BMW AG & Ors, R (on the application of) v HM Revenue & Customs

The power to permit monthly VAT returns may be exercised for a specified period or until further notice, and may include reverting a trader to quarterly returns. It is not inherently irrational or unfair for HMRC to distinguish an exporter associated with its supplier from an unassociated exporter, since association may create greater opportunities for manipulation.

However, applying that policy requires a fair and logical inquiry into whether the arrangement creates a significant, unjustified and unintended cash-flow advantage. HMRC must consider relevant comparisons, including the position if the manufacturer exported directly, and relevant third-party supplies. A decision based only on the existence of mismatched accounting periods and the absence of administrative difficulty is flawed.

BMW AG, Jaguar Cars Export Ltd and Land Rover Exports Ltd challenged HMRC decisions directing them to change from monthly to quarterly VAT accounting periods. The companies were associated with manufacturers from which they acquired vehicles for export.

BMW AG challenged HMRC’s power to make the direction and the rationality of the decision. Jaguar and Land Rover also sought extensions of time to challenge substantially similar directions. The central issues were the scope of Value Added Tax Regulations 1995, the legality of HMRC’s policy concerning associated exporters, the adequacy of the decision-making process, and delay.

1. Power to direct quarterly returns. Regulation 25(1)(a) of the Value Added Tax Regulations 1995 must be construed purposively. It permits HMRC to allow or direct monthly returns for a specified period or until further notice. It therefore included power to direct BMW AG to revert to quarterly returns. Permission was refused on this ground.
2. Policy. The policy was not itself irrational or unfair. HMRC could have regard to the economic links between an associated manufacturer and exporter, and association was a relevant circumstance because it created greater opportunities for manipulation. The reference to a significant cash-flow advantage was guidance concerning the deployment of resources, not a precise statutory threshold.
3. Application of the policy. The policy was directed at preventing unjustified and unintended cash-flow benefits at the expense of the revenue. Mismatched accounting periods were not, by themselves, objectionable. HMRC had to investigate what financial difference resulted from using an associated export company, including comparison with the position if the manufacturer exported directly. HMRC also failed to consider the effect on BMW AG’s third-party business and treated the absence of administrative difficulty as effectively establishing that the benefit was unjustified and unintended. The decision-making process was therefore flawed.
4. EU law. The reasoning in Optigen Ltd and others v Customs and Excise Commissioners did not require HMRC to ignore the economic links between associated traders when deciding the appropriate VAT accounting period. The EU-law challenge failed.
5. Other claims. Jaguar Cars Export Ltd and Land Rover Exports Ltd had not acted reasonably in delaying proceedings. Permission to bring their claims out of time was refused. BMW AG was granted permission to seek judicial review and the decision directing it to quarterly returns was quashed. The other applicants remained free to make fresh applications for monthly accounting.