Colaingrove Limited v The Commissioners for HMRC
[2024] UKFTT 490 (TC)
HBOS Plc & Anor v The Commissioners for HMRC
13 January 2023
[2023] UKUT 13 (TCC)
Upper Tribunal
Two banks were wrongly denied VAT refunds for years due to a bad law. The court ruled the government must pay them interest, not just from when they finally claimed, but from when they should have been able to claim, if the law had been correct. A late government argument was also rejected as unfair.
Key Facts
- •HBOS and Lloyds Banking Group claimed VAT bad debt relief for periods between 1 April 1989 and 19 March 1997.
- •HMRC refused the claims due to a property condition in the UK's bad debt relief scheme.
- •The Court of Appeal later deemed the property condition unlawful under EU law.
- •HMRC paid the relief (£12,298,561) in February 2019 but only paid interest from the claim dates (2007/2009).
- •Appellants argued for interest from earlier dates (when all conditions except the unlawful one were met), amounting to approximately £10m.
- •The FTT held that the property condition's enactment wasn't an 'error on the part of the Commissioners' under s. 78 VATA 1994.
Legal Principles
HMRC's liability to pay interest under s. 78 VATA 1994 for official errors causing delay in receiving payments.
s. 78 Value Added Tax Act 1994
EU law principles of effectiveness, equivalence, and fiscal neutrality require adequate indemnity or reasonable redress for sums held or collected due to EU law breaches.
EU Law (Referenced in Littlewoods v HMRC [2017] UKSC 70)
Interpretation of "error on the part of the Commissioners" in s. 78(1) to include errors arising from non-compliant UK legislation.
s. 78 VATA 1994; European Union (Withdrawal) Act 2018
Outcomes
Appeal allowed.
The Upper Tribunal found that the unlawful property condition constituted an "error on the part of the Commissioners" under s. 78(1), leading to a delay in receiving payments. Interest should run from the earlier dates (when other conditions were met) because, but for the error, the appellants would have claimed earlier.
HMRC's argument on the 'attribution issue' was rejected.
The issue was raised too late in the proceedings before the FTT, potentially prejudicing the appellants' ability to present evidence.