Cardiff City Council, R (on the application of) v Customs & Excise

A local authority’s claim under section 33 of the Value Added Tax Act 1994 is made when non-business VAT is included in the VAT return in the prescribed manner. Where the return also contains an erroneous declaration of output tax, payment of the net amount claimed discharges the section 33 refund obligation.

The majority held that the statutory set-off under section 81(3) operates on the amount declared in the return, even if later corrected. The local authority’s remaining claim is therefore for repayment of VAT overpaid to the Commissioners under section 80, and is subject to the statutory three-year limitation period.

Cardiff City Council sought judicial review of the Commissioners’ refusal to repay more than £800,000 in VAT which the Council had mistakenly declared as output tax between 1991 and 2000.

Stanley Burnton J decided that the claim was both a section 33 refund claim and a claim under section 80 of the Value Added Tax Act 1994, and that the latter was time-barred. He also held that regulation 35 of the Value Added Tax Regulations 1995 imposed no limitation period. The appeal and cross-appeal concerned whether the earlier overpayments remained recoverable under section 33 or were governed by section 80.

Disposition. The Council’s appeal was dismissed and the Commissioners’ cross-appeal was allowed. The preliminary issue concerning a section 33 claim was answered no; the section 80 limitation issue was answered yes. The unchallenged conclusion concerning regulation 35 was preserved.

1. The Council’s inclusion of non-business VAT in box 4 of its VAT returns constituted a claim under section 33 of the Value Added Tax Act 1994 in the manner prescribed by the Commissioners. Its claim was combined with the input-tax claim because the prescribed return used a single calculation.
2. The majority, comprising Schiemann LJ and Scott Baker LJ, held that section 81(3) operated mandatorily on each return. The Council was liable at that stage to pay the amount of VAT disclosed in the return, even though the output-tax figure was later shown to be erroneous. The statutory set-off therefore discharged the matching obligations, and operated as payment by indirect means.
3. Schiemann LJ additionally held that the Commissioners had paid the amount requested in box 5 in the manner specified by the Council. The section 33 claims were consequently discharged. The Council’s true complaint concerned repayment of the early overpayments of output tax, not an unpaid section 33 refund.
4. The early overpayments fell within section 80 and were subject to the three-year limit in section 80(4). The Council could not avoid that limit by recharacterising the claim as one under section 33.
5. Arden LJ agreed with the result and with Schiemann LJ’s reasoning except on section 81(3). She considered that liability meant legal liability, so the statutory set-off could not operate on perceived liabilities. Nevertheless, the Commissioners had factually refunded the section 33 claims at the time, and the meaning of paid in the repayment-trader context did not require decision.

The Council was ordered to pay the Commissioners’ costs. The stay concerning the remaining judicial-review claim continued by consent.

1. Court of Appeal (Civil Division) — The Council’s appeal was dismissed and the Commissioners’ cross-appeal allowed. The section 33 preliminary issue was answered no, and the section 80 issue was answered yes.
2. Administrative Court, Queen’s Bench Division — Stanley Burnton J, in [2002] EWHC 2085 (Admin), held that the claim was within section 33, time-barred under section 80, and not time-barred under regulation 35.