Shields & Sons Partnership v The Commissioners for HMRC

Council Directive 2006/112/EC, art 296(2), exhaustively states the circumstances in which a member state may exclude a farmer from the common flat-rate scheme. A member state cannot create a further excluded category comprising farmers who recover substantially more under that scheme than under normal or simplified VAT arrangements.

Where those propositions determine the validity of an exclusion from the scheme, the farmer’s appeal must be allowed and the flat-rate certificate reinstated from the date of withdrawal.

The appellant partnership appealed against the First-tier Tribunal’s decision of 8 October 2014 concerning withdrawal of its agricultural flat-rate certificate.

The Upper Tribunal had referred two questions concerning art 296(2) of Council Directive 2006/112/EC to the Court of Justice of the European Union. The Court of Justice answered that the provision exhaustively specifies the grounds for exclusion and that over-recovery cannot itself define an excluded category of farmers. The parties agreed that those answers required the appeal to succeed.

1. Appeal allowed. The Court of Justice’s ruling established that art 296(2) of Council Directive 2006/112/EC exhaustively governs the circumstances in which a member state may exclude a farmer from the common flat-rate scheme.
2. Farmers who recover substantially more through the scheme than they would under normal or simplified VAT arrangements cannot constitute a category of farmers for art 296(2). The basis on which HMRC had withdrawn the appellant’s certificate was therefore ineffective.
3. The Upper Tribunal directed that the agricultural flat-rate certificate be reinstated from 15 October 2012, the date of withdrawal. The appellant was to issue retrospectively 4% flat-rate addition invoices to VAT-registered customers.
4. HMRC was directed to pay the appellant’s costs of the appeal, assessed on the standard basis if not agreed under rule 10(8)(c) of the Tribunal Procedure (Upper Tribunal) Rules 2008/2698.

• Upper Tribunal (Tax and Chancery Chamber): Allowed the appeal following the preliminary ruling of the Court of Justice of the European Union in Shields & Sons Partnership v HMRC C-262/16.
• First-tier Tribunal: Decision dated 8 October 2014, appealed to the Upper Tribunal.