Commissioners of Customs & Excise v Barclays Bank plc

Membership of a VAT group does not end automatically when a company ceases to satisfy the statutory control condition. VAT Act 1994, section 43 establishes a comprehensive scheme governing both entry to and exit from group treatment. The statutory machinery, including an application or notice and the relevant accounting-period mechanism, must be followed.

The scheme is compatible with article 4(4) of the Sixth VAT Directive. A short period of group treatment after eligibility has ceased may be justified by the orderly and efficient administration of VAT. The court therefore allowed the appeal and declined to refer a question to the Court of Justice.

Thamesbank Developments Ltd was formerly a wholly owned subsidiary of Barclays Bank plc and was treated as a member of the Barclays VAT group. On 28 February 1995 its shares were transferred to trustees of a charitable trust. Barclays notified Customs and sought immediate exclusion from the group.

Customs instead notified Barclays that exclusion would take effect on 1 July 1995, after the statutory notice period. The VAT and Duties Tribunal and Ferris J held that the change of control automatically ended TDL’s group membership. Customs appealed, raising the construction of section 43 of the VAT Act 1994 in the context of article 4(4) of the Sixth VAT Directive.

1. Appeal allowed. The orders of Ferris J and the VAT and Duties Tribunal were set aside, the Commissioners’ decision of 15 June 1995 was restored, and costs were awarded below and in the Court of Appeal.
2. Section 43 creates a comprehensive statutory scheme for bringing companies into, and removing them from, VAT group treatment. Eligibility under section 43(3) is distinct from the commencement and termination of treatment under sections 43(4) to (6). The commencement of treatment occurs from the beginning of a prescribed accounting period.
3. A change in control does not automatically terminate group treatment. Section 43(5)(b) permits exclusion following an application, while section 43(6) requires Customs, where it appears that control has ceased, to give notice terminating treatment from a specified date. Implying automatic termination would deprive section 43(6) of real effect and is unnecessary to make the statutory scheme work.
4. The statutory scheme is consistent with article 4(4) of the Sixth VAT Directive. The Directive permits Member States latitude in the detailed administration and collection of VAT, including the use of tax accounting periods. A limited period of group treatment after eligibility has ceased may facilitate orderly administration and does not offend the Directive.
5. The notification obligations under regulation 4 of the VAT (General) Regulations SI 1985/886, regulation 5(2) of the Value Added Tax Regulations 1995 SI 1995/2518, section 69(1)(c) and Schedule 11, paragraph 7 of the VAT Act 1994 supported the operation of section 43(6).
6. There was no need to refer a question concerning article 4(4) to the Court of Justice. The issue was one of interpreting section 43, and the court was confident that the Directive did not preclude the construction adopted.
7. Lady Justice Arden additionally held that the word treated could accommodate an artificial state of affairs after the eligibility conditions had ceased to be satisfied, and that an application under section 43(5) could be made in those circumstances.

• Court of Appeal (Civil Division) — appeal allowed; orders of Ferris J and the VAT and Duties Tribunal set aside; Customs’ decision restored.
• Chancery Division — Ferris J allowed Customs’ appeal from the Tribunal and held that TDL’s membership had automatically ceased: [2000] STC 665.
• VAT and Duties Tribunal — appeal by Barclays allowed, on the basis that group membership automatically ended upon the change of control.