UK Tradecorp Ltd., R (on the application of) v Customs and Excise

The Commissioners must investigate VAT repayment claims reasonably, proportionately and expeditiously. The investigation may be thorough and lengthy where fraud is suspected, but the Commissioners must keep its progress and the possibility of interim or part payment under review. A prima facie right to repayment arises only when the claim is admitted or established, not merely when it is submitted. Community law does not require interest from the date of an unadjudicated claim. Effective judicial control, adequate reasons and prompt payment of admitted claims remain necessary safeguards.

The claimant sought judicial review concerning delays in processing repayment claims for input VAT during 2003. It initially alleged breaches of the Sixth Directive, but withdrew those allegations during the hearing. It instead sought declarations concerning proportionality, the Commissioners’ duty to investigate and the alleged entitlement to interest from the date of submission of each claim.

The claimant’s transactions had features associated with missing-trader fraud. Most claims had been repaid, although one remained disputed before the VAT and Duties Tribunal. The central issues were the respective jurisdiction of the Administrative Court and the Tribunal, the scope of the Commissioners’ investigative and proportionality duties, when entitlement to repayment arose, and whether interest was payable before acceptance or establishment of the claim.

1. Jurisdiction. The Tribunal had exclusive jurisdiction over disputed repayment claims, repayment supplements and statutory interest claims within its jurisdiction. The Administrative Court retained supervisory jurisdiction over legality, fairness and proportionality, including limited review of decisions concerning interim payments.
2. Investigation and proportionality. The Commissioners had to investigate repayment claims reasonably, proportionately and expeditiously. The duty applied both to the claim and to any cross-claim or set-off, and required the investigation to remain under review. The appropriate period depended on the facts. Suspicion of missing-trader fraud, complex inquiries, overseas information and delay caused by the trader could justify a lengthy investigation.
3. The proportionality assessment required a balance between protection of the Revenue and the trader’s interest in prompt repayment. Relevant factors included the likely outcome, the effect of withholding funds, the complexity and duration of inquiries, responsibility for delay, the possibility of interim or part payment with security, judicial control and any recompense for delay. Failure to answer questions did not end the Commissioners’ duty to proceed expeditiously, although it could delay or justify rejection of the claim.
4. The Commissioners had to provide reasons and sufficient information about withholding payment and the investigation’s progress, subject to practical limits and confidentiality. The standard was that of good administration.
5. Entitlement and interest. Under Articles 17 and 18 of the Sixth Directive, a right to deduct arose in relation to the underlying transactions, but no right to repayment was triggered until the claim was accepted or established. Until then, the claim was subject to reasonable and proportionate investigation. The reasoning in Molenheide concerned accepted or established claims whose payment was delayed by retention measures and did not require interest from the date of an unadjudicated claim. Schedule 11 paragraph 1 of the Value Added Tax Act 1994 authorised interim payments but did not confer a general power to pay interest.
6. The claim for declarations was dismissed. The defendants were awarded their costs. Permission to appeal was refused by the High Court.

First-instance judicial review in the Administrative Court. The court granted no relief and awarded costs to the defendants. Permission to appeal was refused by Mr Justice Lightman, leaving any application to the Court of Appeal.