The Court of Appeal has released its Judgment in this case concerning the disapplication of the UK cap for certain VAT overpayments by a local authority in periods post 1996.
This was a case about the UK’s limitation period for VAT claims, and whether it should be disapplied for certain claims made by Leeds. These claims were made before the Fleming claim deadline of 31 March 2009, but related to accounting periods after 4 December 1996, so were not covered by the Fleming disapplication of the cap. To the extent they were made more than three years after the end of the relevant periods in which the VAT was overpaid, (the UK cap being three years at that time) HMRC refused the claims. These claims are commonly known as ‘middle period’ claims. Leeds had lost at the FTT and UT and has now lost again at the Court of Appeal.
The taxpayer’s only expectation for the post 1996 periods was that the cap would apply to any claims for those periods. So the only issue was whether there were any special factors applying to these claims that meant the cap should be disapplied. The bulk of the claims concerned supplies by local authorities, such as trade waste, where HMRC policy had been that VAT was due, but HMRC had subsequently agreed to amend the policy, either as a result of lobbying or as a result of litigation.
Leeds suggested various special factors that should mean the cap should be disapplied to its claims, while not seeking an “opening the floodgates decision” that the cap should be disapplied to the middle period across the board, or even just to middle period claims deriving from a mistake of EU law by HMRC.
However, all its arguments were rejected. Its position was distinguished from Banca Antoniana Popolare Veneta (C-427/10), a taxpayer that won its case on limitation periods at the CJEU, but with a very specific fact pattern whereby the change of policy by the authorities increased the tax burden on Banca while giving it no remedy against the authorities. This was not the same fact pattern as Leeds.
The fact that HMRC had not just published incorrect policies in respect of these supplies but had, so Leeds submitted, actively put Councils off the scent by ocusing on the wrong conditions for determining whether supplies by local authorities were subject to VAT or not, was irrelevant.
The crucial sentence in the Leeds decision says that “there is no rule of EU law that requires the running of a limitation period to be deferred until the existence of a right to recover (from the authorities) a payment (of VAT incorrectly demanded) has been established in law”. Well-founded claims can be time barred. It does not seem to matter how the claims arise (taxpayer mistake, HMRC mistake, domestic law or EU law) or how the overpayment comes to light (by a court case or simply because of a change of heart by HMRC). It also did not matter that the UK time limits for VAT and direct tax were different – the VAT time limit was the same for all VAT claims and all taxpayers could pursue claims through the Tribunals while periods were in time, if they disagreed with HMRC policy. The cap was in place, it had been implemented correctly for the post 1996 periods, it applied to all VAT claims, and Leeds was bound by it.
A request for a CJEU reference was rejected on the grounds the law on limitation periods was clear. To read the decision click here.