The Rank Group Plc v Revenue And Customs

Under the Value Added Tax Act 1994, repayment of wrongly accounted output tax is calculated by reference to the net VAT actually accounted for and paid in the relevant accounting period. Input tax previously deducted for that period is taken into account in the section 80(2A) calculation itself. Section 81(3) operates only after an amount is due from HMRC and cannot import liabilities or repayments relating to another period into that calculation. An out-of-time repayment claim cannot be revived by treating the unrepaid amount as a set-off against timely claims. A shortfall in HMRC’s repayment is not itself a payment of VAT for section 80(1B).

The Rank Group plc operated bingo clubs and had accounted for VAT on supplies which were later established to be exempt. It made four claims under section 80 of the Value Added Tax Act 1994. Three were made in time and repaid on a net basis. The fourth, relating to earlier accounting periods, was out of time following Leeds City Council v Revenue and Customs Commissioners [2015] EWCA Civ 1293.

Rank later claimed that HMRC had wrongly calculated the first three repayments by taking account of input tax deductions without also crediting the unrepaid amount from the fourth claim. The First-tier Tribunal rejected the claim under section 80(1B): [2018] UKFTT 0251 (TC). The Upper Tribunal accepted part of Rank’s statutory argument but upheld the result: [2019] UKUT 0100 (TCC). The central issue was whether sections 80(2A), 81(3) and 81(3A) required the proposed cross-period adjustment.

The Court of Appeal, Lord Justice Patten giving the judgment of the court, with Lord Justices David Richards and Moylan agreeing, dismissed the appeal.

1. Statutory scheme. Sections 80(1) and 80(1A) impose an obligation to credit amounts wrongly brought into account as output tax. Section 80(2A) then requires the credit to be reduced by sums properly set against it before HMRC pay the remaining amount. That process preserves the net basis on which VAT was originally accounted for. It does not create a fresh liability extending beyond the net VAT received.
2. Section 81(3). Section 81(3) applies where an amount is already due from HMRC. It permits other VAT liabilities of the claimant to be set against that amount. It does not form part of the earlier computation under section 80(2A), nor does it provide a route for importing liabilities or repayments relating to different accounting periods into that computation.
3. EU law. The San Giorgio principle requires repayment of VAT which was not due, but only to the extent of the net amount actually accounted for and paid in the relevant period. The approach in Sunningdale Golf Club v Commissioners of Customs and Excise [1997] V & DR 79 applied equally under the current form of section 80. The four-year limitation period was legally permissible, so Rank could not revive the fourth claim through a cross-period set-off.
4. Section 80(1B). The court did not need to decide the section 80(1B) issue. In any event, a repayment shortfall would not amount to Rank having paid VAT to HMRC. Rank had received less than it claimed was due; it had not made a further payment.

• Court of Appeal (Civil Division): appeal dismissed, [2020] EWCA Civ 550.
• Upper Tribunal, Tax and Chancery Chamber: Rank’s section 80(1B) claim failed, although the Tribunal accepted aspects of Rank’s argument concerning sections 80(2A) and 81(3), [2019] UKUT 0100 (TCC).
• First-tier Tribunal: claim rejected on the basis that Rank had not paid the disputed amount to HMRC, [2018] UKFTT 0251 (TC).