ELS Group Ltd, R (on the application of) v HM Revenue and Customs

An extra-statutory VAT concession must be construed in its statutory setting and given no wider effect than its language fairly bears. A right under the concession for an employment bureau to be taxed as an agent had to be exercised before, or at, the relevant supply. Clear words would have been needed to permit a retrospective election, particularly where it would conflict with the ordinary VAT machinery.

Although the concession prescribed no formal notification, a taxpayer had to take an overt step which clearly implemented the chosen treatment. Notification to HMRC or invoices showing the relevant supplies and VAT treatment would ordinarily suffice. Invoices and returns which instead asserted exempt educational supplies did not evidence an election to be taxed as an agent.

ELS supplied lecturers to further-education colleges. It initially treated its supplies as VAT-exempt educational services. Following a restructuring, a group company, PNL, supplied lecturers as an employment bureau and was allowed the benefit of Business Brief 10/04, which enabled a bureau in specified circumstances to account for VAT only on its commission.

ELS sought the same concession for supplies made from March 2007 to March 2008 after HMRC concluded that ELS had supplied staff rather than exempt education. HMRC refused because the relevant election could not be retrospective and ELS had not made it in time. Proudman J, in the Upper Tribunal, refused permission to seek judicial review: [2015] UKUT 0048 (TCC). ELS appealed on those two issues.

1. Appeal dismissed. The court upheld HMRC’s decision and the Upper Tribunal’s refusal of permission for judicial review.

2. Business Brief 10/04 had to be read as a whole and in the context of the statutory default under the Value Added Tax Act 1994. Its references to VAT becoming due, invoices, accounting, and invoices as evidence of the choice contemplated that an employment bureau would elect to be treated as an agent before or when it made the relevant supply. The concession contained no indication that the election could later be made retrospectively.

3. An extra-statutory concession operates as HMRC’s decision not to collect tax otherwise due under statute. It should not receive a broader construction than its fair and ordinary language permits. Retrospective operation required clear words. It would also be inconsistent with the ordinary VAT correction machinery where a taxpayer had made taxable supplies and had already chosen to account as principal.

4. The concession did not require a particular form of notification. However, an effective choice required an overt act that made clear the taxpayer was implementing the selected VAT treatment. Notification to HMRC or VAT-compliant invoices were obvious means. Invoices showing VAT only on the commission would normally evidence an election as agent.

5. ELS’s invoices instead described a single VAT-exempt charge for educational services, its returns were on that basis, and it had not otherwise clearly notified HMRC of an alternative election. It was rationally open to HMRC to find that group restructuring, price communications, and accounting entries showed at most a contingency should the exemption claim fail, not an election made by the dates of supply. Lord Justice Floyd and Mr Justice Baker agreed.

• Court of Appeal (Civil Division): Appeal dismissed; HMRC’s refusal to allow retrospective reliance on Business Brief 10/04, and its finding that no timely election had been made, were upheld: [2016] EWCA Civ 663.
• Upper Tribunal (Tax and Chancery Chamber): Proudman J refused ELS permission to apply for judicial review of HMRC’s decision: [2015] UKUT 0048 (TCC).