Hedley (t/a Birtle Riding Centre) v Customs & Excise [2003] UKVAT V18250 (30 July 2003)

	VALUE ADDED TAX — riding school and livery stables — claim for repayment after cancellation of registration — whether 3 year time limit  capping applies — section 80 VATA 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	B D HEDLEY t/a BIRTLE RIDING CENTRE	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Mr  I E Vellins (Chairman)
						Mrs M P Kostick 	

Sitting in public in York on 3 June 2003 

Mr J D Martin, VAT consultant, for the Appellant
Mr N Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2003

DECISION

1.	In this appeal the Appellant Mrs B D Hedley trading as Birtle Riding School appeals against the decision of the Respondents, the Commissioners of Customs and Excise, who, on 21 September 2001 refused a claim by the Appellant to a repayment of an amount paid as VAT, or by way of VAT, pursuant to section 80 Value Added Tax 1994 (“VATA”), on the grounds that the repayment claimed related to a period more than 3 years before the making of the claim and was accordingly capped under the time limit imposed by section 80(4).

2.	At the hearing of this appeal at York on 3 June 2003 the Appellant was represented by its VAT consultant Mr J D Martin, and the Commissioners were represented by Mr N Poole, counsel.

3.	The facts in the appeal were not in dispute and the background to the appeal was as follows.

4.	Mrs B D Hedley trading as Birtle Riding School carried on the business of running a riding school and livery stables from premises at Grimsby, North East Lincolnshire.  The Appellant had been registered for the purposes of VAT with effect from 1 November 1987.  Many years later the Appellant contacted the Commissioners and claimed that she was providing exempt livery and tuition services, and that as she was not liable to be registered for VAT her registration should be cancelled.  Discussions took place between the parties as to the liability for VAT purposes of the supplies made by the Appellant.  By a letter dated 20 August 2001 the Commissioners accepted that the supply of stabling with livery constituted one composite exempt supply, and the Commissioners accepted that as the Appellant had only ever provided exempt livery and tuition services, the Appellant was not liable to be registered, and therefore agreed to cancel the registration of the Appellant in accordance with the provisions of paragraph 13(3) of schedule 1 of VATA.  The registration of the Appellant was cancelled with effect from the effective date of registration.

5.	On cancellation of her registration, the Appellant made a claim for repayment of all money paid as VAT, or by way of VAT, to the Commissioners since the date of registration.  The Commissioners repaid to the Appellant money overpaid for the periods 06/98 onwards but the remainder of the money claimed which related to earlier periods was considered by the Commissioners to relate to periods covered by the 3 years capping provisions of section 80 of the VATA.

6.	The Appellant appealed by notice of appeal dated 21 June 2001.  By a letter dated 22 February 2002 the Appellant confirmed that the appeal would be limited to the interpretation of section 80 of the VATA, as all other issues had been agreed between the parties in the Appellant’s favour.  Accordingly the issue in dispute in this appeal was whether the money overpaid to the Commissioners during the Appellant’s period of registration fell within the definition in section 80(1) of VATA of an amount paid “by way of VAT”, and whether as such it was subject to the capping provisions in that section of the Act.

7.	Section 80(1) VATA provides:
“Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him”.

8.	Under section 80(4):
“The Commissioners shall not be liable, on a claim made under this section, to repay any amount paid to them more then 3 years before the making of the claim”.

9.	Under section 80(7):
“Except as provided by this section the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them”.

10.	At the hearing of the appeal no witnesses were called by either party, and the issues were dealt with by way of submissions by the representatives of the parties.

Submission of Appellant’s Representative.
11.	Mr Martin on behalf of the Appellant summarised the steps leading to the Appellant’s appeal.  Mrs Hedley had been registered for VAT on 1 November 1987, trading as a riding school and livery yard.  This continued up to 30 September 1999 when she sold the business on her retirement and deregistered from VAT.  During the whole of that period she had been the sole provider of riding school tuition, and on 5 December 2000 she submitted a voluntary disclosure to the Commissioners covering the period from 1 October 1987 to 30 September 1999 for the recovery of all VAT previously declared in this respect.  This was agreed by the Commissioners and the refund was made.  On 5 June 2001 following the tribunal decision in the appeal of John Window (LON/00/0011), which effectively decided that serviced livery was an exempt rather than a standard rated supply, the Appellant’s representative had submitted to the Commissioners that her VAT registration was invalid because only exempt supplies had ever been made.  On 20 August 2001 the Commissioners confirmed that they accepted that the supply of stabling with livery was exempt under VATA schedule 9 item 1, and that, as  the Appellant had only ever provided exempt livery and tuition services, the Appellant was not required to be registered for VAT, and therefore her registration could be cancelled with effect from her effective date of registration in accordance with VATA schedule 1 paragraph 13(3).  The Commissioners stated that the 3 year cap would apply with effect from the date of her appeal, and arrangements would be made for her registration to be cancelled, and any overpaid VAT to be repaid to her, subject to the 3 year capping rule.

12.	Mr Martin submitted that, as the Commissioners had effectively agreed that Mrs Hedley had not been required to be registered for VAT and had agreed that her registration be cancelled, the result of that was that Mrs Hedley was never a taxable person and that all her supplies were therefore outside the scope of VAT.  He submitted that the tax declared on her VAT returns could not be described as “paid by way of VAT”, and therefore section 80 VATA did not apply, and she should be refunded the whole of the moneys that she had paid to the Commissioners throughout her period of VAT registration, and that this should not be the subject of the 3 year capping.  

13.	He submitted that the Appellant should never have been registered for VAT.  He submitted that the Commissioners had treated it as an invalid registration.  He submitted that there was nothing in the guidance notices and information sheets issued by the Commissioners that stated that, where there had been an invalid registration, refunds would be subject to the 3 year capping.

14.	He pointed out that section 14A of the Customs and Excise Guidance, Notices and information sheets referred to incorrect entries on the register, and specifically contained guidance relating to invalid registrations.  At paragraph 14.3 dealing with “what is an invalid registration?” the guidance sheet stated “an invalid registration is when a person who was registered for VAT should never have been so.  Examples of invalid registrations are…only exempt supplies or supplies not in the course of business were being made and there was no intention of taxable supplies being made in the future…”.  Further, paragraph 14.7 relating to final adjustments to the VAT accounts stated “when a registration is considered invalid, this means that the trader was not a taxable person..”.  Table 32, relating to invalid registrations, stated in connection with further action, at paragraph 6 and 7: 
“6.  	If the trader has not made or received payments from the department and has not submitted any returns input a Pro-Forma Nil for the final period.  
7.	If returns had been processed issue Pro-Forma Nils..”.

15.	Mr Martin submitted that the Commissioners had issued “Pro-Forma Nils” under that guidance and had treated it as an invalid registration.  He submitted that effectively the registration had been deleted from the register and the Appellant should have been treated as if the registration had never actually occurred.  He submitted that the Appellant was never a taxable person, as she was never required to be registered under the VATA.

16.	Section 3(1) of VATA states:
“A person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this Act”.
 
17.	He submitted that accordingly, as the Appellant was never required to be registered, she was never a taxable person.

18.	He submitted that the Commissioners themselves had made it clear in their guidance, notices and information sheets in paragraph 3.2 concerning what was VAT, that VAT was payable when it involved the supplies of goods or services made by a taxable person, and that supplies were outside the scope of the tax if they were made by someone who was not a taxable person or not made in the course or furtherance of business.  Mr Martin submitted that the Appellant was not a taxable person and that her supplies were outside the scope of VAT.  He submitted that the provisions of the VATA had no application to a person who was never a taxable person.  He submitted that she was not a taxable person and never had been a taxable person, and by dint of making only exempt supplies would never have been required to register in the first place.

19.	He submitted that the Commissioners had been arguing that  because she had submitted VAT returns in the past, these had included amounts that had been paid by way of VAT, and that any refund must be covered by the capping provisions of section 80.  He submitted that section 80 dealt with the refunds of payments of overpaid VAT which in the majority of cases would be made in error by taxable persons.  He submitted that the words “paid by way of VAT” in section 80 could not apply to the Appellant’s case because the amounts overpaid were firstly neither VAT in the first instance nor secondly could they be construed as “paid by way of VAT”.  He submitted that since the registration was removed from the register the payments that she had actually made were directly out of business profits, and he submitted that it was bizarre that the Commissioners still maintained that the amounts were paid by way of VAT.

20.	Mr Martin submitted that the Commissioners were trying to “have things both ways”.  In the tribunal case of Bond House Systems Limited v the Commissioners [2003] (Decision 018100), a case involving a carousel fraud, the Commissioners had successfully argued that the supplies of goods by the Appellant were outside the scope of VAT as having no economic substance.  The Commissioners had argued in that case that in effect what Bond House had paid to its suppliers under the guise of VAT was not VAT at all and Bond House  was not entitled to input tax credits.  The Chairman in that appeal at paragraph 158 had stated:
“We conclude that as they were entered into, not in the course of distributing goods to a final customer, but with a view to obtaining an advantage by fraud, they can not be regarded as economic activities…, and are correspondingly outside the scope of VAT. We agree with the Commissioners that the sums claimed by Bond House as input tax.. are not VAT”.
However in the case of Mrs Hedley, the current Appellant, the Commissioners were arguing that she was not outside the scope of VAT.  Mr Martin submitted that as the Appellant was never a taxable person, all her supplies were outside the scope of VAT.  He submitted that the moneys that Mrs Hedley had paid in her VAT returns could not be regarded as VAT and that she was entitled to her refund in full without it being capped.

21.	Mr Martin submitted that it was inconceivable that the legislators in drafting the provisions of the VATA had intended to disenfranchise the Appellant.  He submitted that in cases such as the Appellant, where the Commissioners had discovered that a business that had been registered many years before should not have been registered, the capping provision should not apply.

22.	Mr Martin further submitted that the provisions of section 80 VATA were in breach of European Community law, despite the decision of the European Court of Justice in Marks and Spencer v CCE [2002] STC 1036.  Mr Martin however could not elaborate upon that submission, but maintained that “in principle” he was suggesting that the provisions of section 80 relating to the capping was in breach of European Community law.

Submission by Representative of Commissioners.
23.	Mr Poole submitted that the arguments raised by the Appellant were novel arguments which had never been raised previously in any appeal because there was no merit in those arguments.

24.	Mr Poole submitted that the Appellant had fallen into two errors.  Firstly he submitted that whilst it was true that the registration was invalid from the beginning, nevertheless there was a period of years during which the Appellant was registered in fact and was a registable person therefore under sections  3 and 80 VATA.  The second error of the Appellant was in the Appellant’s interpretation of the words “ by way if VAT” in section 80.  The Appellant had been maintaining that the provisions of section 80(1) were limited to its application to firstly taxable persons and secondly to amounts of VAT properly due having been paid.  Mr Poole however submitted that section 80(1) was not restricted to taxable persons as it refers to “a person” and not to “a taxable person”.  Mr Poole submitted that in any case Mrs Hedley was a taxable person under section 3 whilst she was registered.  Mr Poole submitted that the words “by way of VAT” in section 80(1) meant “as if the amounts were VAT”.  He submitted that there were two different concepts, one which related to VAT properly due, and a different concept which related to an amount paid by way of VAT.  He submitted that the words “by way of VAT” in section 80(1) could not mean VAT properly due, as, if it had, section 80(1) would not make sense at all, because it would have to be read to the effect that where a person has paid an amount to the Commissioners of VAT properly due which was not VAT due to them the Commissioners would be liable to repay the amount to him.  He submitted that the expression “by way of VAT” was referring to something that was paid “as though it was VAT”.  He submitted that the provision was expressly directed to “wrongful” payments of VAT where the amounts paid were not properly VAT but were paid as if they were VAT.  He submitted that the Appellant’s grievance was really the operation of the capping provision of section 80(4), and he suggested that if it had not been for the capping, the Appellant would have reasonably accepted that the amounts she paid to the Commissioners while registered were amounts paid by way of VAT, as if it was not for the capping, she would have received back everything, but because the repayments were limited by the capping provisions, the Appellant was now faced with pursuing the novel argument that section 80 had no application at all to the amounts of money she had paid to the Commissioners.

25.	Mr Poole submitted that the amounts that the Appellant paid over the years to the Commissioners must have been paid by way of VAT and could not have been paid in any other way.  He submitted that the wording of section 80(1), section 80(4) and section 80(7) was clear an unambiguous.  The Commissioners are not liable to repay any amount paid to them more than 3 years before  the making of the claim.  The Commissioners are not liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them, except as provided in section 80.

26.	Mr Poole did not accept the Appellant’s submissions that the activities of the Appellant had been outside the scope of VAT, when she had in fact been registered for VAT, and she had nevertheless paid amounts “by way of VAT”.

27.	Mr Poole submitted that the Bond House decision was not relevant to the current appeal because, in contrast to the Bond House case where there was fraud and no economic activities, Mrs Hedley was clearly carrying on economic activities of substance in her business.  Mrs Hedley was a taxable person, and it could not be said that her supplies while registered were outside the scope of VAT.

28.	Mr Poole submitted that there was no merit in the suggestion by Mr Martin that the capping provisions of section 80 were in breach of European Community law.  In Marks and Spencer v CCE [2002] STC 1036 the European Court of Justice had considered the imposition of the 3 year capping provision under section 80, albeit in the context of a reference concerning repayment of sums wrongly collected in breach of community law, specifically article 11A(1)(a) of the 6th Directive.  The ECJ had held that it was for the domestic system of each member state to designate to the courts and tribunals having jurisdiction the detailed procedural rules governing actions for safeguarding rights which individuals derive from community law, provided, first that such rules are not less favourable than those governing similar domestic actions (the principal of equivalence), and secondly, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by community law (the principal of effectiveness).  With regard to the latter principal it is compatible with community law to lay down reasonable time limits for the bringing of proceedings.  Such time limits will not offend the principle of effectiveness and a 3 year time limit is reasonable.  The ECJ had held on the other hand that whilst it was not incompatible with community law to reduce the time limit for bringing a claim, it was subject to the condition that new legislation includes transitional arrangements allowing an adequate period after the enactment of the new legislation for lodging the claim for repayment which persons were entitled to submit under the original legislation.  Mr Poole submitted that the 3 year cap had been in force for several years and it was set out in clear terms in the legislation and clearly applied to the Appellant.  The Appellant had made the claim for repayment in June 2001 whereas the reduction in the capping provision from 6 to 3 years was contained in legislation passed in March 1997.  He submitted that Mr Martin had not submitted any specific arguments as to why Mr Martin had considered that section 80 was in breach of community law.

Conclusions
29.	In this appeal the Appellant was registered for VAT with effect from 1 November 1987 in connection with her business of running a riding school and livery stables.  She submitted VAT returns and paid VAT in accordance with those returns.  In 2001 the Appellant claimed to the Commissioners that her supplies were exempt supplies and that she was not liable to be registered for VAT.  On 20 August 2001 the Commissioners accepted her contentions, and cancelled her registration.  The Commissioners repaid to the Appellant some of the VAT, but imposed the 3 year cap on such repayments on the basis that the Commissioners were not liable to repay any amounts paid to them more than 3 years before the making of the claim.

30.	The Appellant in this appeal submitted that she should not be the subject of the time limit in the capping provision because, as a result of the cancellation of her registration, her original registration can be regarded as invalid, and that this in turn leads to a conclusion that should be made that she was never a taxable person and that all her supplies were outside the scope of VAT.  We do not agree with those contentions of the Appellant.

31.	We find that the Appellant had been registered for VAT.  We find that she has submitted VAT returns since 1987 and she has paid amounts to the Commissioners in accordance to those VAT returns.  We find that these amounts were paid to the Commissioners “by way of VAT”.  We find that she was a taxable person.  We find that, as a result of the acceptance of her claim by the Commissioners that her supplies were exempt services, the Commissioners agreed that she was not liable to be registered and cancelled her registration.  We find that the effect of this is that the amounts which she had paid by way of VAT were therefore amounts which were “not VAT due to them”, and the Commissioners were liable to repay the amounts to the Appellant in accordance with section 80(1) VATA.

32.	We find that under section 80(4) the Commissioners are not liable to repay any amount paid to them more than 3 years before the making of  the claim.  We find that the repayment by the Commissioners is accordingly subject to this capping provision set out in section 80(4).

33.	The Appellant has appealed against the imposition of the capping period claiming that she should be repaid all of the amounts of the paid by her, even the amounts that had been paid more than 3 years before the making of the claim.  We find however that the Commissioners are not liable to repay these earlier sums to the Appellant.  It is clear from section 80(7) of VATA that except as provided by section 80 the Commissioners shall not be liable to repay an amount paid to them by way of VAT by virtue of the fact that it was not VAT due to them.  We find that section 80(7) specifically therefore precludes the Appellant’s claim in this appeal.

34.	We do not accept the Appellant’s submission that she was never a taxable person.  We find that she was a taxable person.

35.	Section 3(1) VATA stated “a person is a taxable person for the purposes of this Act while he is, or is required to be, registered under this act”.  The Appellant was registered under the Act and carried out her business activities and submitted her VAT returns during the period of her registration.  We find that she was a person registered for VAT and a taxable person.

36.	The Appellant submitted that all her supplies were outside the scope of VAT.  We do not agree with that contention.  Whilst registered for VAT she made supplies as a person registered for VAT.  She paid amounts to the Commissioners “by way of VAT” within the definition of section 80(1).

37.	We do not agree with the submissions of the Appellants representative relating to the Bond House Systems Limited case.  We find that that case has no relevance to the present appeal.  That case involved a carousel fraud and was entirely different to the circumstances in the current appeal.  We further reject the submission of the Appellant’s representative that the capping provisions of section 80(4) are in breach of the European Community law.  The European Court of Justice in Marks and Spencer v CCE [2002] STC 1036 found the 3 year capping provision of section 80 compatable with European Community law.  Mr Martin did not submit any specific or detailed argument to why he considered that the capping provision was in breach of European Community law, and we see no merit in his submission.

38.	In conclusion accordingly we find that the Appellant had paid amounts to the Commissioners “by way of VAT” which was not VAT due to the Commissioners and which the Commissioners were liable to repay to her, except for such amounts as had been paid by her to the Commissioners more than 3 years before the making of the claim.  Under section 80(4) it is specifically provided that the Commissioners shall not be liable on a claim made under section 80 to repay any amount paid to them over 3 years before the making of the claim.

39.	The Appellant has alleged that the VAT was not due to the Commissioners.  In section 80(7) this point is specifically covered, as it is expressly provided that except as provided by section 80 the Commissioners shall not be liable to repay an amount paid them by way of VAT by virtue of the fact it was not VAT due to them.  We find that the decision of the Commissioners was in accordance with section 80 of the Act.  We find no merit in the suggestions of the Appellant that she is not the subject of the 3 year capping provision of section 80(4).

40.	Accordingly we dismiss the Appellant’s appeal.

41.	The Commissioners did not seek an order for costs and we make no order for costs.

I E VELLINS
CHAIRMAN
Release Date:

MAN/01/404