Premier Foods (Holdings) Ltd, R (on the application of) v HM Revenue and Customs & Anor

Where VAT has been invoiced in error, the ordinary mechanism is repayment by the supplier, followed by reimbursement to the customer. Where recovery from the supplier is impossible or excessively difficult, EU law requires an effective mechanism enabling the customer who bore the burden to recover the tax directly from the tax authorities. A supplier’s statutory repayment claim may be refused where repayment would unjustly enrich it. The existence of an insolvent supplier as a legal entity does not prevent direct recovery where only a proportion of the debt could be recovered. Judicial review is an appropriate route where the challenge concerns payment to the supplier, which is not appealable under Value Added Tax Act 1994, section 83.

Premier Foods sought judicial review of HMRC’s decision concerning VAT wrongly invoiced by Q Cold Ltd between October 2008 and December 2012. Q Cold had accounted for the VAT to HMRC and later entered administration. HMRC proposed repaying Q Cold under Value Added Tax Act 1994, section 80, while assessing Premier for the input tax it had deducted. Premier argued that recovery from Q Cold would be ineffective and that HMRC should rely on the unjust-enrichment defence or reimburse Premier directly. The central issues were whether Premier had a direct EU-law claim, whether repayment to Q Cold would be unjust enrichment, and whether judicial review was appropriate.

1. The claim succeeded. The input tax assessments raised under Value Added Tax Act 1994, section 73, were quashed. The court declared that, in the circumstances, payment to Q Cold of any part of its section 80(1) claim would unjustly enrich Q Cold for the purposes of section 80(3).
2. The ordinary statutory scheme, under which the supplier claims repayment and passes it to the customer, is compatible with fiscal neutrality and effectiveness where it enables the customer to recover the amount paid in error. However, under Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze [2008] STC 3448, where reimbursement from the supplier is impossible or excessively difficult, the customer must have an effective means of recovering the tax directly from the tax authorities.
3. The fact that Q Cold remained in existence in administration did not prevent a direct claim. The material question was whether Premier could recover the full amount from Q Cold. It could recover only a proportion, making recovery of the balance impossible or excessively difficult.
4. Customs and Excise Commissioners v McMaster Stores (Scotland) Ltd (in receivership) [1995] STC 846 was not binding and should no longer be regarded as good law. Its reasoning depended on the then-prevailing assumption that repayment to an insolvent supplier was the only means by which the customer could obtain anything. That assumption was displaced by Reemtsma and the subsequent recognition of the direct claim in Investment Trust Companies (In Liquidation) v The Commissioners for Her Majesty’s Revenue and Customs [2015] EWCA Civ 82.
5. Judicial review was appropriate because Premier challenged HMRC’s proposed payment to Q Cold, which did not give rise to an appeal under section 83. The court could therefore determine the direct claim and the availability of the unjust-enrichment defence.

First-instance judicial review. No earlier judgment or appeal is stated in the judgment.