British Telecommunications PLC v The Commissioners for HMRC

A party cannot reopen issues finally determined in the same proceedings by recasting them as a new statutory argument. Where a preliminary issue has been determined and permission to appeal has been refused, the parties remain bound by that determination.

Bad debt relief under Article 11C(1) of the Sixth Directive had to be claimed through the domestic bad debt regime, suitably moulded to remove the unlawful insolvency condition. Section 80 of the Value Added Tax Act 1994 was not an alternative route for such claims. The First-tier Tribunal was therefore entitled to strike out the appeal under rule 8(3)(c), both because the claims had no reasonable prospect of success and, alternatively, because their pursuit was abusive.

British Telecommunications plc appealed against the First-tier Tribunal’s decision, reported at [2020] UKFTT 0278 (TC), striking out its appeal concerning claims for VAT bad debt relief.

The Upper Tribunal and the Court of Appeal had previously determined three preliminary questions. The Court of Appeal dismissed BT’s case that relief could be claimed under section 80 of the Value Added Tax Act 1994, and held that the claims had to proceed under the old domestic bad debt scheme, suitably adapted to give effect to EU law.

BT argued that section 80(1B), and a later Court of Appeal decision, left a new issue open. The central questions were whether the earlier judgment had finally resolved that argument and whether the FTT had erred in striking out the appeal.

1. Appeal dismissed. The FTT had made no error of law in striking out BT’s appeal.
2. The Court of Appeal’s judgment addressed BT’s submissions concerning both section 80(1) and section 80(1B) of the Value Added Tax Act 1994. Its conclusion that section 80 was not engaged in claims for bad debt relief applied to section 80 as a whole.
3. Bad debt relief was not automatic. It had to be claimed under the domestic bad debt regime, suitably moulded to give effect to Article 11C(1) of the Sixth Directive. The necessary adaptation was to remove the impermissible insolvency condition. The same analysis applied to both the Main Claim and the Nine Month Claim.
4. The decision in Iveco Ltd v HMRC did not leave BT’s section 80 argument open. The Court of Appeal had considered the relevant reasoning in BT and GMAC, and had preferred the view that section 80 was not the appropriate provision for bad debt relief.
5. The determination of the preliminary issue bound the parties in the same proceedings. BT could not subsequently advance argument or evidence directed to showing that the issue had been wrongly determined. Alternatively, pursuing the section 80 argument amounted to an abuse of process applying the merits-based approach in Johnson v Gore Wood & Co.
6. The applicable strike-out test under rule 8(3)(c) was whether the case had a realistic, rather than fanciful, prospect of success. The Tribunal should avoid a mini-trial, but could determine a short point of law where the necessary material and argument were before it. Since the earlier appellate decisions resolved all remaining issues, BT’s claims had no reasonable prospect of success.
7. The termination of the old scheme and any restitutionary claim did not require further factual inquiry. The question of what a reasonable and circumspect operator would have expected was objective and legal. BT’s subjective expectations were therefore irrelevant.

• Upper Tribunal (Tax and Chancery Chamber) The preliminary issues were determined at [2012] UKUT 279 (TCC).
• Court of Appeal At [2014] EWCA Civ 433, HMRC’s appeal was allowed in part, BT’s cross-appeal was dismissed, and permission to appeal to the Supreme Court was refused.
• First-tier Tribunal The appeal was struck out at [2020] UKFTT 0278 (TC).
• Upper Tribunal The present appeal against the strike-out decision was dismissed.