United Kingdom VAT & Duties Tribunals Decisions

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Halsall Riding and Livery Centre v Revenue and Customs [2005] UKVAT V19342 (17 November 2005)

19342

VALUE ADDED TAX — livery and stabling — tax charged and accounted for from 1988 to 1996 — later acceptance that supplies exempt — claim for recovery of overpaid output tax — VATA 1994 s 80(1) — claim made more than three years after end of last relevant accounting period — VATA s 80(4) — reduction of time limit for making claim — whether absence of transitional period for making claims a material factor — tribunal satisfied no claim would have been made if transitional period correctly implemented — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

HALSALL RIDING AND LIVERY CENTRE

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Colin Bishopp (Chairman)

Carole Roberts

Sitting in public in Manchester on 24 October 2005

Peter Smallwood of Haines Watts, chartered accountants, for the Appellant

James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

. As its name suggests, the Appellant provides horse riding tuition, stabling and livery services. It has been engaged in that business for several years. For most of that time it treated certain of its supplies as standard-rated, in accordance with what was then understood—by the Appellant, others in its industry and the Respondents—to be the correct practice. It later became clear that the Appellant's supplies were not all standard-rated, and it has made several claims for repayment of the tax for which it has, or contends it has, incorrectly accounted. The Respondents have met one set of claims, and the Appellant has withdrawn another. We are left only with its claim for repayment of the output tax for which (as the Commissioners agree) it incorrectly accounted on its supplies of stabling and livery for the years 1988 to 1996 inclusive. The parties have not agreed the value of the claim but we are required to deal only with the question whether the Appellant has a valid claim at all.

It was originally considered that supplies of stabling with livery were standard-rated, and the Appellant accounted to the Commissioners on that basis throughout the relevant period. However, on 1 April 2001 the tribunal's decision in the appeal of John Window [2001] V & DR 252 was released. It determined that a supply of stabling with livery is a composite supply, that the stabling (which, alone, would be an exempt supply within Group 1 of Schedule 8 to the Value Added Tax Act 1994 as the supply of a licence to occupy land) is the dominant of the two elements and that, applying the principles described by the European Court of Justice in Card Protection Plan Ltd v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270, the proper tax treatment of the stabling must attach to the whole supply; thus although livery, if supplied alone, would be standard-rated, if it is supplied together with stabling the whole supply is exempt. As we understand the position, those of the Appellant's supplies with which we are concerned come within that category, and the claim is for the refund of the output tax incorrectly charged to customers. We assume, though we were not addressed on the point, that the sums claimed allow for the consequential reduction in the input tax for which the Appellant is entitled to credit.

The Commissioners accepted that the tribunal's decision in John Window was correct, and composite supplies of stabling with livery are now treated as exempt. Although it was suggested in the skeleton argument produced by James Puzey, counsel for the Commissioners, that until the tribunal's decision in John Window was released such supplies were standard-rated, Mr Puzey agreed that the decision had not changed the law but had merely identified an error. He indicated an intention to rely on the tribunal's decision in Grimsby and District Sunday Football League v Customs and Excise Commissioners [1982] VATTR 210, in which an appeal was struck out on the grounds that the appellant's claim was for the repayment of money paid voluntarily under a mistake of fact. We have serious doubts whether that case can stand with modern European jurisprudence, but we do not need to decide the matter since Mr Puzey did not pursue the point. The only live issue before us is whether the Appellant's claim is time-barred.

The claim was made by the Appellant's representative before us, Peter Smallwood, by letter of 27 June 2003. The statutory provision on which the claim is based is section 80 of the Value Added Tax Act 1994, the relevant parts of which, as they were in force at the material time, read:

"(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him …

(4) The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more than three years before the making of the claim."

It follows from those provisions, if they can be taken at face value, that the Appellant's claim was made too late, since the end of the period with which we are concerned fell much more than three years before the claim was made in June 2003. The particular point at issue is whether the time limit imposed by subsection (4) is valid, and can defeat the claim, or, in the circumstances of this case, is not available to be relied on by the Commissioners.

As is well known, the limit of three years was introduced without warning by an announcement in Parliament made on 18 July 1996. Previously, traders had been allowed six years from the time at which the payment was made, with an extension in some cases of mistake. The announcement was subsequently formalised by legislation, which took effect from the date of the announcement; not only was the standard period reduced from six years to three, but the provisions allowing for an extension were repealed, without any form of replacement. In Marks and Spencer plc v Customs and Excise Commissioners (Case C-62/00) [2002] STC 1036, in which judgment was given on 11 July 2002, the European Court of Justice ("ECJ") determined that while it was legitimate for Member States to impose time limits for the exercise of Community rights (in this case the obtaining of a refund of overpaid tax), that Member States had the power to reduce existing periods provided the reduced period was not so short as to render the exercise of rights impossible in practice, and that three years was not, in principle, too short a period, the United Kingdom's failure to provide for any transitional arrangements but instead to deprive its nationals summarily of accrued rights was incompatible with the principles of effectiveness and of the protection of legitimate expectations.

The ECJ did not, however, express any view about the appropriate consequences in those cases in which a trader could show that he was adversely affected by the absence of any transitional period, nor did it then indicate the length of the transitional period it might consider sufficient. The Commissioners, without further legislation and by what amounts in substance to an extra-statutory concession, introduced temporary relief which included a notional transitional period from 4 December 1996 (when the reduction of the period was first given statutory force by the Provisional Collection of Taxes Act 1968) to 19 March 1997, when what was then section 80 was brought into full force (though with retrospective effect) by the Finance Act 1997. The relief was not available in cases in which, even if there had been such a transitional period, no claim could or would have been made; and claims for relief were required to be made by 31 March 2003. However, on 24 September 2002, in Grundig Italiana SpA v Minstero delle Finanze (Case C-255/00) [2002] ECR I-8003, [2003] All ER (EC) 176, a case on a similar but not identical issue, the ECJ indicated that a minimum transitional period of six months was appropriate. The Commissioners extended the ending date of the transitional period to 30 June 1997, and extended the time for making claims to 30 June 2003. This claim was made a few days before that date.

However, when it was made, the three-year period had expired, and by some margin. The question therefore arises whether, had there been an adequate transitional period, the Appellant could and would have taken advantage of it. To answer that question we must consider whether there was a real possibility that a claim would have been made on or before 30 June 1997, had the reduction of the time limit been handled correctly. If so, it seems to us that the Appellant can show that it has been prejudiced, and that its claim should succeed (the Commissioners did not raise any other objection, for example that the Appellant would be unjustly enriched should its claim be met). If, however, there is no realistic possibility that a claim would have been made by that time, it seems to us that the claim must fail. It can, of course, be said that it is unfair that a trader who has paid too much to the Commissioners, because of a common mistake about the law (and in reliance on what the trader has been told by the Commissioners) but time limits for the making of claims are common, not only in the field of tax, and the Commissioners are themselves subject to time limits, restricting their ability to assess traders who have under-paid tax.

Before moving on to the evidence, we should mention the recent High Court decision of Condé Nast Publications Ltd v Customs and Excise Commissioners [2005] STC 1327. The court was required to consider not section 80 but the corresponding provision relating to under-claimed input tax, regulation 29 of the VAT Regulations 1995 (SI 1995/2518). The transitional relief afforded in respect of such claims was a little different, and the case is not directly in point. We are aware too that the judgment is the subject of a further appeal, but there is one comment of Warren J which in our view must be uncontroversial, and of equal application to a claim made under section 80. After dealing with a case in which a trader is prejudiced by the absence or inadequacy of a transitional period, he said, at [63]:

"This is not to say that, if it is shown that a taxpayer could not have made a claim in the transitional period, that he should be allowed to make it later. If he could not have made it, his Community law rights are not infringed by the absence of a transitional period. This would be so where, for instance, the taxpayer did not know of his pre-existing right …"

The emphasis is original. The manner in which the reduction of the limitation period was introduced may have been offensive, and it is obviously right that those adversely affected in consequence should be entitled to relief; but that relief should not extend adventitiously to all affected by the reduction in the limit, but not by the absence of a transitional period.

The only evidence available to us on this issue is the oral testimony of June Beilensohn, one of the partners in the Appellant. She told us that during the 1990s, the VAT liability of livery supplies was a topic of conversation among stable owners, and that it was also referred to in trade publications, though she produced no examples of the latter. Had she and her partner—her husband—known that it was possible to make a claim for repayment, they would have done so; as it was, and believing that they must charge and account for VAT on livery services, they had adopted that course until they de-registered in 2000. She conceded that she had done nothing about the matter until 2003, when she and her husband had consulted Mr Smallwood; until then they had relied on their usual accountants, who have no particular VAT expertise, and who had not suggested that a claim be made.

While we do not doubt that the Appellant would have made a claim had it known there was a claim to be made, we find it impossible to accept, from Mrs Beilensohn's brief and somewhat slight evidence, that she and her husband knew, or even had any real suspicion, that they were accounting for too much output tax, or that they had done so in the past. There was no evidence before us on which we could place any reliance that the possibility that livery services, if supplied with stabling, were being incorrectly subjected to tax was a matter of debate within trade circles, or was a matter to which Mrs Beilensohn had given any thought until 2003. As she agreed, the matter was not taken up on the Appellant's behalf until Mr Smallwood was consulted, long after any reasonable transitional period had ended. It is also worth recording that it does not appear from the decision that John Window was in any way a test case even though its outcome was no doubt of some importance to the industry. Despite that importance, more than two years elapsed after the release of the decision before the Appellant's claim was made.

We have come to the conclusion that, even had there been an adequate transitional period from the outset, the Appellant would not have made a claim within that period. There is nothing reliable before us which suggests that the absence of a transitional period, or of an adequate period, operated to the Appellant's detriment, or was in any other way a factor of significance. The Appellant was affected by the reduction in the time limit, but that is not enough. The claim was made out of time, and the appeal must fail. Mr Puzey did not seek a direction in respect of costs.

COLIN BISHOPP

CHAIRMAN

Release date: 17 November 2005

MAN/04/0798