The Commissioners for HM Revenue and Customs -v- SDI (Brookes EU) Limited and Sportsdirects.com Retail Limited
SDI (Brookes EU) Limited and Sportsdirects.com Retail Limited (“the Taxpayers”) brought an appeal in the First-tier Tribunal (Tax Chamber) (“the FTT”) against what they said was a decision (issued to them in January 2016) (“January 2016 letter”) by the Commissioners for HM Revenue and Customs (“the Commissioners”).
For present purposes it is sufficient to say that the dispute between the Taxpayers and the Commissioners was one about the Principal VAT Directive (2006/112/EC) and s7(5) Value Added Tax Act 1994 (“VATA”). Generally the issue was one about place of supply and internet sales made by a taxable person in one EU member state to consumers belonging in another EU member state who are not registered for VAT in that state.
The Commissioners sought to strike out the appeal on the basis that their January 2006 letter was not a decision which fell within the ambit of s83 Value Added Tax Act 1994 (“VATA”).
In summary, the Taxpayers suggested that there was a right of appeal pursuant to s83(1)(b) VATA. The basis of this allegation was said to be because the purported decision was, as can be taken from the decision of the Upper Tribunal (Tax and Chancery Chamber) (“the UT”), as follows:
“27. On the application by HMRC to strike out Sports Direct’s appeal for lack of an appealable decision, and thus for lack of jurisdiction under s83 VATA, the FTT concluded that the January 2016 letter had given rise to an appealable decision, and that accordingly the appeal would not be struck out. It found, at , that HMRC should be regarded as having made a decision to the effect that:
(a) the supplies in question should be regarded as having been made in the destination EU member state; and
(b) no refund of UK VAT previously paid would be made until evidence of the VAT paid in each member state was provided.”
The Commissioners were unsuccessful in persuading Judge Beare in the FTT to strike the appeal out on the basis of a lack of jurisdiction but he granted permission to appeal to the UT.
Proceedings in the UT
The Commissioners advanced two grounds of appeal before the UT which can be summarised as follows:
- That the FTT failed to direct itself to whether HMRC had decided that all the requirements of s7(5) VATA had been met; and
- That the FTT erred in concluding, at (b) of its judgment, that HMRC had decided that no refund of UK VAT previously paid would be made until evidence of the VAT paid in each destination.
In dismissing the Commissioners appeal the UT found that:
- the FTT had erred in deciding that the January 2016 letter was a decision of the Commissioners that the supplies should be regarded as being made in the destination state; and
- it was equally erroneous to have concluded that the evidential requirements with respect to the destination state were confined to their relevance to the refund of UK VAT, and were not an integral element of the decision as to place of supply [see paragraph 44 of the UT decision].
However, having found that the Commissioners were correct to be critical of the FTT’s decision, it went on to consider whether this meant that there had been no appealable decision which fell for determination pursuant to s83(1)(b) VATA. Section 83(1)(b) relevantly states:
“… an appeal should lie to the Tribunal with respect to any of the following matters:
(b) the VAT chargeable on the supply of any goods or servicers …”
The UT concluded that this provision ought be construed widely. That is to say that decisions giving a right of appeal to the FTT could arise even where there were no precise amounts of VAT yet identified to be charged. It noted:
“47. It is clear that appeals are not confined to cases where HMRC have decided the precise amount of VAT to be charged. Cases may proceed on questions of principle which are related to the chargeability of VAT, such as questions as to the nature of particular class of supply and whether those supplies are standard-rated, exempt or zero-rate. Section 83(1)(b) cannot therefore be construed narrowly; it must be construed broadly so as to encompass any issue between a taxpayer and HMRC, in respect of which HMRC has made a decision, which is material to the chargeability of the taxpayer to VAT.
- It is not necessary, in our judgment, that HRMC should have definitively determined that the place of supply is or is not in the UK before the FTT’s jurisdiction can arise. Section 83 does not require that all questions relevant to chargeability should have been determined before an appeal will lie to the tribunal. An appeal may be made against a decision on a substantive element which goes to chargeability that is capable of being determined without reference to other elements. That is particularly the case where the determination on an appeal of that particular element is capable, depending on the outcome, of being determinative of the whole question of chargeability.” (Emphasis added)
Taken at face value this decision would seem to be a surprising outcome and another example of the UT conferring wider jurisdiction on the FTT than perhaps was intended. However, in the context of other UT decisions, the immediately notable cases of Noor and Oxfam (both not without their own problems), this present decision should not come as too much of a surprise.
As a matter of public policy one can understand why the UT and FTT would be loathe to read down s83 VATA so as to remove a taxpayer’s ability to appeal where a particular adverse course of action is proposed or imposed on it, whilst the Commissioners make further inquiries or conduct additional investigations. It would certainly lead to undesirable and potentially unjust results.
However, equally, the UT may have inadvertently opened the door to academic questions about the chargeability of tax through this decision; something that it must be said is equally undesirable. This is even more so because this decision may allow a taxpayer to compartmentalise parts of a dispute (which have a substantive element) with the Commissioners, as they are investigating, and litigate each part rather than being compelled to wait for a final and operative decision.
Similarly, it is unlikely that this decision will be confined to s83(1)(b) VATA. In view of the green light given to a wider reading of the FTT’s jurisdiction, it may be that this gives greater scope for taxpayers who receive decisions falling under the other heads of s83 VATA to pre-emptively take a challenge to an interim, but substantive, element of the Commissioners’ investigations or inquiries.
One wonders, almost rhetorically, whether it may not have been simpler for amendments to have been made to VATA about the nature and character of a decision which may be appealed (i.e. interim matters along the way, or a final and operative decision) to avoid the ever creeping jurisdiction of the FTT.