced against them pending the outcome of continuing litigation (to which the Appellant was not party) and therefore did not require to be paid (unless the Appellant wanted to protect itself from interest accruing on the amount should it ultimately require enforcement). The Appellant appealed it on 15 May 2011 (line 27(2) Appendix 1) and paid the assessments when they were enforced on various dates in 2014.

29.

The appeal at line 27(1) was not formally settled or withdrawn.”

The FTT at FTT [30]-[33] found the following facts:

“Findings of fact

30.

Derived from the chronology above we determine the following facts:

(1)

The core and underlying issue in respect of the Contents Dispute appeals at lines 1 – 17 was the liability to VAT of removable contents generally. However, each disputed decision concerned either an assessment or the rejection of a claim to overpaid output tax in identified periods consequent upon the underlying dispute. The appeals were against the disputed decisions and included grounds which concerned the VAT chargeable on the supply.

(2)

The Contents Dispute appeals identified at lines 18 – 20 in Appendix 1 also concerned the VAT chargeable on supplies but the principal question was apportioning the price paid for the zero-rated caravan, zero rated removable contents and standard rated removable contents.

(3)

All the disputed decisions and associated appeals (save that identified at line 27(2) of Appendix 1) in respect of the Verandas Dispute, Bingo Dispute and Gaming Dispute challenged the VAT chargeable on the underlying supplies in the context of rejected claims to overpaid VAT. Line 27(2) Appendix 1 is an appeal against a recovery assessment issued as there was an ongoing dispute as to the VAT chargeable on the underlying gaming machine supplies.

31.

We were provided with two witness statements from Mr Iain MacMillan, the current Chief Financial Officer of the Appellant. His first witness statement set out his first-hand knowledge of the Appellant’s financing for the period from 2018. It also explained a series of investigations and exercises he had carried out. He sought to identify the Appellant’s financing strategy and rate of borrowing evidenced by the documents identified. The earliest documents retained by the Appellant and identified in the search dated back to 2000. He also explained and presented an extrapolation exercise he had undertaken to identify a reasonable estimation of the borrowing rates available to the Appellant in the period from 1975 to 1999. By his second statement he confirmed, by reference to the annual statements available, that year on year the Appellant was in a net debt position.

32.

HMRC accepted the majority of Mr MacMillan’s evidence and cross examination was limited.

33.

From the written statement, oral testimony and annexed documents we find the following facts:

(1)

Throughout the period from 1975 to 2022 the Appellant operated cash balances which facilitated the running of its business from day to day. The cash balance at 31 December each year was generally strong having completed the peak season and as deposits for the following summer were being collected.

(2)

Throughout the period from 2000 there is direct evidence that the Appellant’s borrowings were by way of a revolving credit facility (RCF) and term loan facilities (Term Loan). Whilst there is no direct evidence for the period prior to 2000, by reference to the annual accounts available (all years bar 1994, 1992, 1985, 1983, 1981, 1979, and 1975 were available to us), it is reasonable to conclude that the Appellant was similarly funded throughout the period 1975 - 2022.

(3)

The cash balance shown in the annual accounts available for each year 1975 – 2022 as at 31 December each year was smaller than total borrowing from its RCF and Term Loan. Accordingly, it is reasonable to conclude that the Appellant traded consistently in a net debt position throughout the period 1975 - 2022.

(4)

There is direct evidence that the Appellant’s principal lender from 2000 was Barclays Bank Plc (Barclays). From at least 2013 the senior facility with Barclays was syndicated. Mr MacMillan believed that Barclays had been the principal lender from 1975 and was not challenged in that belief; we therefore find that Barclays was the primary lender throughout the period from 1975 - 2022.

(5)

The interest rate terms on which the RCF and Term Loan were provided were driven by the base lending rates and the specific attributes of the Appellant. Under the loan agreement extant from 2000 the interest rate for the Term Loan was calculated by reference to London Interbank Offered Rate (LIBOR) plus a risk margin with a cap at 3.3% and a collar of 2%.

(6)

Mr MacMillan was able to calculate the average interest rate paid under the Term Loan for each year 2000 – 2020 as compared to the average statutory rate for the year. He accepted in cross examination that the rate applicable under the RCF may have been different but on the basis that the RCF is a short term facility principally used for emergency funding it was not a facility which was used as part of the cash flow forecasting for the business and not, in his view, relevant for determining the cost incurred by the Appellant in consequence of having overpaid VAT to HMRC.

(7)

The figures were not challenged by HMRC and we accept them:

Year	Interest rate paid	Average Statutory Rate
2000	8.62	4.90
2001	7.87	4.19
2002	6.94	3.00
2003	6.56	2.67
2004	7.44	3.32
2005	6.22	3.68
2006	5.73	3.32
2007	6.88	4.41
2008	6.67	3.79
2009	3.43	0.21
2010	2.96	0.50
2011	2.96	0.50
2012	2.88	0.50
2013	2.52	0.50
2014	2.49	0.50
2015	2.51	0.50
2016	2.42	0.50
2017	2.29	0.50
2018	2.59	0.50
2019	2.72	0.50
2020	3.41	0.50

(8)

Mr MacMillan undertook/caused to have undertaken an extensive search, including a request made of Barclays to locate the relevant facility agreement(s) for earlier periods but was unable to locate them. He therefore undertook an analysis which compared known facility rates to both LIBOR and Bank of England base rate across the period 2000 to 2020 from which he was able to calculate the average margin for that period to each official rate. The average margin to Bank of England base rate was calculated at 2.27%. Mr MacMillan then applied that average margin to known Bank of England base rates in the period 1975 – 1999 (LIBOR was introduced in 1996 and did not therefore represent a basis for extrapolation for earlier periods) to determine a reasonable estimate of the Appellant’s borrowing cost in the period 1975 – 1999. Neither the assumptions for, nor the accuracy of, this exercise was challenged by HMRC; we therefore accept that a reasonably inferred interest rate at which the Appellant was likely to have borrowed is as follows:

Year	Bank of England Base Rate	Inferred interest with 2.27% margin
1975	10.76	13.03
1976	11.73	14.00
1977	8.46	10.73
1978	9.14	11.41
1979	13.76	16.03
1980	16.30	18.57
1981	13.16	15.43
1982	11.96	14.23
1983	9.86	12.13
1984	9.67	11.94
1985	12.06	14.33
1986	10.74	13.01
1987	9.60	11.87
1988	9.96	12.23
1989	13.68	15.95
1990	14.65	16.92
1991	11.56	13.83
1992	9.43	11.70
1993	5.90	8.17
1994	5.34	7.61
1995	6.57	8.84
1996	5.89	8.16
1997	6.66	8.82
1998	7.23	9.50
1999	5.35	7.62

(9)

During the period in which overpayments had been made to HMRC the sums so overpaid were not available to the Appellant in the running of its business and therefore either directly or indirectly the borrowing requirements of the Appellant were increased as a consequence of the overpayments.

(10)

The Contents Dispute was settled by way of a settlement agreement dated 20 November 2014. The terms of that settlement agreement provided that if HMRC did not repay the agreed sum by 11 December 2014 (being 21 days from the date of the agreement) HMRC would be liable to pay simple interest on the sum at 1.5% per annum above the base lending rate from time to time of Barclays Bank Plc.”