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JR/TAX/PROPERTY

RE: N Limited – Claim for repayment of VAT paid in error – Advice, pre-action letter and pleadings

N started business in 1992 as a partnership arranging computer fairs – hiring premises, letting stalls to traders and charging admission to members of the public. It was advised by HMCE (now HMRC) in 1992 that these supplies were standard rated for VAT and registered for VAT accordingly. This advice was confirmed by an Officer following a control visit in 1995 during which the business was examined in detail over 2 days. N was never happy with this ruling because competitors where either unregistered for VAT or if registered did not charge VAT on events and persistently queried the ruling both with its local VAT Office and Officers on subsequent visits. On each occasion, including visits in 2002 and 2005, HMRC confirmed the liability of supplies made as standard rated for VAT.

In November 2008, prior to the reduction in VAT to 15%, N researched the issue further and decided that VAT was not due on its supplies and never had been. It stopped charging and accounting for VAT.

In March 2009, just before the removal of Extra-Statutory Concession 3.5 (The Sheldon Principal), N made a claim for repayment of the VAT it had incorrectly paid claiming misdirection. The claim was worth in excess of £2M.

HMRC have repaid approximately £300,000 of the claim under Fleming (historical claims arising before December 1996) and current time limits pursuant to s80 VATA. However, the Commissioners maintain that periods 01/97 – 01/06, £1.7M approximately, are “dead” as the claim is outwith the time limits. They have also refused to exercise their discretion in favour of paying compensation for the misdirection in 1995, which they admit, because N has not established that the economic loss arising from that misdirection, which they also admit, was solely the responsibility of the Commissioners. The standard of proof they have applied to this determination is “beyond reasonable doubt” – which is quite clearly wrong.

The decision is challenged on grounds of unreasonableness/unlawfulness, breach of legitimate expectation as well as breach of the First Protocol.

Whether the time limits in s80 VATA ought to be disapplied in the circumstances of this case, following the decision of the CJEU in C-427/10 Banca Antonianais also live. Although not on all fours with Banca Antoniana, it is arguable that N has been totally deprived of any opportunity to make a claim for refund of VAT wrongly accounted for.

STATUS: currently waiting response to pre-action letter.