REPAYMENT – Amount paid by way of VAT which was not VAT due – Three-year limit for repayment – Sums paid on account of tax due – Prime assessments issued – Returns rendered more than three years after sums paid on account – Tax declared due less than assessments – Whether three-year period began to run on rendering of returns – Whether payments on account included amounts which were not VAT due – Whether amount lost as result of three-year limit disproportionate – VATA 1994, ss73(1), (g), 80(4) – VATRegs 1995, reg 37 – Appeal dismissed

LONDON TRIBUNAL CENTRE

	BISSELL HOMECARE (OVERSEAS) INC	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	ANGUS NICOL   (Chairman)
						CAROLINE de ALBUQUERQUE

Sitting in public in London on 12 March 2003

Mr C J M Peters, VAT Consultant of Mainprice & Co, for the Appellant

Mr S Grodzinski, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	This appeal is against a decision of the Commissioners in which they maintain that they are not liable, in accordance with section 80(4) of the Value Added Tax Act 1994, to repay certain amounts of money paid to them by the Appellant, because the payments were made more than three years before the making of the claim for repayment.

2.	There was some disagreement as to whether the decision letter was that of 25 June 2002 or of 19 September 2002.  The Appellant took the view that the earlier letter was no more than the giving of information for which the Appellant had asked.  However, nothing turns on this, and it was not suggested that the appeal was out of time.

The facts

3.	There is no dispute as to the facts, and we take them from the two skeleton arguments and the correspondence.

4.	The Appellant is the United Kingdom division of a United States company which has been trading for 127 years.  It is a manufacturer of household cleaning appliances, and has been trading in the United Kingdom for 112 years, selling its products through various retailers.  Between about 1980 and the end of 2000 the Appellant also had a company in Drogheda in the Irish Republic, which both manufactured goods and carried on the management of the Appellant.  The management services included monthly and annual accounts, VAT returns, PAYE, national insurance, and other services.  The Appellant’s accountant was based in Ireland and divided his time between the Irish and British offices of the Appellant.  In 2000 it became apparent that the Appellant had seriously fallen into arrears in maintaining the records necessary, and this was for a time concealed by the accountant.  As a result, the Appellant was in arrears with VAT and was in the default surcharge regime, though there was in fact no shortage of money for the payment of VAT.  On 31 December 2000 the Irish company was wound up.  The accountant carried on until his services were dispensed with in April 2001, and the accounts of the Appellant were put in the hands of Vantis MBS, chartered accountants.

5.	In September 1997 the accountant had agreed to make a payment of £400,000 on account of the Appellant’s outstanding liability to VAT.  That sum was credited to the Appellant’s account on 8 September 1997.  The return for the period 12/96 was then outstanding, as was that for 6/97. An assessment for £243,451 had been issued on 14 February 1997 in respect of the period 12/96, and another for £200,751 on 15 August 1997 in respect of the latter period.  The £400,000 was applied in paying the whole of the 12/96 assessment and part of the 6/97 assessment.  On 19 June 1998 a further £212,059.80 was paid towards the Appellant’s VAT liability, part of which was used to pay the balance of the assessment for 6/97.  Also on 19 June 1998 a further £250,000 was paid by the Appellant.  At that date the 3/98 return was outstanding, and an assessment for £272,128 had been issued on 15 May 1998, which sum was satisfied out of the two payments made on 19 June 1998.  The 6/97 and 3/98 returns were submitted on 12 September 2001, and the 12/96 return on 9 November 2001.  The returns shewed, respectively, amounts of tax due of £186,531.52, £257,906.82, and £165,107.32.

6.	The facts as set out in the Commissioners’ letter of 19 September 2002, which was addressed to Vantis MBS,  were as follows:

“Three overpayments by way of VAT have been capped.  I have examined your client's VAT ledger and extracted the information on the enclosed schedule.  The circumstances leading to these overpayments are as follows:

1.	VAT return for the period ending 31 December 1996

This VAT return was not rendered by the due date of 31 January 1997.  A centrally issued prime assessment was therefore notified to your client on 14 February 1997 for an amount of £243,451.00.  This amount was paid on 8 September 1997 as part of the payment of £400,000.
The VAT return was rendered on 9 November 2001 showing a VAT liability of £165,107.32.

As more than 3 years had elapsed between the payment of the prime assessment and the receipt by Customs and Excise of the VAT return the overpayment of £78,343.68 has been capped under s80(4), which states [section 80(4) is set out].

2.	VAT return for the period ending 30 June 1997

This VAT return was not rendered by the due date of 31 July 1997.  A centrally issued primed assessment was therefore notified to your client on 15 August 1997 for an amount of £200,751.00.  This amount was paid on 8 September 1997 as part of the payment of £400,000 and on 19 June 1998 as part of the payment of £212,059.80.
The VAT return was rendered on 12 September 2001, showing a VAT liability of £186,531.52.

As more than 3 years had elapsed between the payment of the prime assessment and the receipt by Customs and Excise of the VAT return the overpayment of £14,219.48 has been capped under s 80(4).

3.	VAT return for the period ending 31 March 1998

This VAT return was not rendered by the due date of 30 April 1998.  A centrally issued prime assessment was therefore notified to your client on 15 May 1998 for an amount of £272,128.00.  This amount was paid on 19 June 1998 as part of the payment of £212,059.80 and also as part of the payment of £250,000.00.
The VAT return was rendered on 12 September 2001, showing a VAT liability of £257,906.82.

As more than 3 years had elapsed between the payment of the prime assessment and the receipt by Customs and Excise of the VAT return the overpayment of £14,221.18 has been capped under s80(4).”

7.	We were referred to the correspondence that had flowed between the Appellant and the Commissioners starting in June 1997 regarding the Appellant’s arrears of tax.  It is not necessary to set it all out here, but there are certain letters which are of some assistance.  In a fax of 3 September 1997, Mr Berrill, the Appellant’s Financial Controller, informed the Commissioners of the progress made so far in bringing the VAT arrears up to date.  He stated that the return for 3/97 had been rendered and the tax paid on 8 August 1997, and promised that the return for 6/97 would be finalised and paid on 8 September 1997 and that for 12/96 during the week ending 26 September 1997.  He continued,

“Perhaps it would be possible to arrange a payment on deposit for the currently outstanding returns (say £400,000) in order to keep us in good standing.”

The fax emphasises that the Appellant had no problem in making the payments but that it had taken him longer than he had anticipated completing the necessary paperwork.  Payment of the £400,000 was acknowledged by a fax of 28 October 1997, which stated that that amount had been credited to the Appellant's VAT account, leaving an outstanding amount of £107,386.90. The fax also reminded the Appellant that the returns for 12/96 and 6/97 were still outstanding, and that the return for 9/97 was due by 31 October.  The Appellant did not adhere to the programme of returns and payments originally proposed.  The return for 9/97 was submitted to Southend on 11 December 1997, payment of the £278,088 declared due following by electronic transfer the following day.  That left a balance outstanding of £149,100.10.  The returns for 12/96 and 6/97 remained outstanding.  In a letter of 9 June 1998, the Commissioners noted that the outstanding sum was by then £462,047.30, and advised that further action would become necessary if satisfactory proposals for payment were not made within seven days.  A letter of 8 February 2000 stated that the returns for 6/97 and 3/98 were still outstanding, and in a letter of 15 March 2000 the Appellant was informed that an additional assessment for the period 6/97 had been made, of £42,791, based upon the average of previous returns.  That brought the total assessed for 6/97 to £243,542.  The return for that period, dated 10 September 2001, declared the tax due as £186,531.52.

8.	A fax from Vantis MBS dated 21 September 2001 enclosed (together with other documents) a reconciliation schedule shewing that the Commissioners owed the Appellant £129,313.93 plus interest.  The fax continued:

“I would be grateful if you could let me know what makes up the difference between my figure of £129,313.93 and the figure showing on C&E’s ledger, which Mr Moore informs me is circa £51,000 owing to C&E.  My only explanation is that C&E have not accounted for the full amount of the £400,000 paid on account in period 06/97 and have only taken the assessed amount of £243,542.  The difference being £156,458.  This is only a guess!!!”

9.	The answer to that was a fax dated 8 October 2001, from Ian Emmas of the Large Payment Unit in Liverpool.  That set out a list of the assessments and surcharges, as at 5 August 1999, for the periods 12/96, 3/97, 6/97, 9/97 and 3/98, coming to a total of £862,047.30, and of the payments made which came to £862,059.80.  That was followed by a schedule of the changes made taking into account the tax paid as against the assessments and amended surcharges.  These covered the periods 6/97 and 3/98, and shewed that there was, in respect of those periods, an eventual credit to the Appellant.  The resultant credit to the Appellant was £24,155.19, to which, the fax said, a further credit of £5,000 in respect of period 12/99 was to be added, giving a total credit to the Appellant of £29,155.19.

10.	On 6 December 2001 a document headed “Prime Assessment - 3 Year Cap” was issued in respect of the period 12/96.  It stated that a return had been rendered for that period for which an assessment for a greater amount had already been paid, and set out the amounts of the assessment and as declared in the return.  It then stated,

“Under the terms of s80(4) VAT Act 1994, any overpayment paid more than three years earlier should not be repaid.  Therefore, the necessary action has been taken to ‘cap’ the amount of £78,343.68.”

There was no further correspondence produced until a letter of 29 April 2002 from the Commissioners to Mr Bill Miller of Vantis MBS, thanking him for calling in and producing a copy of a reconciliation for voluntary disclosure as at 5 September 2001.

11.	The letter of 25 June 2002, also addressed to Mr Miller, enclosed a complete breakdown of payments due and payments received from 29 April 1991 to 20 May 2002 (adding that there was still a balance outstanding of £24,355.47.  The letter stated that three overpayments totalling £106,784.34 had been capped under the three-year rule in section 80(4).  There were telephone conversations regarding that letter, and then on 14 August 2002 Mr Miller wrote requesting a review of the decision to cap the monies paid in advance to Customs and Excise.  The letter continued,

“In particular, I would bring your attention to the fact that the whole over-payment relates to an amount paid in the December 1996 quarter of £400,000.  This amount was paid by the taxpayer in good faith to cover any potential liability that the taxpayer had and was not an overpayment of VAT.  Our understanding is that this payment can no longer be capped due to the recent ruling from the European Court of Justice in respect of the case involving Marks & Spencer.”

12.	It was in response to that letter that the Commissioners’ letter of 19 September 2002 was written (see paragraph 6 above).  That letter continued:

“In your letter [of 14 August] you refer to the ECJ judgment in the Marks & Spencer case.  I enclose Business Brief 22/2002 which contains information concerning this judgment.  You will see that the ECJ held that a transitional period should have been introduced by Customs and Excise when they introduced the capping time limits.  Therefore a retrospective transitional regime has been introduced.  There are specific overpayments to which this regime will apply and they are explained in the ‘Claims’ section of the Business Brief.  Only overpayments made before 4 December 1996 can be considered.

Unfortunately the earliest overpayment by your client was made on 8 September 1997, not during the December 1996 quarter as stated in your letter, and I must therefore uphold the decision notified to you by Mr Moore.”

A letter from the review officer, Mrs Miller, dated 3 October 2002, included the following relevant paragraph:

“In answer to your point that the payments by your client were cash advances rather than payments of VAT, I must draw your attention to the fact that s80 is written on the basis that the money overpaid was not VAT.  Furthermore, s80(7) VAT Act 1994 specifically provides that the Commissioners are not liable to repay any amounts overpaid unless a claim is submitted in accordance with s80.

It is the trader’s responsibility to ensure his records are kept up to date and therefore that his returns are rendered on time, unfortunately as this was not done by your client and more than three years elapsed between their overpayments by way of VAT and the rendering of the VAT returns the refund was capped.”

13.	In October 2002 Mainprice & Co, who by then were representing the Appellant, wrote asking for a detailed breakdown of the figures.  Mrs Miller responded with the following helpful schedule:

	“1.	The payment of £400,000 received on 8 September 1997 was allocated to the following liabilities:

	Period 12/96 Prime Assessment             		£243,451.00
	Period 12/96 Surcharge Assessment			£  12,172.55
	Period 3/97 Surcharge Assessment			£  20,899.70
	Period 6/97 Part of the Prime Assessment		£123,476.75
								£400,000.00

	2.	The payment of £212,059.80 received on 19 June 1998 was allocated to the following liabilities:

	Period 6/97 Remainder of the Prime Assessment	£  77,274.25
	Period 6/97 Surcharge Assessment			£  30,112.65
	Period 9/97 Surcharge Assessment			£  41,713.20
	Period 3/98 Part of the Prime Assessment		£  62,959.70
								£212,059.80

	3.	The payment of £250,000.000 received on 19 June 1998 was allocated to the following liabilities:

	Period 3/98 Remainder of the Prime Assessment	£209,168.30
	Period 3/98 Surcharge Assessment			£  40,819.20
	8 July 1998 Bailiff fees				£         12.50
								£250,000.00

	When the VAT returns for the periods 12/96, 6/97 and 3/98 were received by the Commissioners at a later date this created a credit on your client’s account, however as more than three years had elapsed between the payment of the Prime Assessments and the receipt of the VAT returns these overpayments were capped.”

The law

14.	Section 80 of the Value Added Tax Act 1994 provides as follows (so far as is relevant to this appeal:

“(1)	Where a person has (...) 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.
(2)	The Commissioners shall only be liable to repay an amount under this section on a claim being made for the purpose.
. . .
(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.
. . .
(6)	A claim under this section shall be made in such form and manner and shall be supported by such documentary evidence as the Commissioners prescribe by regulations; and regulations under this subsections may make different provision for different cases.

(7)	Except as provided by this section, the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.”

Parts of section 73 are also in point:

(1)	Where a person has failed to make any returns required under this Act, [the Commissioners] may assess the amount of VAT due from him to the best of their judgment and notify it to him.
. . .
(9)	Where an amount has been assessed and notified to any person under subsection (1) ... above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.”

The regulations referred to in section 80(6) are the Value Added Tax Regulations 1995 (SI 1995 No 2518).  Regulation 37 provides:

“Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant, state the amount of the claim and the method by which that claim was calculated.”

The Appellant’s contentions

15.	The Appellant was represented by Mr Peters, who submitted a helpful skeleton argument which he amplified at the hearing.  When each of the three payments was made, he said, they were VAT which was due to the Commissioners, who had properly raised central assessments under section 73(1).  The money was not money paid as VAT which was not VAT due.  The sums paid were duly applied, as Mr Peters termed it, to the contingent liability to tax which had arisen when the assessments were made.  These sums, Mr Peters said, had been placed on account with the Commissioners, and when the central assessments were raised were applied in paying the amounts assessed.  When the three VAT returns were rendered in September and November 2001, the contingent liability to tax became the true liability.  At that point of time, Mr Peters contended, the excess over the true liability became “an amount paid to the Commissioners by way of VAT which was not VAT due to them”.

16.	By section 73(9), an amount assessed and notified under section 73(1) shall “be deemed to be an amount of VAT due from [the trader] and may be recovered accordingly”.  The qualification that, “unless, or to the extent that, the assessment has subsequently been withdrawn or reduced”, did not have the retroactive effect of transforming an amount paid by way of VAT under the assessment into an amount “which was not VAT due to them” on the rendering of the returns.  Section 80(4), which removes the Commissioners’ obligation “to repay any amount paid to them more than three years before making the claim [for repayment]” can only be read, Mr Peters contended, as a reference to an amount paid “by way of VAT which was not VAT”.  The excess of the declared amount of tax over the assessment became, on the rendering of the returns, an amount which was not VAT.  Time, for the purposes of section 80(4), began to run from that moment.  It follows, Mr Peters contended, that the Appellant is still in time even now to make a claim for repayment under section 80(2).

17.	Mr Peters argued that it could not be said that the three VAT returns themselves constituted or could be treated as claims under section 80(2) for repayment of tax, nor that any claim was made by the Appellant on the visit on 10 September 2001.  But the visiting officer had said in his visit report “o/s balance to be adjusted on receipt of o/s returns”, thereby implying that the Commissioners accepted that on the rendering of the returns an amount would have to be repaid to the Appellant.  Mr Emmas had also made it clear that the Appellant would be given credit for the overpayment on the submission of the outstanding returns.

18.	If acceptance of the Appellant’s contentions had the effect of opening the way for any trader to pay a central assessment and then submit a return, more than three years later, for an amount less than the assessment, and receive repayment of the balance, the Commissioners will have had the use of the Appellant’s money, interest-free, for the intervening period, and ought not therefore to seek to retain that money.  It would be a very rare case, and, moreover, the trader would in the meantime have paid default surcharges.  It would not be inequitable.  But to pay more than the amount of tax owed would be disproportionate.

The Commissioners’ contentions

19.	Mr Grodzinski also submitted a skeleton argument which we found useful.  He contended that the Appellant’s argument, that at the time when the three sums were paid on account they were in payment for VAT due, and were therefore not an amount “which was not due”, could not succeed.  First, section 73(9) provided that an amount assessed and notified to the trader “shall be deemed to be an amount of VAT due ... unless, or to the extent that, the assessment has subsequently been withdrawn or reduced” [counsel’s emphasis].  The word “deemed” was crucial.  The language contemplates that an amount which is deemed to be an amount of VAT due may not in fact be an amount of VAT due, i.e. on the calculation of the taxpayer’s true liability.  That was supported by the proviso to section 73(9), which contemplates the reduction of the assessment if the amount deemed to be due was not in fact due.  It followed that when the Appellant made the payments in September 1997 and June 1998 the payments were by way of VAT and were deemed to be amounts of VAT due, but which were not actually VAT due to the Commissioners within the meaning of section 80(1), because the amounts declared due were less than the amounts assessed.  The effect of putting in a proper return was to cancel the deeming.  It could not sensibly be contended that sums overpaid by way of VAT became transformed into sums which were “not VAT due” when the Appellant chose to inform the Commissioners, more than three years later, of its true liability.  Had the Appellant put its returns in less than three years after the payments, the deeming provision would have fallen away.

20.	The result of the Appellant’s argument would be that the longer a taxpayer delayed in submitting his VAT returns the more time he would have to make a repayment claim.  That was contrary to common sense, and to the purpose of the legislation, which was to secure the timely and efficient management of the tax and of the taxpayer’s tax affairs, including the timely rendering of VAT returns.  It would also put a taxpayer who failed to put in any VAT returns for more than three years after the relevant period in a better position than a person who, having put in a return, discovers, more than three years later, that he had omitted to claim a sum of input tax which would have reduced his liability, so that he would have made an overpayment.  This would be unfair.  But the present case is one of simple failure to render returns, and is not unfair.

The Appellant’s reply

21.	Mr Peters submitted that the deeming provision was simply for the purposes of recovery.  The section provides that the assessment is VAT due, but that does not mean that it is due to the Commissioners in any event, as, for instance, if the declared liability is less than the assessed tax.  Money paid on account was paid for a special purpose, which distinguishes it from the normal payment of a central assessment.  The expression “any amount” in section 80(4) was very wide; it was necessary to read into the section “any amount paid to the Commissioners by way of VAT which was not VAT due to them”.

22.	Mr Grodzinski replied, without making any concession, that section 80(4) was capable of including, in the words “any amount” the sum suggested by Mr Peters.

Conclusions

23.	The principal issue that we have to address is whether the overpayments of VAT made by the Appellant fall within section 80(4) of the 1994 Act, so that if no claim for repayment is made within three years the Commissioners “shall not” be liable to make a repayment.  Section 80(4) as it is now was substituted for the original subsection (4) by the Finance Act 1997 with effect from 18 July 1996 (subject to transitional provisions).  The previous subsection had prohibited the making of a claim for repayment after the expiry of six years from the date when the amount was paid.

24.	In order that the Commissioners shall be liable to repay an amount to a taxpayer which has been paid by way of VAT, there are three requirements which must be met.  First, the amount paid to the Commissioners must be an amount paid to them by way of VAT which was not VAT due to them: section 80(1).  Secondly, a claim for repayment must be made, in such form and manner as the Commissioners shall prescribe by regulations.  Thirdly, the Commissioners shall not be liable to repay an amount paid by way of VAT otherwise than under section 80.  There is no suggestion that any repayment sought by the Appellant in this case was otherwise than under section 80, which is the only possible route.

25.	The Value Added Tax Regulations 1995, regulation 37, provides:

“Any claim under section 80 of the Act shall be made in writing to the Commissioners and shall, by reference to such documentary evidence as is in the possession of the claimant state the amount of the claim and the method by which that amount was calculated.”

The Commissioners appear to have been prepared to accept the belated returns as having been sufficient claims in writing, though that may have been academic in view of the fact that the returns were made more than three years after the payments.  The Appellant seems to argue that the returns could not be claims within regulation 37, so that any claim actually made was in fact later than the returns.  It would appear that the fax from Vantis MBS of 21 September 2001 was the claim.  That requirement was therefore also met.

26.	The next requirement was whether the amount overpaid was “an amount ... by way of VAT which was not VAT due to” the Commissioners.  That it was paid on account, as the Appellant says, does not appear to us to have any bearing upon the matter.  Clearly it was paid on account, but it was paid on account of VAT which was due to the Commissioners and which, other than in a central assessment, was at the time of the several payments, unascertained.  It does not appear to us that there is any distinction between this payment on account and any other payment of a central assessment.  At the time when each payment was made there was an outstanding liability.  That was expressed at the time in the terms of the assessments.  But the actual liability of the Appellant for those three outstanding periods was, in reality, the true liability as declared in the returns eventually submitted.  The fact that the true liability had not been calculated nor declared at the time of the payment does not affect the extent of that liability.  Therefore, the amount of the declared liability was the true liability even at the date of the payments in September 1997 and June 1998.  The amount of the assessments was deemed to be an amount of tax so that it could be recovered as tax.  Had the returns been rendered and a claim for repayment made within the ensuing three years, the overpayment, no longer deemed to be, nor being in fact, VAT, would have been repayable under section 80.  In our judgment, the amounts paid were paid by way of VAT but were not, to the extent of the difference between the assessments and declared liability, VAT due to the Commissioners.

27.	Lastly, was a claim for repayment made more than three years after the date of payment?  The Appellant contends that time began to run only when the returns were submitted, because only then did the amount of the overpayments become an amount “which was not VAT due”.  For the reasons which we have given in the previous paragraph, in our view the amounts paid in excess of the true liability to tax were, at all times, not VAT due to the Commissioners, though the true amounts of tax, and therefore the amounts which were overpaid, had not yet been ascertained.  They were, however, ascertainable, and could, and should, have been ascertained by the Appellant, in a great deal less time than more than three years after the making of the payments. They had, indeed, been promised for September 1997.  We do not, therefore, accept Mr Peters’s contention that time began to run only on the submission of the returns.

28.	The matter of proportionality was raised by Mr Peters, though the argument was not pursued at any length.  We have, however, considered it since it was raised.  The purpose of the legislation is to secure the efficient management of the tax, and to ensure that returns are rendered and tax paid timeously.  This is intended to be for the benefit of the state and of its citizens, and also operates to the benefit of individuals; for instance, had the Appellant rendered its returns timeously, it would have saved significant sums of money.  Having incurred surcharges, however, and being faced with the possibility of litigation to recover large sums of VAT, the Appellant was spurred into offering sums on account.  If it had heeded the provisions of section 80 and rendered the outstanding returns earlier, as the legislation was intended to encourage, further significant sums would have been saved.  The law was there for all to see.  In our view, the result was a fair balance between the requirements of the state and the rights of the individual, and the effect of section 80(4) was not disproportionate, the more so since the remedy in such a case is in the taxpayer’s own hands.

29.	For the above reasons this appeal is dismissed.

30.	The Commissioners stated, through counsel, at the end of the hearing that they would probably not apply for costs.  Accordingly we give no direction as to costs. 

ANGUS NICOL
CHAIRMAN

RELEASED:

LON/2002/904