Fleming (t/a Bodycraft) v Revenue & Customs

A domestic time limit newly imposed on a directly enforceable Community-law right to recover input VAT is lawful only if it preserves effective exercise of accrued claims through adequate transitional arrangements. A provision which contains no such arrangements is incompatible with the principle of effectiveness as regards those claims.

By a majority, the court held that a court could not supply an entire transitional regime by interpretation where the legislation had provided none. The time-bar therefore had to be disapplied. Arden LJ, concurring in the result, would instead have read in an adequate period commencing when the relevant Community-law protection became foreseeable.

Mr Fleming sought repayment of input VAT on three motor cars bought in 1989 and 1990. He made his claim in October 2000 after obtaining the necessary VAT invoices. Regulation 29(1A) of the Value Added Tax Regulations 1995, inserted with effect from 1 May 1997, imposed a three-year limit without an express transitional period.

The VAT tribunal held that the time limit could not retrospectively remove Mr Fleming’s accrued Community-law right, but dismissed his appeal on a separate discretionary basis. Evans-Lombe J allowed the Commissioners’ effective appeal and dismissed Mr Fleming’s claim: [2005] STC 707. The central issue was whether, and how, the defective time limit could be relied on against an accrued right to deduct input tax.

1. Appeal allowed. Ward and Hallett LJJ formed the majority on the decisive issue. Mr Fleming had an accrued, directly enforceable Community-law right to recover input tax when regulation 29(1A) came into force.

2. A member state may introduce a reasonable limitation period for such a right. However, the principle of effectiveness requires adequate transitional arrangements for claims that were available under the former law but would immediately be out of time under the new law. Regulation 29(1A) contained no transitional arrangements at all.

3. The majority held that this was not a case of construing an existing but inadequate transitional provision. To read a complete transitional regime into a regulation which provided none would exceed the permissible limits of conforming interpretation. The regulation was therefore incompatible with Community law and had to be disapplied as against Mr Fleming’s accrued claim. The judge’s conclusion that a notional period had already expired could not stand.

4. Arden LJ concurred in allowing the appeal, but would have adopted a different route. In her view, a national court could read an adequate transitional period into regulation 29(1A), or equivalently disapply it during that period. Legal certainty required the period to run from the Court of Justice judgment in Marks & Spencer, not from the regulation’s commencement. She rejected any further postponement based on when taxpayers or advisers developed a consensus about the right.

• Court of Appeal (Civil Division): Allowed Mr Fleming’s appeal and disapplied regulation 29(1A) as against his accrued claim: [2006] EWCA Civ 70.
• High Court, Chancery Division (Evans-Lombe J): Dismissed Mr Fleming’s appeal, holding that the time limit could be relied on after a reasonable notional transitional period: [2005] STC 707.
• VAT and Duties Tribunal: Held that the time limit could not retrospectively remove the accrued Community-law right, but dismissed the appeal on the basis that the Commissioners would inevitably refuse repayment under article 18(3) of the Sixth Directive.