Brayfal Ltd (t/a DRK), R (on the application of) v Revenue and Customs

HMRC may retain quarterly VAT returns as the default position while a trader’s proposed new business remains untested. A policy of allowing monthly returns mainly to established repayment traders, or where projected repayments are evidenced, is lawful provided it is applied flexibly to the individual case. The court may assess whether the policy and its application are arguably unlawful, but proportionality does not require monthly returns merely because quarterly accounting may disadvantage the trader’s cash flow or the proposed trade may reduce fraud risk. Actual trading circumstances may properly be required before the default period is changed.

Brayfal had historically been permitted to submit monthly VAT returns. Following disputes concerning withheld input tax and the cessation of its previous trading pattern, HMRC reverted to quarterly returns. Brayfal later proposed importing mobile telephones from Hong Kong and sought a return to monthly accounting because import VAT would have to be paid upfront and quarterly recovery would affect its cash flow.

HMRC refused the request. It relied initially on the unresolved VAT proceedings and also on the fact that the proposed business represented a new trading pattern which should be observed for a period before monthly returns were reconsidered. The court considered a renewed application for permission to seek judicial review of that decision.

1. Permission refused. The renewed application for permission to apply for judicial review was refused. HMRC was awarded £320 costs for the acknowledgment of service.
2. The default position was quarterly VAT returns. HMRC had a discretion to permit monthly returns, and its policy stated that monthly returns should normally be allowed to repayment traders meeting specified criteria. The policy also permitted monthly returns where projected repayments could be evidenced.
3. The policy was not unlawful. It was permissible for HMRC to adopt a wait-and-see approach, requiring actual trading circumstances to be observed before changing the default period and thereby accepting a possible reduction in administrative control.
4. The proposed Hong Kong business was materially different from the claimant’s previous trade and had not yet commenced. HMRC was entitled to treat the claimant as embarking on a new trading pattern and to require a period of consistent trading before reconsidering monthly returns.
5. The unresolved VAT appeal was not relied on as a continuing basis for upholding the decision, since HMRC had effectively abandoned that reason. The remaining policy-based reasons were nevertheless sufficient, and the challenge to their application was not truly arguable.

The judgment concerned a renewed application for permission to apply for judicial review. An earlier application had been refused by Burnett J. The present court refused permission and allowed HMRC £320 costs for the acknowledgment of service.