Fleming (t/a Bodycraft) (Respondent) v Her Majesty's Revenue and Customs (Appellants) Conde Nast Publications Limited (Respondents) v Her Majesty's Revenue and Customs (Appellants)

A retrospective statutory time limit for exercising an accrued right under European Union law must be accompanied by an adequate transitional period. That period must be fixed prospectively and communicated sufficiently to permit effective exercise of the right. A court should not ordinarily cure the complete absence of transitional arrangements by retrospectively selecting an unannounced reasonable period.

Until Parliament, or the responsible authority through a sufficiently disseminated announcement, introduces an adequate prospective period, the incompatible time limit must be disapplied to all claims accrued before its introduction. Eligibility does not depend on proving that the claimant would have acted during a hypothetical transitional period.

These conjoined appeals concerned late claims for deductions of input value added tax under regulation 29 of the Value Added Tax Regulations 1995. Mr Fleming claimed approximately £127,000 relating to three specialist sports cars. Condé Nast Publications Ltd claimed approximately £115,000 relating to staff entertainment expenditure extending back to the introduction of VAT.

Regulation 29 had originally imposed no time limit. Regulation 29(1A), effective from 1 May 1997, introduced a three-year limit without transitional arrangements for accrued claims. It was common ground that this retrospective effect was incompatible with European Union law.

The Court of Appeal allowed Mr Fleming's appeal in [2006] EWCA Civ 70, also reported at [2006] STC 864. It subsequently treated that decision as binding in Condé Nast's case, reported at [2006] STC 1721. The central issue before the House was whether the courts could retrospectively identify a reasonable period of disapplication, or whether time could begin only after an adequate prospective transitional period had been prescribed and communicated.

1. Both appeals were dismissed. The dismissal of the Commissioners' appeal concerning Mr Fleming was unanimous. The appeal concerning Condé Nast was dismissed by a majority of four to one, Lord Walker of Gestingthorpe dissenting.

2. Per Lord Neuberger of Abbotsbury, whose reasoning was adopted by Lord Hope of Craighead and substantially accepted by Lord Scott of Foscote, a Member State may impose a reasonable limitation period on input-tax claims and may apply a new period to accrued rights. The period must, however, be fixed in advance. Retrospective application requires transitional arrangements which give affected taxpayers a reasonable opportunity to understand the new regime and make their claims. Those requirements arise from effectiveness, legitimate expectations and legal certainty.

3. Regulation 29(1A) of the Value Added Tax Regulations 1995 contained no transitional provision. The remedy could not be an unannounced period deemed retrospectively to have begun when the regulation commenced, or when decisions such as Marks and Spencer plc v Commissioners of Customs and Excise [2002] ECR I-6325 were delivered. Such a period might expire before ordinarily advised taxpayers knew of its existence or duration. It would reproduce the defects of ineffectiveness and uncertainty which required disapplication.

4. Per Lord Hope and Lord Neuberger, the period of disapplication had not begun. Parliament could legislate prospectively for an adequate transitional period. Alternatively, the Commissioners could announce a sufficiently long period in clear terms and disseminate it effectively to VAT-registered taxpayers. Lord Carswell agreed. Lord Scott agreed that both appeals should be dismissed, although he considered that mere administrative practice could not amend the statutory scheme.

5. Until an adequate prospective period is introduced, the three-year limit must be disapplied to all deduction claims accrued before 1 May 1997. Entitlement does not depend on proving that the particular taxpayer would have claimed during a hypothetical transitional period. Such a subjective condition would be inconsistent with legal certainty and would generate costly, speculative inquiries.

6. Lord Walker would also have dismissed the appeal concerning Mr Fleming because his claim preceded 11 January 2003. He would have allowed the appeal concerning Condé Nast, holding that a reasonable period of disapplication expired six months after the European Court's judgment in Marks and Spencer plc v Commissioners of Customs and Excise.

1. House of Lords: Dismissed both appeals by the Commissioners. The result concerning Mr Fleming was unanimous; the result concerning Condé Nast was by a majority of four to one.
2. Court of Appeal—Fleming: In [2006] EWCA Civ 70, also reported at [2006] STC 864, allowed Mr Fleming's appeal. Ward and Hallett LJJ held that no transitional period could be read into the legislation; Arden LJ reached the same result by a different route.
3. Court of Appeal—Condé Nast: In [2006] STC 1721, treated the Fleming decision as binding and decided in favour of Condé Nast.
4. High Court—Fleming: Evans-Lombe J, in [2005] STC 707, dismissed Mr Fleming's appeal because he had not claimed within what the judge considered a reasonable time.
5. High Court—Condé Nast: Warren J, in [2005] STC 1327, rejected the proposed requirement that Condé Nast prove it would have claimed during a hypothetical transitional period, but dismissed its appeal on the ground that the actual claim was late.
6. VAT and Duties Tribunal: Dismissed the respective taxpayer appeals on grounds subsequently displaced or unsupported.