Revenue and Customs v Chamberlin

A completed and signed VAT return can establish an enforceable debt for the VAT stated to be payable. The statutory liability arises under the VAT Act 1994, and the return quantifies it; the relevant boxes operate as a form of self-assessment.

A taxpayer who alleges that a return overstated VAT must use the statutory tax procedure for correcting it. The Bankruptcy Court should not determine the underlying tax liability, save in an exceptional case. For annulment under section 282(1)(a) of the Insolvency Act 1986, the debtor must establish a ground which existed when the bankruptcy order was made, even if it emerged later.

HMRC presented a bankruptcy petition founded on unpaid VAT, interest and penalties shown in Marie Chamberlin’s own VAT returns. A bankruptcy order was made on 9 September 2005.

Chamberlin later sought annulment under section 282(1)(a) of the Insolvency Act 1986. She alleged that her returns overstated VAT because services supplied to asylum and immigration clients were outside the United Kingdom for VAT purposes. Her voluntary disclosures to HMRC were rejected.

The Chief Registrar dismissed the annulment application. On appeal, David Donaldson QC, sitting as a deputy High Court judge, allowed it and annulled the order: [2010] EWHC 2589 (Ch). HMRC appealed. The central issue was whether, on grounds existing when the order was made, it ought not to have been made.

1. Appeal allowed. The Court restored the Chief Registrar’s order dismissing the annulment application. The Chancellor gave the judgment, with Toulson and Sullivan LJJ agreeing.

2. Under the VAT Act 1994 and the VAT Regulations 1995, a supplier is liable for VAT on taxable supplies. A duly signed return quantifies that liability. In particular, the entries in boxes 1 and 5 are a form of self-assessment. The absence of equivalent wording in the provisions governing an assessment by HMRC did not mean that a complete return created no debt. At the least, the returns were admissions of statutory VAT liability.

3. The allegation that the returns contained errors or overstated VAT was a matter for HMRC under regulation 35. The Bankruptcy Court could not determine whether the clients belonged abroad or whether the services were outside the scope of VAT. The statutory tax machinery had already been invoked: the first voluntary disclosure was rejected on its merits and the second was out of time. No exceptional circumstance justified the Bankruptcy Court in investigating the underlying VAT liability.

4. Section 282(1)(a) of the Insolvency Act 1986 required a ground existing when the bankruptcy order was made. The unsatisfied statutory demand and the original returns remained effective. Chamberlin had not shown any such ground on 9 September 2005. The bankruptcy order was therefore properly made and could not be annulled.

• Court of Appeal (Civil Division): allowed HMRC’s appeal and restored the Chief Registrar’s dismissal of the annulment application.

• High Court, Chancery Division: David Donaldson QC, sitting as a deputy High Court judge, allowed Chamberlin’s appeal and annulled the bankruptcy order: [2010] EWHC 2589 (Ch).

• Bankruptcy Court: Chief Registrar Baister dismissed Chamberlin’s renewed application to annul the bankruptcy order.