The Supreme Court has published their decision in a case that considers the corporation tax treatment of VAT repayments which all related to overpaid output tax on supplies made in the course of the trade. The First Tier Tribunal rejected the argument that the repayments were not trading receipts or were not taxable because they were not paid for a specific trading purpose, or because they were attributable to trading activity in an earlier period. The Upper Tribunal and Court of Appeal agreed, and the Supreme Court has now dismissed the taxpayer’s appeal.
At earlier stages in the litigation, the dispute concerned the tax treatment of both the VAT repayment and associated interest, but the Supreme Court decision focused only on the corporation tax treatment of the VAT repayment.
The case concerns how post-cessation receipts were taxed – should all qualifying receipts be taxed, or only sums received by the original trader? The Supreme Court ruled that all sums received after cessation should be taxed, no matter which trader in the group was the source of the original sum.
The Supreme Court also agreed with the purposive analysis in the Court of Appeal decision, which concluded that an exclusion, which applies where the right to receive sums has been transferred together with the trade, did not apply where the transferred trade has been discontinued.