The High Court dismissed an application by the taxpayer company for judicial review of the refusal by Revenue and Customs of its application for repayment of VAT overdeclared in error where the application was time-barred and there was no reason to disapply the three year time limit for bringing such an application.

Facts

The taxpayer company applied to the court to quash a decision of the Revenue and Customs Commissioners by which they refused to repay the sum of £317,789.93, which the taxpayer contended was over-declared VAT for the period covering the last three months of 1999.

Two separate errors were inadvertently made in connection with the taxpayer's VAT returns for the period in question. The first error (‘the transposition error’) was that returns had to be submitted by the taxpayer not only for itself but also for its agent in the UK (‘the UK company’), but the figures for each company for the period with which the application was concerned were inserted on the wrong VAT return so that the figures which were supposed to relate to the taxpayer were inserted on the VAT return of the UK company and vice-versa.

The second error (‘the bookkeeping error’) related to the calculation of the VAT payable by the taxpayer, which was at the material time a manufacturer of computer hardware which it sold in the Community through a pan-European Commissionaire structure, referred to in the UK as an ‘undisclosed agency’. Both the taxpayer and the UK company were part of the same group of companies but they were separate entities formed under the laws of different companies. The claim for repayment was time-barred unless the three-year time limit for bringing claims for repayment was disapplied. The taxpayer contended that the time limit could be disapplied because it could rely on an exception to the three year time limit, set out in a Revenue concession published on 27 March 1997 and withdrawn with effect from 1 July 2005. The concession was announced as part of a package of extra-statutory measures to accompany the introduction into UK law of the ‘three year cap’ on claims for refunds for overpaid tax and stated:

‘d. Claims or adjustments which cover tax appearing on both sides of a VAT return and therefore cancel each other out (such as those in respect of acquisition tax or the reverse charge), correction of tax point errors and simple duplications of output tax.’

Relying on the judgments in R v IR Commrs, ex p MFK Underwriting Agencies Ltd [1989] BTC 561 and R (on the application of British Telecommunications plc) v R & C Commrs [2005] BTC 5,371, the taxpayer argued that the overpayment was a ‘simple duplication of output tax’, but that was not accepted by the Revenue which said that the claim fell outside the terms of the concession.

The taxpayer contended that it had declared more output tax than it properly owed because of the bookkeeping error. The VAT properly due on sales made by the taxpayer in the UK was £1,320,645.37 but in error the taxpayer accounted for £1,640,435.30 and that constituted a ‘duplication of output tax’ of £319,787.93. The taxpayer contended that the bookkeeping error and the transposition error should be looked at separately. The Revenue submitted that they should be considered together in order to ascertain if the over-declaration fell within the terms of the concession.

Issue

Whether the errors involved any ‘simple duplication of output tax’.

Decision

Silber J (dismissing the application) was unable to accept the taxpayer's submission that the bookkeeping error and the transposition error should be looked at separately.

Both parties accepted that the term ‘duplication’ meant doubling up of payment. The term ‘output tax’ meant the tax payable on a taxable supply of goods and services. In the context of the concession, the term simple’ meant only duplication and nothing else. The concession could not have been intended to require examination and evaluation of the degree of complication of any exercise to be undertaken (R (on the application of British Telecommunications plc) v R C Commrs [2005] BTC 5,371 considered). There was only one overdeclaration by the taxpayer and that was the difference between what was stated the VAT return put in on behalf of the taxpayer and the actual output tax due from the taxpayer, because the UK company's figure had wrongly been inserted in the taxpayer's return. The case for the taxpayer failed take account of the fact that the taxpayer and the UK company were different entities and that the doubling-up of payment was not done by the same entity. A fundamental aspect of the VAT regime was that each registered entity was regarded as a separate taxable person and so there had to be a doubling up of payment by the particular party claiming repayment for there to be a ‘simple duplication of output tax’. In this case, although there was a fundamental error with the figures, there was no ‘simple duplication of output tax’ because this was not ‘the action of doubling and nothing else’.

Further, it was necessary to identify the error, which caused the overdeclaration, in order to determine if it fell within the concession as a ‘simple duplication of output tax’. The bookkeeping error might have been the cause of the error if (but only if) the figures which resulted from the bookkeeping error had been inserted on the taxpayer's VAT return. That was not the position in this case because the taxpayer did not insert the figures caused by the bookkeeping error on their VAT return but instead they inserted the figures for the UK company. Thus the error on the taxpayer's VAT return was not caused by the bookkeeping error but by the transposition error, which crucially did not entail any duplication. The bookkeeping error had been overtaken or overwhelmed by the transposition error and the bookkeeping error ceased to be the effective cause of any error in the taxpayer's tax return. So the bookkeeping error ceased to be the error of the taxpayer but became that of the UK company when the transposition error occurred.

Even if the bookkeeping error was to be regarded as the effective cause of the overpayment, it did not constitute a ‘duplication’ because the concession could have referred to ‘errors in output tax’ but instead it was limited to ‘simple duplication of output tax’. The essential feature of duplication was paying twice and not merely making an overpayment.

The Revenue had a discretion whether to accept a duplicate return which they had already indicated they would reject. Such a decision could only be challenged on accepted public law principles and it was difficult before the taxpayer had even filed a duplicate return to predict with certainty the outcome of such a challenge. The difficulties for the taxpayer in mounting such a challenge were that there had already been a substantial delay in submitting a duplicate return even since July 2005. The taxpayer would have great difficulties in challenging a decision to refuse to accept an application to put in duplicate returns at this late stage.

Queen's Bench Division (Administrative Court). Judgment delivered
21 July 2006.