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

Mr Beal KC, appearing with Mr Lowenthal for the Company, submitted that the FTT's conclusion, that it had jurisdiction to award additional interest in relation to Section 80 Appeals, was consistent with both the text and purpose of section 84(8). By contrast, HMRC's interpretation gave rise to absurd consequences.

Section 84 (8) makes it clear that the power to award additional interest is available where an amount which is not due is either “paid” or “deposited in pursuance of” section 84(3). The first of these conditions, Mr Beal submitted, was met in the present case.

The FTT was correct (at FTT [136]), Mr Beal argued, to hold that section 84(8) empowers the FTT to award additional interest to “any situation in which, on an appeal, it is determined that amounts have been paid to HMRC which were not due to HMRC.” It was necessary to identify the meaning borne by the words in question in the particular context: R (O) v SSHD [2022] UKSC 3 per Lord Hodge at [29].

Mr Beal contended that HMRC wrongly argued that the natural meaning of section 84(8) should be disregarded and instead, contrary to the natural syntax, hold that the words “in pursuance of” should qualify both limbs (i.e. both the word “paid” and the word “deposited”). HMRC’s interpretation rendered at least one of those words redundant. The Company’s interpretation of those words, by contrast, reflected the two concepts in the VATA and gave meaning both to cases where money had to be deposited before an appeal could be brought pursuant to section 84 (3) (i.e. “deposit”) and other cases where money has been paid and an appeal is subsequently successful. The word “paid” was used because there may not be, in such a case, a direct relationship between the payment and the appeal proceeding.

HMRC’s interpretation would lead to the absurd result that taxpayers who have wrongly accounted for VAT (but in accordance with an 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. Such a regime would wrongly favour a taxpayer, who deliberately chose not to pay the assessed amounts under protest, thereby incurring the additional risk of HMRC also imposing non-compliance penalties, over a taxpayer who paid amounts under, in accordance with HMRC’s views, but subsequently sought to recover those amounts on appeal. Moreover, the evident statutory purpose behind section 84(3) was to ensure that appeals were not entertained without the relevant tax having been accounted for (unless “hardship” was shown). There could be no room for showing “hardship” in a section 80 claim since the tax had already been paid.

As regards HMRC’s argument, that the obligation on HMRC to pay or repay overpaid principle was exclusively contained in section 80 itself, with provision for an award of statutory interest on section 80 claims in section 78(1) (so that section 84(8) had no application to an appeal against a refusal of the section 80 claim) was, Mr Beal submitted, simply wrong. VATA 1994 distinguished between section 80 claims (governed by section 80 and section 78(1)) and section 80 appeals. Where there was a successful appeal – and in the present case HMRC wrongly refused a repayment claim and the Company was required to appeal to vindicate its position – the duty to make repayment and power to award additional interest were laid down by the express terms of section 84(8): Infinity Distribution v HMRC [2010] EWHC 1393 (Ch) per Simon J at [30].

Furthermore, HMRC’s reliance on FJ Chalke Ltd v HMRC [2009] EWHC 952 (Ch) at [70] and Prudential Assurance Co Ltd v HMRC [2019] AC 929 at [69]-[80] was misplaced. Those cases both concerned whether the statute had ousted a common law remedy, rather than how the various parts of VATA interacted.

Mr Beal submitted that the FTT had been correct to conclude that section 80 creates a right to repayment, subject to the unjust enrichment defence, but that the situation before the FTT would always be that HMRC had wrongly refused to honour that right. The FTT had held that, in circumstances where HMRC’s refusal had been appealed and found wrongful, that section 84(8) “imposes the mandatory obligation “shall be repaid” in all situations in which tax has been paid.” With the proceedings concluded and the taxpayer vindicated, the unconditional “mandatory obligation” to repay (or credit) per the FTT’s decision arose pursuant to section 84(8) and with it, the jurisdiction to award additional interest.

Mr Beal took issue with HMRC’s assertion that where output tax was due on an erroneous basis, they had not “determined” the amount to be paid when that basis is applied to the taxpayer to subsequent accounting periods, with the excess output tax then being reclaimed pursuant to section 80. In such circumstances, Mr Beal argued, the taxpayer applied HMRC’s basis of assessment, believing it to be wrong and it follows that it is HMRC – not the taxpayer – that “determines” the amount to be paid within the meaning of section 84(8)(a).

The procedural history of the Contents, Verandas, Bingo and Gaming Disputes, summarised in FTT [4], demonstrated, in Mr Beal’s submission, that in each case HMRC had determined that certain supplies were standard-rated. They were dealing with actual supplies which had taken place, not prospective ones. The value of the VAT paid on those supplies was notified to HMRC. HMRC’s decisions were targeted at those specific supplies and refused repayment of identified bouts of output tax. This was not a case where the Company had made an unnoticed clerical error in its accounting and sought a repayment of overpaid VAT as a result of its mistake. The tax in all cases had been disputed, with HMRC contesting the VAT treatment of all the supplies all the way to the Upper Tribunal or beyond. It was only after HMRC had admitted defeat that the sums had been repaid.

The Company’s primary case was, Mr Beal submitted, that all of their appeals were against either assessments (section 83(p)) or determinations of liability (section 83(b)). The fact that there were claims for repayment of VAT does not mean that the appeals were not engaging with determinations of liability, since the two heads of appeal were not mutually exclusive.

Construing section 84 (4) in accordance with its ordinary terms, its clear purpose was to empower the FTT to make an award of discretionary interest where the VAT had been overpaid as output tax, the taxpayer has been out of pocket and that situation had arisen as a result of a dispute between HMRC and the taxpayer as to the treatment of the liability in question. The fact that the consequences of a dispute about liability were addressed through a combination of assessments, rulings and claims for repayment did not alter the basis for the FTT’s jurisdiction. Indeed, it was telling that section 80(1A) also envisaged that an overpayment of VAT may occur where HMRC had assessed the taxpayer for too much output tax. Thus, since all the appeals could be classified as appeals under section 83(b) or section 83(p), HMRC’s objection based on appeals under section 83(t) was not determinative.

In response to Mr Moser’s argument that the FTT’s conclusion gave rise to unequal treatment between payment and repayment traders, Mr Beal submitted that no such unequal treatment arose. Section 84(8) VATA 1994 made specific provision for the taxpayer who claimed to be entitled to more VAT credit than it had received (regardless of whether or not a separate claim was made under Regulation 29).