HMRC has published a briefing setting its view following a Supreme Court judgment in the case involving investment trust companies (ITC), which centred on claims made by final consumers against HMRC for VAT that had been wrongly charged to them by their suppliers
In June 2007, the European Court of Justice released its judgment in Claverhouse (2008) STC 1180 ruling that certain supplies of investment management services, which HMRC had believed were liable to VAT at the standard rate, were exempt.
As a result of that judgment, HMRC received, and paid, section 80 claims made by fund managers (the suppliers) for output tax over-declared on supplies of investment management services made to investment trust companies (the customers).
The suppliers accepted that they had passed the economic burden of the wrongly charged VAT on to their customers. They also accepted that they had suffered no loss or damage to their business as a result of having done so, effectively agreeing they would be ‘unjustly enriched’ by payment of their claims. The suppliers therefore agreed to reimburse to their customers anything paid to them by HMRC.
However, because the supplier, when they prepare the VAT return, is entitled to deduct the input tax from the output tax, the amount which has been charged to the customers as output tax is greater than the amount that is paid to HMRC.
Nine trust companies made common law claims against HMRC in the High Court for the difference.
On 11 April 2017, the Supreme Court handed down its judgment and dismissed the trust companies’ claims in full.
The Supreme Court agreed with HMRC that the only person entitled to make a claim against them is the supplier who had accounted for the VAT to them.
Importantly, the court held that the customers did have a claim but that it was against the suppliers and not against HMRC. This means that where a customer believes that a supplier has wrongly charged them VAT, the remedy is to make a claim against the supplier.
This is a commercial matter and the right to claim against the supplier will depend on the terms of the contract under which the goods or services were supplier – effectively the customer has simply been overcharged by the supplier.
HMRC is now advising that anyone who believes that they have a claim that is not precluded by the Supreme Court’s judgment must bring their claim in the ordinary courts, and cannot be made directly to HMRC.
The advice states that the circumstances under which a customer is able to make a claim direct against HMRC are extremely limited.
Revenue and Customs Brief 4 (2017): judgment of the Supreme Court in Investment Trust Companies
Report by Pat Sweet
