Reed Employment Ltd v HM Revenue and Customs

The right to recover overpaid VAT is subject to domestic procedural rules, including an unjust-enrichment defence, provided those rules comply with EU law. A Member State may introduce such a defence with retroactive effect for claims relating to earlier periods. Claims made before and after a statutory cut-off date may be treated differently because the date of the claim is an essential characteristic in this context. That differentiation does not infringe equal treatment where the claims are not in similar situations. The effectiveness principle does not preserve an unqualified right to repayment: no accrued right arises before a claim is made, and there is no right to unjust enrichment. The court did not need to determine fiscal neutrality or make a preliminary reference. The approach in Weber’s Wine World Handels-Gmbh v AblabenberufungsKommission Wien [2004] 1 CMLR 7 was applied.

Reed sought repayment of overpaid VAT for periods between 1973 and 1995. It made two claims on 27 March 2009 for approximately £63.8 million and £75.8 million. The claims were made under section 80 of the Value Added Tax Act 1994, as amended by section 3 of the Finance (No 2) Act 2005, which introduced an unjust-enrichment defence for claims made on and after 26 May 2005.

The Upper Tribunal (Tax and Chancery Chamber) rejected Reed’s challenge. On appeal, Reed argued that applying the defence infringed the EU principles of equal treatment, fiscal neutrality and effectiveness. The central issue was whether claims for the same earlier periods were in similar situations when made before and after the statutory cut-off date.

Appeal dismissed unanimously. Arden LJ gave the principal judgment. Aikens LJ agreed with the reasoning of Arden and Vos LJJ. Vos LJ gave additional reasons reaching the same result. The court also refused to make a preliminary reference to the CJEU because the applicable EU law was clear.

1. Equal treatment. The principle requires comparable situations to be treated alike unless objectively justified. Similarity must not be assessed formalistically or in the abstract. In this context, the date on which a repayment claim is made is an essential characteristic. Claims concerning the same earlier VAT period but made before and after a statutory change are therefore not necessarily in similar situations.
2. Retroactive unjust-enrichment defence. Weber’s Wine World Handels-Gmbh v AblabenberufungsKommission Wien [2004] 1 CMLR 7 and EKW and Wein & Co, Case-437/97, showed that a Member State may introduce an unjust-enrichment defence with retroactive effect for claims relating to earlier periods. The defence may apply only to claims made after a prescribed date, subject to the requirements of effectiveness, equivalence and other EU principles. Marks & Spencer plc v HMRC (No 2) [2008] STC 1408 addressed the different defect between payment and repayment traders. It did not decide whether the cut-off date was lawful.
3. Effectiveness. The principle does not give Reed an accrued right to recover VAT free from a later valid defence. The right to repayment arose when the claims were made, by which time the relevant law had been rectified and the defence was in force. Unjust enrichment is a defence to a repayment claim, not a limit on the right to make the claim, and there is no EU law right to be unjustly enriched.
4. Other issues. Fiscal neutrality did not require separate determination because Reed accepted that it could not succeed on that ground after failing on equal treatment. Other evidential and procedural points were likewise unnecessary to decide.

• Court of Appeal (Civil Division) — In [2014] EWCA Civ 32, dismissed Reed’s appeal and declined to make a preliminary reference to the CJEU.
• Upper Tribunal (Tax and Chancery Chamber) — In FTC 392011, held that the unjust-enrichment defence introduced by the 2005 amendment did not breach the EU principles of equal treatment, fiscal neutrality or effectiveness.