Midlands Co-Operative Society Ltd v HM Revenue & Customs

A statutory right to repayment of overpaid VAT is a chose in action. Under the general law it is assignable unless the Value Added Tax Act 1994 or regulations clearly exclude assignment, expressly or by necessary implication. The words to him in section 80 do not confine the claim to the original payer. They can include successors and an assignee vested with the right to sue and give a good receipt. Neither the unjust-enrichment defence nor specific reimbursement, succession and business-transfer provisions creates such an exclusion. A transfer under section 51(1) of the Industrial and Provident Societies Act 1965 can therefore vest the repayment claim.

HM Revenue and Customs appealed from Blackburne J’s order allowing Midlands’ appeal from a VAT and Duties Tribunal decision. The High Court decision is reported at [2007] EWHC 1432 (Ch).

Leicestershire Co-operative Society transferred its engagements, property and assets to Midlands under section 51(1) of the Industrial and Provident Societies Act 1965. Leicester later ceased to exist. Midlands submitted claims under section 80 of the Value Added Tax Act 1994 for VAT originally paid by Leicester before the transfer. HMRC refused repayment of those amounts. The central issue was whether Midlands had standing as transferee to make the claims.

Arden LJ gave the leading judgment. Wall LJ and Wilson LJ agreed. The appeal was dismissed.

1. General law. The VAT statutory scheme operates subject to the general law unless that law is excluded. A right to repayment under section 80 of the Value Added Tax Act 1994 is a chose in action and is assignable under section 136 of the Law of Property Act 1925. Any restriction on that property right requires clear wording or a necessary implication from the statutory scheme.
2. Meaning of section 80. The words to him do not limit repayment to the person who originally paid the VAT. In the absence of a contrary indication, they include a successor, an authorised agent and a person to whom the taxpayer has transferred the right. Where an assignee has the right to sue and give a good receipt, HMRC cannot properly pay the assignor instead.
3. Statutory transfer. Section 51(1) of the Industrial and Provident Societies Act 1965 vests property without conveyance or assignment. The decision in Co-operative group (CWS) Limited v Stansell Limited [2006] 1 WLR 1704 confirmed that such a statutory transfer can operate despite a contractual prohibition on assignment. The section could therefore vest Midlands with Leicester’s repayment claim.
4. Unjust enrichment and procedural provisions. The potential difficulty of proving the section 80(3) unjust-enrichment defence did not imply a prohibition on assignment. The tribunal’s powers under rule 22 of the VAT Tribunal Rules 1986 could assist with evidence. The reimbursement arrangements in Part VA of the Value Added Tax Regulations 1995 did not control the interpretation of section 80 or prevent assignment. Regulation 37’s written-claim and documentary-evidence requirements likewise applied to any section 80 claim and did not create a prohibition.
5. Specific succession provisions. Regulations 30 and 9 concerned limited continuity arrangements after death, bankruptcy or incapacity. Section 49 of the Value Added Tax Act 1994 and regulation 6 concerned a narrower form of business transfer involving registration in substitution for the transferor. They did not imply that section 80 claims were otherwise non-assignable, particularly where the transferee was already registered.
6. Other authority and disposition. HM Commissioners of Customs and Excise v Cresta Holidays [2001] STC 386 concerned a funder seeking to stand in the taxpayer’s shoes and did not govern an assignee who had acquired the taxpayer’s right. Commissioners of Custom and Excise v Barclays Bank plc [2001] STC 1558 was distinguishable because it involved express statutory conditions for removal from a VAT group. The appeal was dismissed.

• Court of Appeal (Civil Division). Appeal by HM Revenue and Customs dismissed: [2008] EWCA Civ 305.
• High Court of Justice, Chancery Division. Blackburne J allowed Midlands’ appeal from the tribunal’s decision: [2007] EWHC 1432 (Ch).
• VAT and Duties Tribunal. Decision released on 20 July 2005.