Revenue and Customs v Royal Society for the Prevention of Cruelty To Animals

The discretion to award interest under section 84(8) of the Value Added Tax Act 1994 is independent of the statutory rates under sections 78 and 79. Those rates may be considered, but neither must be applied nor treated as the starting point. Repayment supplement may also be considered, particularly where a higher-than-conventional rate is claimed.

Section 84(8) permits an award of simple interest only. A higher rate requires evidence, normally of actual borrowing at that rate. The discretion does not involve a duty to mitigate, although unreasonable taxpayer conduct causing delay may be relevant. The starting date is discretionary and may reflect both the Commissioners’ reasonable investigation period and their repayment targets.

The Commissioners appealed against two VAT and Duties Tribunal decisions concerning interest awarded under section 84(8) of the Value Added Tax Act 1994. The first concerned delayed repayment of input tax claimed by the Royal Society for the Prevention of Cruelty to Animals and RSPCA (Properties) Ltd. The second concerned ToTel Ltd’s delayed input tax repayment after the Commissioners withdrew their decision following Optigen.

The appeals raised the relationship between section 84(8), the official-error interest regime in section 78 and repayment supplement under section 79. They also concerned compound interest, the relevance of borrowing evidence, mitigation, and the appropriate starting date.

1. Discretion under section 84(8). Section 84(8) confers a judicial discretion without prescribing the relevant factors. The Tribunal must exercise it judicially. Conventional commercial principles may provide useful guidance, but they do not fetter the discretion. Interest compensates for being kept out of money which ought to have been paid, rather than for damage as such (paras [111]-[118]).
2. Section 78. The section 78 rate is a relevant consideration, but it is neither mandatory nor the required starting point. Section 78 cannot be read into section 84(8). A higher rate may be justified where the facts show that the taxpayer borrowed at that rate, although such cases require evidence (paras [120]-[132]).
3. Section 79. Repayment supplement is a statutory penalty intended to encourage prompt payment, not a substitute for interest. Section 84(8) interest should not ordinarily be adjusted to reflect it. However, the Tribunal may consider the receipt of repayment supplement, especially where evidence is relied on to claim a rate above the conventional rate (paras [133]-[137]).
4. Compound interest. The word interest in section 84(8) does not include compound interest. The statutory context, the usual statutory position and the common law and equitable background point to simple interest only. It was therefore an error to award compound interest or adjust a simple rate to reproduce its effect (paras [138]-[146]).
5. Community law. Community law requires interest where necessary to vindicate an effective right, but does not invariably require compound interest. The present appeals concerned the determination and repayment of input-tax rights, so interest was ancillary and governed by national law subject to equivalence and effectiveness. Sempra concerned a materially different claim involving premature taxation and did not control these appeals (paras [147]-[164]).
6. Mitigation and commencement. There is no duty to mitigate applicable to section 84(8) interest, because the award is not damages. Unreasonable conduct causing delay may nevertheless be relevant. The starting date remains discretionary. The Tribunal may take account of Notice 700/58 and allow a reasonable period for investigation, consistently with proportionality (paras [165]-[198]).
7. Disposition. The Commissioners’ appeals were allowed. ToTel’s cross-appeal was dismissed. The errors concerning compound interest and, in ToTel’s case, the unsupported higher rate required the Tribunal decisions to be set aside or corrected, subject to any further order agreed or argued before the court (paras [199]-[201]).

• High Court (Chancery Division): The Commissioners’ appeals from the VAT and Duties Tribunal decisions were allowed. ToTel’s cross-appeal was dismissed: [2007] EWHC 422 (Ch).