19145
INTEREST – Rate – Appeal against refusal of tax credit – Decision withdrawn before hearing – Determination of rate of interest under VAT Act 1994 s 84(8) – Whether tribunal is authorized to find the amount due to the taxpayer – Yes – Whether taxpayer’s entitlement to a repayment supplement under s 79 excludes any right to interest under s 84(8) – No – Whether rate of interest is as prescribed by FA 1996 s 197 and SI 1998/1461 – Yes – Whether start date for interest calculation is ten days from receipt of return – Yes 

LONDON TRIBUNAL CENTRE

	OLYMPIA TECHNOLOGY LIMITED	Appellant

-	and –

	HER MAJESTY’S  REVENUE AND CUSTOMS 	Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)

Sitting in public in London on 23 May 2005

Jolyon Maugham, counsel, instructed by Chiltern Plc, for the Appellant 

Suzanne Lambert, counsel, instructed by the Acting Solicitor for the Customs & Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1.	Olympia Technology Ltd (“OTL”) ask for the Tribunal’s determination of a rate of interest to be applied to the Commissioners’ obligation to pay interest on the sum of £193,705 repayable by the Commissioners to OTL under VAT Act 1994 (“VATA”) section 84(8).  The £193,705 due to OTL was claimed on 7 November 2003.  It relates to the October 2003 period of claim.  The original amount of the claim had been £803,213.  All but the £193,705 to which this application relates had been repaid by the end of April 2004.

2.	OTL appealed against the Commissioners’ decision in a letter of March 2004 that the £193,704 was not repayable. The appeal fell under section 83(c).  This provides that “… an appeal shall lie to a tribunal in respect of any of the following matters: … (c) an amount of any input tax which may be credited to any person”.  

3.	The appeal was fixed to be heard on 23 May 2005.  On 16 May the Commissioners confirmed in writing to OTL, following an earlier telephone call that day, “that the Commissioners will be withdrawing the disputed decision in full”.  The Commissioners notified OTL, on 19 May 2005, that repayment supplement on the sum of £193,704 was payable; the same letter stated that it was “inappropriate for the tribunal to award section 84 VATA interest”.  OTL then wrote to the Tribunal on 19 May making an application for a direction in respect of a payment of interest further to section 84(8) of VATA.  

4.	Section 84 is contained in the “Appeals” part  (Part V) of VATA.  Subsection (1) provides that references in section 84 to an appeal are references to an appeal under section 83.  Subsection (8), so far as is relevant, reads as follows:

“(8)	Where on an appeal it is found –

(a)	…
(b)	that the whole or part of any VAT credit due to the appellant has not been paid, 

so much of that amount as is found not to be due or not to have been paid shall be repaid (or, as the case may be paid) with interest at such rate as the tribunal may determine; …”

The obligation to pay interest, in circumstances to which section 84(8) applies, is a fixed statutory obligation over which the Tribunal has no jurisdiction.  The Tribunal’s only jurisdiction is to determine the rate of that interest.  The Commissioners contend that the circumstances of the present proceedings are wholly outside the scope of section 84(8).  They withdrew the decision not to repay the £193,704 for what their counsel described as “tactical reasons”.  (No explanation as to those reasons was given.)  Consequently, the Commissioners say, there has been no relevant finding that an amount is due to OTL.  As a result the Tribunal’s jurisdiction to determine a rate of  interest is not engaged.  

5.	Moreover, say the Commissioners, where interest under section 78 or a repayment supplement under section 79 is directed to be paid, section 84(8) has no function.  I will return to this argument.  

Has it been “found … that the  … credit due to [OTL] has not been paid?

6.	OTL has not withdrawn its appeal.  The Commissioners have not sought to strike it out.  The appeal, which (as noted) comes under section 83(c), is still within the Tribunal’s jurisdiction and on the strength of section 84(1) all the provisions of section 84 remain in operation.  Section 84(8) directs that the amount of credit due to an appellant (such as OTL) be repaid with interest where “on” the appeal “it is found that” that the amount in question is repayable.  The decision of the Commissioners to withdraw their decision that the £193,704 was not payable to OTL operates, as I see it, as the Commissioners’ acknowledgment in the course of the appeal proceedings that that amount is an amount due to OTL.  The appeal remains with the Tribunal and it is open to me, on the strength of the Commissioners’ acknowledgment, to find that that amount is a “credit due” to OTL and to find that it has not been paid.  I, as the Tribunal seized of the appeal, find it to have been so.  On the strength of that finding section 84(8) interest becomes payable.  I can now proceed to determine the rate.  But before doing so I need to deal with the arguments for the Commissioners that that approach is not open to me.  

Do sections 78 and 79 of VATA override and exclude the operation of section 84(8)?

7.	Sections 78 and 79 are in Part IV of the VAT Act.  That part is concerned with “Administration, Collection and Enforcement”.  Neither sections 78 nor 79 operate in consequence of an appeal.  Both are, as the heading categorizes them, statutory obligations on the Commissioners that arise in the course of the administration of the tax.  Section 78(1) directs the Commissioners to pay interest on an “amount” due to a person where, due to their error, the person in question has suffered delay in receiving payment of that amount; the rate is prescribed by Regulation (SI 1998/1461).  Section 79 directs the Commissioners to increase any payment or refund due to a person entitled to a VAT credit “by the addition of a supplement equal to 5% of that amount or £50, whichever is the greater”; the condition for its application is that the Commissioners have overrun the prescribed “thirty day” period (in subsection (2)) before paying or refunding the amount claimed.  

8.	The liability of the Commissioners under sections 78 and 79 is limited in two specific ways.  First, section 78(1) provides that interest under that section is to be paid by the Commissioners on an amount erroneously withheld from a taxpayer “if and to the extent that they would not be liable to do so apart from this section”.  This means that if section 84(8) interest becomes payable in a particular event, then the Commissioners’ obligation under section 78(1) is to that extent abated.  

9.	Then section 79(2) directs that –

“Nothing in subsection (1) requires the Commissioners to pay interest –

(a)	on any amount which falls to be increased by a supplement under section 79.”

Here, the Commissioners have acknowledged their liability to make a repayment supplement to OTL.  They say, however, that it is convenient and just that in a case such as this where a disputed decision has been withdrawn that their interest obligations should be limited to sections 78 and 79.  It could not, they say, have been Parliament’s intention, where an appeal has been withdrawn, that the interest obligation under section 84(8) should apply; otherwise (and here I quote from the Commissioners’ skeleton argument) the matter “would always have to come before the Tribunal because the Commissioners themselves have no power to award such interest.”

10.	I do not read section 78(2) as either expressly or by necessary implication excluding the Commissioners’ obligation to pay section 84(8) interest where a repayment supplement is to be made under section 79.  Section 84(8) has a different function to those of sections 78 and 79.  It is in Part V, the appeal-related Part of  the Act.  It comes into operation and directs that interest be paid only when a taxpayer has had to appeal and the appeal has been determined by either a finding within section 84(8) or an agreement that, by virtue of  section 85(1), has a like effect.  By complete contrast sections 78 and 79 apply outside the appeal process.  Section 78 provides a statutory compensation for taxpayers who have been kept out of their money because of “an error on the part of the Commissioners”.  Section 79 was designed as a protection to the taxpayer who has suffered unacceptable delay on the Commissioners’ part in dealing with the repayment claim and, to use the words of Auld J in Customs and Excise Commissioners v L Rowland & Co (Retail) Ltd [1992] STC 647 at 655g, “as a spur to efficiency on the part of the Commissioners”.  Section 79 has its own code for measuring the repayment supplement by reference to the standards of efficient conduct demanded of the Commissioners by Parliament.  It does not produce an interest formula of the sort required for the application of section 84(8).

11.	For those reasons I think that section 84(8) stands on its own and is unaffected by the operation of sections 78 and 79.  I agree with the conclusion of the Tribunal in UK Tradeccorp Ltd v Customs and Excise Commissioners [2004] V&DTR 195, VAT Dec 18714.

Does the Elite Mobile decision affect the position?

12.	The Commissioners’ comment is that because there has been no “judgment” in the present appeal, there can be no interest award under section 84(8).  This follows by analogy with section 35A(1) of the Supreme Court Act 1981.  Section 35A(1) is directed at proceedings for recovery of a debt; where there is a “judgment” in those proceedings an award of interest may be included.  Thus when the principal amount claimed in the proceedings has been paid before any judgment is given there is no scope, as Lindsay J recognized in R (on the application of Elite Mobile plc) v Customs and Excise Commissioners [2005] STC 275 paragraph 32, for any interest to be included.  Section 35A, unlike section 84(8), it was pointed out for the Commissioners, has a further interest provision in subsection (3) to cover the situation when a defendant withdraws before judgment and pays over the  whole amount claimed; in the absence of a comparable provision in section 84 it must, they say, follow that section 84(8) interest is not payable by the Commissioners in the present circumstances.

13.	The circumstances of Elite Mobile had been different from the present.  There Elite Mobile had made a repayment claim.  Elite Mobile’s entitlement had not been disputed by the Commissioners; consequently Elite Mobile, unlike OTL, had not appealed to the Tribunal.  The Commissioners, instead of repaying the amount due to Elite Mobile, had decided instead to set it off against an amount of output tax claimed by the Commissioners but which was under appeal to the Tribunal.  Elite Mobile applied for judicial review of that decision and before any court ruling the Commissioners wrote saying that they would repay the amount claimed by Elite Mobile with interest in accordance with section 78(1).  Elite Mobile were not satisfied with the rate of interest under section 78 (prescribed by SI 1998/1461) and sought a repayment supplement under section 79 and interest under section 35A of the Supreme Court Act.  I have not found the Elite Mobile decision of assistance on the question whether section 84(8) operates to require the Commissioners to pay interest on the amount due to OTL.  Section 84(8) was not in point in that case because, as noted, Elite Mobile had not “unlike OTL” appealed against the Commissioners’ refusal to make a repayment of tax.  Moreover section 35A is constructed and worded differently from section 84(8).  In particular, section 35A refers in subsection (1) to the situation where “judgment is given” and, in subsection (3), to payment “otherwise than in pursuance of a judgment in the proceedings”.  By contrast section 84(8) uses words reflecting the different course of proceedings taken by statutory appeals under VATA.

The appropriate rate of interest

14.	OTL contend that the rate of interest to be determined by the Tribunal should be the rate prescribed for interest on High Court judgments, i.e. 8% : see paragraph 21 of Elite Mobile.  Alternatively it should be interest at the rate prescribed by section 197 of Finance Act 1996 (see section 74(1) which directs that “default interest” be charged on assessments raised under section 73) : that rate was said to be in the region of 7.5%.

15.	The Commissioners say it should be the section 78 rate which is in fact the rate prescribed by section 197 of FA 1996.  It appears therefore that there is a half per cent difference between the two parties.

16.	Section 84(8) says nothing about what criteria should be adopted by the Tribunal in determining the rate of interest to be applicable to the amount found due.  The judgment in Elite Mobile touched on this when considering what rate should be applied for purposes of the discretion given by section 35A(3).  The message from Elite Mobile is that in a VAT context the section 78 rate should be used unless it is so significantly out of line with current commercial rates that it can only be characterized as unjust: see paragraphs 37 and 38 of the judgment.  Neither side produced any evidence as to current commercial rates.  This leaves the Supreme Court rate of 8%.  Comparing that with the 7.5% rate prescribed by SI 1998/1461 for purposes of section 197 of FA 1996, it seems to me that the latter is not so far out of line and are therefore adopted.  

From what date does the interest run?

17.	The return relates to the October 2003 period.  It was submitted on 7 November 2003.  

18.	The tribunal in the UK Tradecorp decision. supra, directed that interest should run from the due date for the return (in this case 30 November 2003) because that was the date from which default interest would normally have run.

19.	The Commissioners say that the statutory date should be 30 days from the date when the Commissioners receive the return because that is the start of the “relevant period” for purposes of section 79(2A).  (A person claiming a tax credit is entitled to a repayment supplement if, among other things, a written instruction directing the making of the payment is not issued by the Commissioners within the “relevant period” : see section 79(2)(b).) 7 December 2003 would be the start date on that approach.  

20.	OTL contends that interest should run from the start of the “applicable period” as defined in section 78(7), i.e. “the date on which, apart from the error, the Commissioners might “reasonably have been expected to authorize payment of the amount on which the interest is payable”.  Referring to a Code of Practice published by the Commissioners, OTL observed that this says that a taxpayer can expect the Commissioners to authorize payment of at least 90% of correct repayment returns within 10 working days of their receipt in the VAT Central Unit.  Assuming the October 2003 return was received by the Commissioners on 7 November 2003, 17 November would be the start date on this approach.

21.	The Tribunal’s jurisdiction under section 84(8) is restricted to determining the rate of interest.  But to determine the rate the Tribunal has to take account of changes in rates over the period for which the amount claimed has not been paid.  It must therefore be part of the Tribunal’s function to determine the start of the period for which the interest runs.

22.	I do not accept the Commissioners’ start date.  Section 79 is a special code containing special provisions designed to protect taxpayers from official delay and to act as a spur to efficiency.  I do not therefore think that the start of the “relevant period” as defined in section 79(2A) is the one to be preferred here.  Nor am I convinced that the due date for the making of the return is the appropriate date.  Repayment traders such as OTL need their money back and should be given interest from a date that relates to the date on which they actually submit their repayment return (always assuming that this falls after the end of the accounting period).  Which brings me to OTL’s preferred date, i.e. ten days from receipt by the Commissioners of the correct repayment return.  That seems to me to be the best of those suggested to me and I cannot see a more appropriate date.  If it be the case that repayment traders are given to expect that at least 90% of them who have their repayments authorized within ten days of receipt of their returns, then it should follow that interest will accrue due to them if repayment is not authorized by then.

23.	For the reasons given above I issue the following direction:

IT IS DETERMINED THAT the interest on the £193,700 of credit claimed by the Appellants be at 7.5%  AND such interest shall run from 17 November 2003.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 29 June 2005

LON/04/271