20332

VAT – three-year “cap” – late claims due partly to tragic family circumstances  – whether any basis for time limit to be disapplied – no

VAT – interest – whether due on repayments – extent of trader’s responsibility for delay – extent of official error – appropriate date for commencement

LONDON TRIBUNAL CENTRE

I AND CJ VAN COLLE T/A GVC OPTOMETRISTS	Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS	Respondents

Tribunal:	JOHN CLARK (Chairman)
TONY RING FTII

Sitting in public in London on 4 July 2007

Irwin Van Colle for the Appellants

Jess Connors of Counsel, instructed by the Acting Solicitor for Her Majesty’s Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This appeal, to which there is a tragic background, concerns two issues. The first is the refusal of the Respondents (“Customs”) to repay a sum claimed by way of voluntary disclosure, on the grounds of the time limit (“the capping decision”). The second is Customs’ refusal to pay statutory interest on a sum repaid to the Appellants (“the interest decision”). (In this decision, we refer to the Appellants by their respective names or, where mentioning their practice, as “GVC”.)
The law
2.	Section 25 of the Value Added Tax Act 1994 (“VATA 1994”), as it applied at the relevant time, provided:
“(1) A taxable person shall—
	(a) in respect of supplies made by him, and
	(b) in respect of the acquisition by him from other member States of 	any goods,
account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.
(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.
(3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a “VAT credit”.
. . . .
(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations . . . ”
3.	Regulation 34 of the VAT Regulations 1995 (SI 1995/2518, which we refer to as “The VAT Regulations”), as amended with effect from 1 May 1997 by regulation 5 of the VAT (Amendment) Regulations 1997, provided:
“(1) Subject to paragraph (1A) below this regulation applies where a taxable person has made a return, or returns, to the Controller which overstated or understated his liability to VAT or his entitlement to a payment under section 25(3) of the Act.
(1A) Subject to paragraph (1B) below, any overstatement or understatement in a return where—  
	(a) a period of 3 years has elapsed since the end of the prescribed 	accounting period for which the return was made; and
	(b) the taxable person has not (in relation to that overstatement or 	understatement) corrected his VAT account in accordance with this 	regulation before the end of the prescribed accounting period during 	which that period of 3 years has elapsed,
shall be disregarded for the purposes of this regulation; and in paragraphs (2) to (6) of this regulation “overstatement”, “understatement” and related expressions shall be construed accordingly.
(1B) Paragraph (1A) above does not apply where—
	(a) the overstatement or understatement is discovered in a prescribed 	accounting period which begins before 1st May 1997; and
	(b) the return for that prescribed accounting period has not been 	made, and was not required to have been made, before that date.
(2) In this regulation—
	(a) “under-declarations of liability” means the aggregate of—
		(i) the amount (if any) by which credit for input tax was 			overstated in any return, and
		(ii) the amount (if any) by which output tax was understated 		in any return;
	(b) “over-declarations of liability” means the aggregate of—
		(i) the amount (if any) by which credit for input tax was 			understated in any return, and
		(ii) the amount (if any) by which output tax was overstated in 		any return.
(3) Where, in relation to all such overstatements or understatements discovered by the taxable person during a prescribed accounting period, the difference between—
	(a) under-declarations of liability, and
	(b) over-declarations of liability,
does not exceed £2,000, the taxable person may correct his VAT account in accordance with this regulation.
(4)-(6) . . .
(7) Where the conditions referred to in paragraph (3) above do not apply, the VAT account may not be corrected by virtue of this regulation.”
4.	Regulation 35 of the VAT Regulations provided:
“Where a taxable person has made an error—
	(a) in accounting for VAT, or
	(b) in any return made by him,
then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require.”
5.	Section 80 VATA 1994, as amended by section 47 of the Finance Act 1997 with effect from 18 July 1996, (but before amendment by the Finance (No 2) Act 2005) provided:
“(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.
(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.	Section 80 VATA 1994, as amended by the Finance (No 2) Act 2005, provided:
“(1) Where a person—
	(a)     has accounted to the Commissioners for VAT for a prescribed 	accounting period (whenever ended), and
	(b)     in doing so, has brought into account as output tax an amount 	that was not output tax due,
the Commissioners shall be liable to credit the person with that amount.
. . .
(2) The Commissioners shall only be liable to credit or repay an amount under this section on a claim being made for the purpose.
(2A) Where—
	(a)     as a result of a claim under this section by virtue of subsection 	(1) or (1A) above an amount falls to be credited to a person, and
	(b)     after setting any sums against it under or by virtue of this Act, 	some or all of that amount remains to his credit,
the Commissioners shall be liable to pay (or repay) to him so much of that amount as so remains. . .
(4) The Commissioners shall not be liable on a claim under this section—
	(a)     to credit an amount to a person under subsection (1) or (1A) 	above, or
	(b)     to repay an amount to a person under subsection (1B) above,
if the claim is made more than 3 years after the relevant date.
(4ZA) The relevant date is—
	(a)     in the case of a claim by virtue of subsection (1) above, the end 	of the prescribed accounting period mentioned in that subsection, 	unless paragraph (b) below applies . . .
(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 subsection may make different provision for different cases.(7) Except as provided by this section, the Commissioners shall not be liable to credit or repay any amount accounted for or paid to them by way of VAT that was not VAT due to them.”
7.	Regulation 37 of the VAT Regulations provided:
“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 facts
8.	The evidence consisted of a bundle of documents. Although Mr Van Colle did not give formal evidence, we took as evidence various statements which he made in the course of presenting his case.
9.	In August 1998 Mr Van Colle helped his son Giles, then aged 24 and “a brilliant optometrist”, to buy a branch practice of optometrists in Mill Hill. It was financed by two loans and an overdraft, and capital from Giles’ great-uncle’s estate. Accounting for VAT in respect of the practice was based on the previous owner’s methodology.
10.	In the fifteen months that he owned the business, Giles Van Colle developed a very good name in the local community, based on his skills and his “people power”.
11.	On 22 November 2000, as Giles was leaving the practice for the day, an ex-employee shot him three times in the back and killed him.
12.	This had devastating effects on the rest of the family. In relation to the practice, Mr Van Colle had to decide whether to sell it or keep it. He decided to keep it; he had lost his son, and the business was “alive and kicking”. There were very good staff, sufficient to run the business. Mr Van Colle was approached by a lady optometrist, who took over the testing. Mr Van Colle had the ownership of the business, with the staff having day-to day control. He felt pride in going to the practice every Saturday morning. The loans to acquire the practice were covered by insurance, and the surplus was invested in new equipment for the practice laboratory. He considered that continuing the practice benefited the staff and suppliers.
13.	On 8 August 2001 Mr Van Colle submitted a VAT return for the prescribed accounting period 06/01. This showed a net repayment due to the practice of £2,605.
14.	On 6 November 2001 Mr Van Colle submitted a VAT return for the prescribed accounting period 09/01. This showed a net amount of VAT due to Customs of £272.93. Mr Van Colle found this surprising, as he would have expected the practice always to be in a “repayment” position.
15.	Due to other pressures, in particular various legal proceedings arising in relation to Giles’ death and associated matters, as well as a reduction in income of his own printing business, Mr Van Colle did not submit VAT returns when due in respect of the prescribed accounting periods 12/01 to 12/05. His failure to do so resulted in the issue by Customs of a number of centrally issued assessments. He told Customs that he thought it more likely that the practice would be due to receive repayments than to have amounts due to Customs.
16.	With these pressures and his other activities, particularly his extensive and time-consuming commitment to the local council, Mr Van Colle was turning into a workaholic. He described himself as having “just about survived”; the family had held together. He could not deal with the VAT returns for the practice, although he did manage to keep the returns for his printing company up to date.
17.	The pressure to account “grew on him”. Eventually, he was advised by Customs to put in nil returns for the whole period. (This was subsequently considered by Customs to be incorrect, as indicated below.)
18.	Despite the pressures, Mr Van Colle did not appoint an accountant to deal with the VAT accounting for the practice. The reason was the financial position of the practice. Sales began to level off and turn down, and because an optometrist had to be employed, the practice began to lose money. Mr Van Colle could not afford to pay for someone else to deal with the VAT. Following his surprise at the liability for the period 09/01, he checked and discovered that the system of VAT accounting “inherited” by Giles’ practice from the previous owner was wrong. Mr Van Colle found it “incomprehensible” and sought advice from the Institute of Optometry. 
19.	Ultimately, as the practice was continuing to lose money, Mr and Mrs Van Colle had to look for another option. In May 2006 they transferred the business to a new owner.
20.	By talking to the buyer in the course of discussing the sale, Mr Van Colle learned how VAT accounting for such a practice should be done, as the buyer had had a similar problem. The buyer produced a schedule which he had received from Customs showing how the calculation should be done. This reflected the partially exempt nature of an optical practice. Mr Van Colle regarded the calculation as “bizarre”, as it completely ignored a large part of the practice, namely the sale of contact lenses.
21.	Mr Van Colle found (and told us that he continued to find) the calculation completely baffling. It took him a month for him to calculate the exempt proportion, which was 61.9 per cent, as opposed to the maximum of 52 per cent shown by the previous owner’s method. Having determined the percentage, which was the main reason for the delay in him dealing with the matter, he was able to deal with the recalculations for the whole of the period from 12/01 onwards. The effect of the recalculations was that all the returns were repayment returns. On 24 July 2006 he wrote to Customs setting out the voluntary disclosure.
22.	In that letter he also requested adjustment of the returns for 06/01 and 09/01. The output tax on the return for 06/01 was to be reduced from £7,130.31 to £5,385.23. The output tax on the return for 09/01 was to be reduced from £2,954.59 to £2,213.02. As a result the total refund due for these returns would be £2,486.65. He hoped that in the exceptional circumstances of this case Customs would be able to agree to the request to reopen these returns to change the exemption rate to 61.9 per cent.
23.	On 22 August 2006 Mrs Maan, a Customs officer, visited the practice to verify the voluntary disclosure. (Mr Van Colle told us that she reviewed these calculations and was satisfied that they were correct. On the basis that there is no statement and no implication to the contrary in the correspondence, and Mr Van Colle in a letter to her dated 12 September 2006 referred to her as “approving the methodology of the calculation of my claim”, we accept this indirect evidence.) Following her visit, she wrote on 5 September 2006 to explain that the time limit for correcting any errors was three years. As a result of the three-year cap, only claims for later periods could be approved. (She subsequently wrote, on 14 November 2006, to make clear that the periods capped included 06/01 and 09/01.)
24.	As Mr Van Colle wrote on 12 September 2006 asking for the “capping” decision to be reviewed, as well as the question of interest on the repayment made, Customs referred the matter to a Review Officer, Miss C Cosier. On 14 November 2006 she wrote to Mr and Mrs Van Colle upholding officer Maan’s decision to refuse payment of the relevant part of the voluntary disclosure. The voluntary disclosure in respect of 06/03 was in time, and the sum in question, £341, would be repaid. The papers were to be forwarded to Customs’ Complaints Team to see whether there were any other avenues enabling payment or part payment of the rest of the claim to be made.
25.	On 27 November 2006 Mr JB Powley of Customs’ Complaints Service wrote on a without prejudice basis to set out the conclusions of his review. He concluded that there had been official error by Customs’ Debt Management Unit when they indicated that Mr Van Colle should complete nil returns for periods 12/01 to 03/03, and subsequently submit a voluntary disclosure claim for those tax periods. The disallowed claim was to be repaid on an ex gratia basis, together with statutory interest. There was no provision for Customs to pay interest where a taxpayer had overpaid VAT, or failed to claim VAT, through his own error or choice. In relation to periods 06/01 and 09/01 there was no evidence of official error which would cause Customs to consider overriding the capping legislation on an ex gratia basis. We set out the following extract from the subsequent part of his letter:
“You will appreciate that capping was introduced in an attempt to provide certainty to both taxpayers and Government. It applies equally to assessments for tax as it does for claims. We have considered whether there are justifiable grounds for applying any other concessionary treatment to this claim under our general collection and management powers, but have concluded that there are not. While we regret the tragic circumstances of your son’s death, and recognise the traumatic effect of the ensuing court case, we believe that three years is sufficient time for a taxpayer to review his VAT returns or seek professional advice on their accuracy.”
26.	The formal Notice of Appeal was dated 21 September 2006, and referred to officer Maan’s letter dated 5 September 2006, rather than to Miss Cosier’s subsequent review decision. As a result of Mr Powley’s letter, the issues remaining to be considered in relation to the appeal are the capping decision relating to periods 06/01 and 09/01 and the interest decision relating to the repayment made in respect of periods 12/01 to 12/05 and to the sums claimed in respect of periods 06/01 and 09/01.
Arguments for the Appellants
27.	Mr Van Colle argued that Customs were wrong to characterise the claim as an out of time error or mistake claim:
(1)	The first two returns were wrong, but he had not been in a position to prove that until 2006;
(2)	The calculation base for exemption excluded up to 40 per cent of work in any optical business, being based entirely on sales of spectacles and testing;
(3)	Customs’ notes were interpreted differently in different parts of the country;
(4)	The work required needed examples based on exactly the same business model as GVC’s practice;
(5)	This was a very specialised area of work, in which Mr Van Colle pointed out that he was now one of the few experts;
(6)	The end result of the exemption calculation was a figure which could vary between 56 and 65 per cent.
28.	The returns for GVC had been wrong because the methodology was flawed and the end result was an exemption rate of around 50 per cent. He stressed the difficulties for optical practices, which would be exacerbated if the VAT calculation for outputs was wrong; the whole economic basis would be eroded. GVC had never made a profit; the cash at the bank had reduced constantly. Part of this had been due to the failure to recover VAT.
29.	He contended that Customs had misunderstood the effect of the Fleming case (Fleming (trading as Bodycraft) v Customs and Excise Commissioners (Condé Nast Publications Ltd intervening) [2006] STC 864). He argued that the Court of Appeal had made clear that the regulation imposing the three year time limit should be disapplied. The final resolution of the question awaited the judgment of the House of Lords, after which the legislation could be rewritten. In the present case, Customs took the view that the three year rule still applied; he did not.
30.	In relation to interest, GVC had effectively made an interest free loan to the government for the entire period covered by the appeal, as payment had been made through the suppliers’ invoices. In contrast, failure to pay VAT on time was punished by surcharges, which represented a form of punitive interest. In relation to income tax, repayments were accompanied by statutory interest. Thus the regime depended on the type of tax involved. This might involve a breach of human rights. He argued that it was inequitable to have the VAT regime in Customs’ favour.
31.	He summarised what he was seeking from the Tribunal:
(1)	An acknowledgment that this should not be viewed as a precedent-setting case. There was not much money involved; he was seeking only fairness in dealing with him. He was not wealthy, and the small sum in dispute would assist him and his family. (He commented that he could not see the difference between not submitting returns and submitting incorrect returns);
(2)	The setting aside of Customs’ ruling that this was not a “Fleming” case. If the House of Lords were to rule in Customs’ favour in that case, he would be willing to repay the sum and pay interest on it;
(3)	Agreement that statutory interest was due;
(4)	An order that each side should bear its own costs; he expressed disappointment that Customs were being represented by a barrister.
Arguments for Customs
32.	Ms Connors emphasised that Customs had no intention of seeking costs.
33.	As a result of decisions taken by Customs since the appeal was originally lodged, the scope of the dispute had been narrowed and related only to:
(1)	the refusal to repay the total sum of £2,486.65 claimed by way of voluntary disclosure in relation to periods 06/01 and 09/01;
(2)	Customs’ decision to refuse to pay statutory interest on the sum of £8,995 repaid to Mr and Mrs Van Colle in respect of periods 12/01 to 12/05, and on the total sum claimed at (1) above.
34.	In relation to periods 06/01 and 09/01, GVC had brought into account the total sum of £2,486.65 which was not output tax due. Ms Connors analysed the figures in detail. The reason for GVC having done so was an error on its part. Customs had not caused this error (and GVC did not suggest that Customs had done so).
35.	On 8 August 2001, when GVC submitted the erroneous 06/01 return, Mr and Mrs Van Colle had an accrued right to claim £1,745.08 from Customs pursuant to section 25(3) and (6) VATA 1994 and regulations 34 and 35 of the VAT Regulations.
36.	On 6 November 2001, when GVC submitted the erroneous 09/01 return, it had an accrued right to claim £468.64 from Customs pursuant to that same legislation.
37.	Also on 6 November 2001, when it made payment of net VAT of £272.93 indicated as the net sum due in the 09/01 return, GVC had an accrued right to claim £272.93 from Customs pursuant to section 80 VATA 1994 and regulation 37 of the 1995 Regulations.
38.	Ms Connors referred to Customs’ Business Brief 2/98, which had taken effect from 5 February 1998. Example B in that publication, a correction of errors claim capped on 1 May 1997, corresponded to GVC’s situation. This stated that section 80(4) VATA 1994 did not apply, and that the amount shown in the example as under-recovered should be corrected using the error correction procedures, which were limited to a period of three years from 1 May 1997. Regulation 34 of the VAT Regulations applied where a taxpayer discovered over-declarations of liability which were less than three years old and which (when netted against any under-declarations of liability less than three years old which he discovered at the same time) had a total value of £2,000 or less.
39.	GVC’s claims had become time-barred between June and November 2004, by the application of three-year time bars which had existed long before GVC had made the relevant supplies in prescribed accounting periods 06/01 and 09/01, and long before it failed to account for them correctly.
40.	Section 80 VATA 1994 had been amended on 20 July 2005 by section 3 of the Finance Act 2005; by section 4(6) of that Act, the amendments had effect in any case where a claim under s 80(2) was made on or after 26 May 2005, whenever the event occurred in respect of which the claim was made. GVC’s claims had been made on 24 July 2006, and therefore, strictly speaking, those claims were treated as capped under the amended section 80(4); in fact they were already time-barred before that date.
41.	Ms Connors submitted that there was no basis in law for the Tribunal to disapply the three-year time limit in GVC’s case or in any case where the application of that time limit would not result in any breach of a claimant’s accrued Community law rights. GVC’s suggestion to the contrary was based on a fundamental misunderstanding of the Court of Appeal’s decision in Fleming, and was also contrary to the clear authority of Local Authorities Mutual Investment Trust v Commissioners of Customs and Excise [2003] EWHC 2766 (CH) (“LAMIT”).
42.	She referred to various cases concerning persons who, at the time when a new time limit was introduced, had accrued rights to payment under previous legislation which provided for a longer time limit. None of these concerned situations, such as that of GVC, where the taxable person did not have an accrued, vested right to recover at the point where the new, shorter time limit was introduced. The only contrary authority was Scottish Equitable PLC v Commissioners for HM Revenue and Customs (2005) VAT Decision 19418, which she submitted misunderstood the effect of other cases and was directly contrary to the approach set out in LAMIT. Customs were appealing to the Court of Session from the decision of the Tribunal in Scottish Equitable.
43.	Taking into account the history of GVC’s claims, it had never thought that the six year period for bringing proceedings was available to it, and had never been able to “initially count” on a six-year period within which to bring its claims. Therefore no question of retrospectivity or retroactivity or frustration of legitimate expectations or of the principle of effectiveness arose, and Fleming and related cases did not assist. In Fleming, Arden LJ had commented “There was no time limit when the claim arose.” However, in GVC’s case, there had been a three year time limit when its claims arose.
44.	Ms Connors submitted that none of the cases in the relevant line of authority formed a basis for the proposition that a taxpayer who had had the full benefit of the time limit which existed at the time when his right to make a claim against Customs accrued should be given the benefit of a time limit which had already been repealed many years before his right to claim accrued. LAMIT made the position clear beyond any doubt. To the extent that Scottish Equitable suggested otherwise, it was wrongly decided.
45.	In relation to the interest decision, she argued that Customs had correctly refused to pay interest on the sums repaid to GVC in respect of periods 12/01 to 12/05 from any date before 11 September 2006, on the grounds that the requirements of section 78(1) VATA 1994 were not satisfied, because there had been no relevant error on the part of Customs; the error had been solely that of GVC. There was no other basis for the payment of interest.
46.	If the Tribunal rejected Customs’ submissions that periods 06/01 and 09/01 were “capped”, she submitted that, as for the other principal sums, interest should not run from any date before 11 September 2006.
Discussion and conclusions
47.	Before dealing with the substance of this appeal, we must express our sympathy to Mr and Mrs Van Colle for the tragedy which they have suffered, and all the consequences which have ensued from it. 
48.	We deal first with the capping issue, then with the interest decision.
The capping issue
49.	In relation to the capping issue, it is clear that Mr Van Colle found it strange for GVC to be liable to make a small payment to Customs for the period 09/01. We interpret his comment as meaning that he became aware of this at the point when he completed the return for that period, namely 6 November 2001. He did not indicate the point at which he queried the position with the Institute of Optometry; if he had done so at an early stage, this might have given him an opportunity to deal with claims against Customs for overpaid VAT before any question of time limits became relevant. However, we appreciate that he had other preoccupations which, as far as he was concerned, rendered this impractical.
50.	These preoccupations compounded the difficulty of resolving GVC’s position. The failure to make subsequent returns resulted in centrally issued assessments, which had to be dealt with by being cancelled and replaced by means of the series of nil returns, subsequently accepted by Customs and GVC to have been submitted on an erroneous basis.
51.	Mr Van Colle’s attempt to resolve the position was not made until July 2006, after he had had a discussion with the purchaser of the practice. The question in relation to the capping decision is whether there is any basis for the claims made at that stage in relation to periods 06/01 and 09/01 to be met despite the length of time which had elapsed since those periods.
52.	Questions of extra-statutory and ex gratia arrangements between Customs and taxable persons are outside the Tribunal’s current statutory jurisdiction; we have to consider the position on the basis of the relevant legislation, including regulations, and case law. At most, in appropriate cases, the Tribunal can suggest to the parties that they discuss matters with a view to reaching some form of extra-statutory solution, but it has no power to intervene in those discussions. We must therefore deal with this appeal solely on the basis of our statutory jurisdiction.
53.	In her presentation of the case for Customs, Ms Connors laid a great deal of emphasis on the position as it stood before the making of the claims on 24 July 2006. On the law as it was before the changes in 2005, the claims had already become time-barred between June and November 2004.
54.	As she pointed out in the latter part of her argument, all GVC’s claims were made on 24 July 2006 and therefore they were all subject to section 80 VATA 1994 as amended before that date by the Finance (No 2) Act 2005. We think it appropriate to concentrate on the application of this legislation to the claims, before considering what the position was at times before the legislation was amended.
55.	The claim on 24 July 2006 for the VAT credit in respect of period 06/01 was made just over five years after the end of that period. The claim made in the same letter for the VAT credit in respect of 09/01, and the repayment claim for the latter period, were made just over four years and ten months after the end of that period. Thus each of the claims was made well over three years after the end of the period to which it related. All the claims arose because GVC, in accounting to Customs for VAT, had brought into account as output tax amounts which were not output tax due, and thus fell within the amended section 80 VATA 1994. Under section 80(4) and (4ZA)(a), Customs are not liable in respect of claims made more than three years after the relevant date, which in the case of all these claims is the end of the prescribed accounting period in question. Unless there is any basis to challenge the application of the section, the time limit applies to all GVC’s claims.
56.	Mr Van Colle contended, on the basis of Fleming, that the three-year time limit was invalid. However, the point at issue in that case was the amendment made with effect from 1 May 1997 to the VAT Regulations. In order to challenge the three-year cap in respect of GVC’s claims, he would need to show that the time limit in section 80 VATA 1994, in its amended form applying in respect of claims made on or after 26 May 2005, was not validly introduced.
57.	As Ms Connors pointed out, the “time limit” cases related to persons who, at the time when a new time limit was introduced, had accrued rights to payment under previous legislation which provided for a longer time limit. We agree that these do not assist with situations such as that in the present case, where GVC did not have an accrued, vested right to recover at the point where the new, shorter time limit was introduced.
58.	We think it appropriate to consider the position as it would have been before 26 May 2005. We accept Ms Connors’ contention that the claims in respect of VAT credits for 06/01 and 09/01 would have been subject to section 25(3) and (6) VATA 1994 and regulation 34(1A) of the VAT Regulations. The time limit for any corrections under regulation 34(3) was, in each case, the end of the period falling three years after the expiry of the one to be corrected; in GVC’s case, it is clear that no such corrections had been made within the time limit. In the absence of any such corrections, it would follow that regulation 34(1A) required any overstatement made in a return where three years had elapsed since the end of the prescribed accounting period for which it was made to be disregarded.
59.	Ms Connors distinguished the repayment claim in respect of period 09/01 as being governed by section 80 VATA 1994. On the assumed basis of a claim being made before 26 May 2005, we accept this distinction. Before the Finance (No 2) Act 2005, section 80 was in the form set out at paragraph 5 above; the only amendments which had been made to it were those made by the Finance Act 1997. In particular, the substituted version of sub-section (4), which introduced the three-year time limit, applied with effect from 18 July 1996 (subject to certain transitional provisions, which are not relevant to the position of GVC in 2001). Under that version of section 80(4) Customs were not liable to repay any amount paid to them more than three years before the making of the claim.
60.	Thus, in relation to all the claims, the time limit under the pre-existing legislation had already expired before 26 May 2005, when section 80 VATA 1994 was further amended. This meant that GVC could have no expectation that the new legislation should preserve for it the benefit of a longer pre-existing time limit; at all times material to GVC’s position, the time for making the relevant types of claim had been limited to three years.
61.	We accept Ms Connors’ submission that GVC’s claims had already become time-barred between June and November 2004, by the application of three-year time bars which had existed long before GVC had made the relevant supplies in the relevant periods, and long before it failed to account for them correctly.
62.	In the absence of any grounds for a challenge to that already long-existing time limit, we do not consider that GVC has been able to show any reason for it to have any dispensation from the normal application of the amended section 80(4) and (4ZA) VATA 1994. Despite our sympathy for Mr and Mrs Van Colle, we have to dismiss their appeal in relation to this issue.
63.	In doing so, we have some general comments. The purpose of the three-year time limit was, as mentioned in Mr Powley’s letter, to provide certainty both to taxpayers and Government. Budgetary considerations were clearly a factor in its introduction, but the time limit has to be applied in an even-handed way to ensure fairness as between taxpayers. (We are not commenting on cases where a taxable person has been prejudiced by an unexpected shortening of a time limit.) To allow a particular taxpayer an opportunity to make a late claim based on advice obtained well after the event, while precluding others from doing the same, would be to give that taxpayer an advantage which might well be perceived by others as unfair.
64.	Customs have already considered, and rejected, the possibility of an ex gratia “override” to the capping legislation, as they did not think that any question of official error was involved. The responsibility to ensure that the VAT returns are correct remains that of the taxpayer. If (for whatever reason) the latter has insufficient time or technical knowledge to devote to that task, he should consider obtaining some form of help before it is too late to put matters right.
The interest decision
65.	As the returns were not made on time, so that section 79 VATA 1994 cannot apply, the only provision for payment of interest on an amount due from Customs in respect of the claims made by GVC is section 78 VATA 1994. This applies to certain cases of official error on Customs’ part. Section 78(1)(d) provides that where, due to such an error, a person has suffered delay in receiving payment of an amount due to him from them in connection with VAT, Customs must (subject to certain conditions and restrictions) pay interest on that amount for the applicable period. Under section 78(4)(a) and (5)(b), the period in a case where no VAT would have been due from the taxable person starts with the date on which Customs would, apart from the error, have authorised payment of the amount on which interest is payable. Under section 78(4)(b), the applicable period ends with the date on which Customs authorise the payment actually made.
66.	In this case Mr Powley referred to the official error mentioned at paragraph 25 above and accepted that statutory interest was payable at the rate of 4 per cent for the delay in making payment of £341 for period 06/03, and the payment of £3,949 for periods 12/01 to 03/03. He took the start date of the period of disadvantage as being 11 September 2006, the date on which Customs authorised part payment of the claim (£4,705 for periods 09/03 to 12/05).
67.	Mr Van Colle criticised the interest regime as imbalanced, and referred to the default surcharge regime as a form of punitive interest. This indirect reference to the question of proportionality raises the matters considered by the Tribunal in the case of Greengate Furniture (2003) VAT Decision 18280. We do not think that comparison with the default surcharge regime assists in determining the extent of any liability which Customs may have to pay statutory interest. Similarly, we do not think that comparison with the repayment regime for income tax can provide any guidance to the construction of the relevant VAT legislation. Mr Van Colle made reference to the question of human rights; for such a question to have been properly considered, it would have been necessary to follow the procedure laid down in the Practice Direction issued in October 2000 by the President of the VAT and Duties Tribunals. This procedure was not followed in the present case, and we therefore decline to comment on the question of human rights in this context.
68.	Although we understand Mr Van Colle’s view that the overstatement of GVC’s input tax resulted in a form of interest-free loan from GVC to Customs, the claim was not made until July 2006. As we have already determined, the delay in making the claim was the responsibility of Mr Van Colle and not that of Customs. Subsequently, the claim had to be verified by Mrs Maan. Payment in respect of the part of the claim which was initially accepted was authorised on 11 September 2006. (The reason for the payment being authorised on that date rather than on 5 September 2006, the date of Mrs Maan’s letter indicating approval of the claim, is not clear to us from the evidence provided.) On the basis of section 78(4)(a) and (5)(b) VATA 1994, we do not consider that Customs can be required to pay statutory interest for any period beginning earlier than the date on which the approved part of the claim was authorised.
69.	Thus, in relation to the interest decision, we dismiss the appeal. We have already determined that periods 06/01 and 09/01 are “capped”, so that no question of interest arises in relation to these periods. If it were to be decided that we were incorrect in that conclusion and that interest was due in respect of those periods, we would take the view that it should not run from any date before 11 September 2006.
Summary
70.	The appeal is dismissed in respect both of the capping issue and the interest decision, with no order as to costs.

JOHN CLARK

CHAIRMAN
RELEASE DATE: 31 August 2007

LON/06/0991