20648
Value added tax – output tax – claim for repayment of overpaid VAT made more than 3 years after the relevant date – whether S.80(4ZA) VATA 1994 should be disapplied by virtue of the principles of equivalence or effectiveness referred to in Marks & Spencer and Fleming cases – answer no – whether claim was made pursuant to S.80(1) or S.80(1B) – claim made too late – S.80(1B) and S.80(4ZA) applied – appeal dismissed. 

	
MANCHESTER TRIBUNAL CENTRE 			   

 
 	
	LA LEISURE LTD	Appellants
	
	- and -

THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	IAN VELLINS (Chairman)

Sitting in public in Manchester on 6 March 2008

Adam Rycroft for the Appellant

Richard Chapman, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2008

DECISION

The appeal

1.	In this appeal the Appellant is LA Leisure Ltd, carrying on business as a health and fitness centre, registered at 101 Commercial Road, London E1 1RD under VAT Registration 365665421.

2.	The appeal concerns whether a claim made by the Appellant for overpaid output tax made on 31st May 2007 was out of time to the extent that it related to VAT overpaid in the period ending April 2004.

3.	At the hearing of this appeal at Manchester on 6 March 2008, the Appellant was represented by Adam Rycroft of KPMG, and the Respondents were represented by Richard Chapman, counsel.

4.	No oral evidence was given at the hearing, as the facts were agreed by the representatives.

5.	There were four issues in this appeal which amounted to questions of law.  These issues required an overview of the legislation, and a consideration of the effect on the facts of this appeal of inter alia the Marks & Spencer cases, and the House of Lords decision in the Fleming case (2008).

6.	The four issues of law to be determined in this appeal are:

(1)	Whether or not Section 80(4ZA) VATA 1994 should be disapplied by virtue of the principle of equivalence or equal treatment.
(2)	Whether or not Section 80(4ZA) should be disapplied by virtue of the principle of effectiveness.
(3)	Whether the claim is made pursuant to Section 80(1) or Section 80(1B).
(4)	How the limitation period is to be computed.

The facts

7.	The following are the facts in this appeal and appear not to be disputed by the parties.

8.	The Appellant carries on business as a health and fitness centre.

9.	By a letter dated 31 May 2007, sent to Customs by e-mail, the Appellant made the claim.  The Appellant claimed a repayment pursuant to Section 80 VATA 1994 in the sum of £140,153, being £20,686 in respect of sales of food products and £119,467 in respect of default charges.  Although the claim related to three companies, the Appellant, LA Fitness (1998) Ltd and Crown Sports Plc, only the Appellant’s claim is now pursued.

10.	The claim related to the three month period ending 30 April 2004.

11.	The Appellant had made the payments which were the subject of the claim on 27 May 2004, pursuant to the Payments on Account scheme.  These were therefore deemed to have been paid on the last day upon which the return was due being 31 May 2004.

12.	The decision in this appeal was made by Customs by a letter incorrectly dated 4 May 2007 but sent on 4 June 2007.

13.	By a letter dated 6 June 2007 the Appellant requested a reconsideration of the decision.

14.	The decision was upheld by Customs in a review letter dated 6 July 2007 (although reconsidered and upheld on amended grounds by a letter dated 13 September 2007).

15.	The Appellant appealed against the decision in a notice of appeal dated 16 July 2007.

16.	The Appellant accounts for VAT by reference to quarters ending on 31 January, 30 April, 31 July and 31 October.  The claim related to accounting periods ending 30 April 2004.

17.	It was agreed that the Appellant had submitted a claim for overpaid VAT dated and received by Customs on 31 May 2007.

18.	Customs rejected the Appellant’s claim to the extent that it related to the period ending 30 April 2004 on the basis that Customs contended that the applicable time limits applying to the claim were contained in Section 80(4ZA) VATA 1994 which stated that a claim made under Section 80(1) must be made within three years of the end of the relevant accounting period.

The legislation

19.	The relevant parts of Section 80 VATA 1994 provide as follows and purport to do so in respect of claims made on or after 26 May 2005;

“Credit for, or repayment of, overstated or overpaid VAT

(1)	Where a person – 
(a)	has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended) and
(b)	in doing so, has brought into account as output tax an amount that was not output tax due,
The Commissioners shall be liable to credit the person with that amount

(1A) Where the Commissioners – 
(a)	have assessed a person to VAT for a prescribed accounting period (whatever ended) and
(b)	in doing so, have brought into account as output tax an amount that was not output tax due
they shall be liable to credit the person with that amount

(1B) Where a person has for a prescribed accounting period (whenever ended) paid to the Commissioners an amount by way of VAT that was not VAT due to them, otherwise than as a result of – 

(a)	an amount that was not output tax due being brought into account as output tax, or
(b)	an amount of input tax allowable under section 26 not being brought into account,

the Commissioners shall be liable to repay to that person the amount so paid

(3)	It shall be a defence, in relation to a claim under this section by virtue of subsection (1) or (1A) above, that the crediting of an amount would unjustly enrich the claimant

(4)	The Commissioners shall not be liable on a claim under this section – 

(a)	to credit an amount to a person under subsection (1) or (1A) above, or
(b)	to repay an amount to a person under subsection (1B) above,

if the claim is made more than 3 years after the relevant date.

(4ZA) The relevant date is – 

(a)	in the case of a claim by virtue of subsection (1) above the end of the prescribed accounting period mentioned in that subsection, unless paragraph (b) below applies;
(b)	in the case of a claim by virtue of subsection (1) above in respect of an erroneous voluntary disclosure, the end of the prescribed accounting period in which the disclosure was made;

…

(e) in the case of a claim by virtue of subsection (1B) above, the date on which the payment was made”

20.	Prior to 26 May 2005 there was no equivalent to Section 80(4ZA), and Section 80(4) had provided as follows:

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

21.	Section 80(4ZA) was introduced into UK legislation with effect in relation to any claim made after 26 May 2005, which was the date of the Finance Bill No. 2 2005.  No advance notice was given to tax payers in advance of the Finance Bill, and no announcement was made in the Treasury’s budget publications.  The Finance Act received Royal ascent on 20 July 2005.

The first question – equivalence or equal treatment

22.	Customs has rejected the Appellant’s claim for overpaid output tax on the basis that, by virtue of Section 80(4ZA) VATA 1994 the claim had been made more than three years after 30 April 2004 which was the relevant date, the claim having been made on 31 May 2007.

23.	The first issue to be decided in this appeal is whether or not Section 80(4ZA) should be disapplied by virtue of the principle of equivalence or equal treatment.

24.	In that respect the Appellant argued that in reckoning the time limits for a claim relating to output tax, the Appellant was entitled to rely on the applicable time limits applying to claims for under claimed input tax.  The Appellant relied on the principle of equivalence as referred to in the case of Marks & Spencer (C-62/00).  The Appellant submitted that the principle of equivalence required that whilst it was for the domestic legal system of each Member State to designate rules concerning the repayment of national charges wrongly levied, it is a requirement that such rules should be no less favourable than those governing similar domestic actions.  The Appellant argued that a claim for recovery of input tax is a similar domestic action to a claim for output tax.  On that basis it was argued that in reckoning the time limits applicable to a claim for recovery of output tax, a tax payer should be entitled to rely on the time limits applying to claims for input tax. This issue of law is directly relevant to the Appellant, as if the time limits relating to input tax are applied to the Appellant’s claim, then the period ending 30 April 2004 where the due date was 31 May 2004 was, it was argued by the Appellant, within time as at the date of the claim.

25.	Accordingly, the Appellant was submitting that the terms of Section 80(4ZA) were contrary to the principle of equivalence.  It was submitted by the Appellant that a measure was equivalent where it performed the same function as another measure contained in national law.  The Appellant submitted that the rules applying in relation to the time limits applying in respect of claims for overpaid output tax are equivalent to similar national provisions for the repayment of input tax, as both fulfil the same function.  The Appellant submitted that there can be no legitimate or objective reasons for differentiating between the two measures.  The Appellant submitted that in accordance with the principle of equivalence the Appellant was therefore entitled to rely on the time limits in respect to claims for input tax.  The relevant provision relating to input tax contained in regulation 29 provides that a claim must be made within three years of the date the return was required to be made.  The return for the period ending April 2004 was due by 31 May 2004, and the Appellant submitted that the claim was made within three years of 31 May 2004 (being made on 31 May 2007).

26.	In relation to input tax Rregulation 29(1A) of the VAT Regulations 1995 currently provides:

“The Commissioners shall not allow or direct a person to make any claim for deduction of input tax in terms such that the deduction would fall to be claimed more than three years after the date by which the return for the prescribed accounting period in which the VAT became chargeable is required to be made.”

27.	Regulation 25(1) provides:

“Every person who is registered or was or is required to be registered shall, in respect of every period of a quarter, or in the case of a person who is registered, every period of three months ending on the dates notified either in the certificate of registration issued to him otherwise, not later than the last day of the month next following the end of the period to which it relates, make to the Controller a return on the form numbered 4 in schedule 1 to these Regulations (“form 4”) showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete.”

28.	The reference to the principle of equivalence or equal treatment made by the Appellant was set out in paragraph 64 of the opinion of Advocate General Kokott delivered on 13 December 2007 in case C-309/06 Marks & Spencer Plc v. Her Majesty’s Commissioners Of Customs And Excise, namely:

“64. in addition to the principle of fiscal neutrality, Member States, when implementing the Sixth VAT Directive, must also observe the general principle of equal treatment, under which comparable situations must not be treated differently and different situations must not be treated in the same way unless such treatment is objectively justified”.  

29.	In paragraphs 72, 73 and 74 Advocate General Kokott set out the remedy in the event of infringement of the principle of equal treatment.

30.	In paragraph 74 Advocate General Kokott stated as follows:

“74.  In addition, as the court has repeatedly held in situations of discrimination contrary to Community law, for as long as measures reinstating equal treatment have not been adopted, observance of the principle of the equality can be ensured only by granting to persons within the disadvantaged category the same advantages as those enjoyed by persons within the favoured category.   In such a situation, a national court must set aside any discriminatory provision of national law, without having to request or await its prior removal by the legislature, and apply to members of the disadvantaged group the same arrangements as those enjoyed by the persons in the other category”.  

31.	Accordingly the Appellant relied on those paragraphs in the Marks & Spencer decision to argue that a claim for input tax and a claim for output tax are comparable situations demanding equal treatment, and that there is no objective justification for treating the two situations differently.  On the basis of paragraph 74 the Appellant accordingly sought to rely on regulation 29(1A) and wished the Appellant to be back in the situation of the advantaged category of persons reclaiming input tax under-claimed.

32.	It was argued on behalf of Customs that section 80(4ZA) does not fall foul of the principle of equivalence for the following reasons:

(1)	The time limit for both output tax and input tax is three years
(2)	The only change brought about by section 80(4ZA) is as to the manner in which the time limit is calculated
(3)	The difference between the start date for output tax and the start date for input tax is in order to achieve equal treatment.  Where the VAT has been wrongly accounted for the start date is the end of the prescribed accounting period, and where the VAT has been overpaid (other than in respect of an amount that was not output tax being brought into account as output tax) the start date is the date of actual or deemed payment.  This ensures that the three year time limit always runs from the date when the right to payment or deduction arises (whether when it is overpaid or accounted for).  This therefore promotes rather than infringes the principle of equivalence.  There is a one month difference between the two start dates because there is a difference as to when the right to payment or the right to deduction arises.  Customs submitted that the two processes are computing time from exactly the same event and it is only the difference between output tax and input tax that means that those are in fact on different dates.  Customs submitted that it was not the date that was important for assessing equal treatment but the reasons for the time limits and start periods.  Customs submitted that this was brought into stark relief for the very reason for amending section 80 because the previous position taking the time limit from the date of payment in those circumstances had been inequitable when compared with repayment traders who would not actually have made any payment.  Customs submitted that the whole purpose of that amendment was to remedy that inequality.  Customs submitted that in the Marks & Spencer and Fleming cases it had been stated that a departure from equal treatment was only applicable while it was objectively appropriate.  Customs accordingly argued that section 80(4ZA) was not a departure from equal treatment at all, but Customs argued that if it was a departure from equal treatment by reference to separate dates it is one which is appropriate to avoid inequality of treatment between payment traders and repayment traders.
(4)	Section 80 provides equally for payment and repayment traders irrespective of which accounting periods were in error.  The previous position (taking the time limits and date of payment) had been inequitable in respect of repayment traders who would not have made any payment.
(5)	The position is therefore not affected by the Marks & Spencer case (C-309/06), which deals with the possible inequality between payment and repayment traders.
(6)	It is appropriate to treat input tax and output tax differently as input tax errors involve a deduction and output tax errors involve a repayment.

33.	Having considered the arguments of both the representatives, the legislation, and the case law, I reject the arguments of the Appellant, and accept and adopt the arguments of Customs.

34.	I find that the applicable legislation is that contained in section 80(4ZA) VATA 1994.  Customs are not liable on a claim made more than three years after the relevant date.  The relevant date is the end of the prescribed accounting period, namely 30 April 2004.  The Appellant did not make a claim until 31 May 2007 which was more than three years after the relevant date.  I find that section 80(4ZA) does not fall foul of the principle of equivalence as expressed in the opinion of Advocate General Kokott in the Marks & Spencer case.  I find that the Appellant is not entitled to rely on the time limits applying to claims for under-claimed input tax contained in regulation 29 where a claim for input tax must be made within three years of the date the return was required to be made (as opposed to within three years of the end of the prescribed accounting period in relation to overpaid output tax).

35.	In deciding that section 80(4ZA) does not fall foul of the principle of equivalence, I have considered that the time limit for both output tax and input tax is three years, and the only change brought about by section 80(4ZA) was as to the manner in which the time limit was calculated.  I find that the difference between the start date for output tax and the start date for input tax was in order to achieve equal treatment, and did promote rather than infringe the principle of equal treatment or equivalence.  Section 80 provides equally for payment and repayment traders irrespective of which accounting periods were in error, and they have been introduced because the previous position (taking the time limit from the date of payment) had been inequitable in respect of repayment traders who had not made any payment.  I find that the application of section 80(4ZA) is not affected by the Marks & Spencer case, where the facts and decision dealt with different circumstances, dealing with possible inequalities between payment and repayment traders.  I find that it is appropriate to treat input tax and output tax differently and that such different treatment does not offend the principle of equivalence.

The second question – effectiveness

36.	The second question is whether or not section 80(4ZA) VATA 1994 should be disapplied by virtue of the principle of effectiveness, and concerned whether the UK was in breach of community law in the manner in which it changed the previous law contained in section 80(4), to the provisions of section 80(4ZA).

37.	Prior to 26 May 2004 section 80(4) VATA 1994 provided that “the Commissioners shall not be liable on a claim made under this section to repay any amount paid to them more than three years before the making of a claim.”  As from 26 May 2004 section 80(4ZA) provided that the Commissioners should not be liable on a claim if the claim was made more than three years after the relevant date, the relevant date being the end of the prescribed accounting period.

38.	The Appellant argued that the UK was in breach of community law in the manner in which it reduced time limits applying to claims for output tax contained in the Finance Act 2005.  The Appellant argued that this was essentially the same question as was considered in the Marks & Spencer case.  The Marks & Spencer decision concerned the curtailing of the time limits, from six years of discovery of a mistake to three years from the date of a repayment.  The Appellant’s case concerned curtailment of the time limits for claims from three years from the date of payment (applying before Finance Act 2005), to three years from the end of the accounting period (applying after Finance Act 2005).  The Appellant argued that the extent to which time limits were curtailed by the Finance Act 2005 was not to the same extent as the changes introduced in the 1997 Finance Act, and that did not in any way relieve a Member State of the obligation to provide a transitional period.  The Appellant argued that in the absence of a transitional period tax payers should continue to be entitled to rely on the applicable time limits enforced before the Finance Act 2005, which is the time when the relevant VAT was overpaid.  This issue was directly relevant to the Appellant, as if the time limit ran from the date of payment of the tax, then the Appellant argued that the claim was within time, as the claim was made on 31 May 2007, and the tax was paid on 31 May 2004.  Accordingly the Appellant was arguing on the basis that under the terms of the old legislation the claim was in time but on the basis of the new legislation it was not.  The Appellant relied on the decisions in the Marks & Spencer case and in the Fleming case as justification for the Appellant’s argument that the Appellant should be able to rely on the old legislation.

39.	The Appellant considered that the decision of the ECJ in the Marks & Spencer case had considered the implementation into UK national legislation of the three year cap contained initially in section 80(4) VATA 1994.  The decision of the Court, which was given in response to a reference made by the Court of Appeal, considered the question posed as to whether it is consistent with the principle of the protection of legitimate expectations to enforce legislation which removes with a retrospective effect the right under national law to reclaim sums paid.  The ECJ stated at paragraph 34 of the decision that in the absence of community rules on the repayment of national charges wrongly levied, it is for the domestic legal system of each Member State to designate rules provided first that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence), and secondly that they do not render virtually impossible or excessively difficult the exercise of a right confirmed by community law (the principle of effectiveness).  The Appellant argued that the ECJ had stated that whilst national legislation reducing the period within which repayment of sums collected in breach of community law may be sought is not incompatible with the principle of effectiveness, it is subject to the condition not only that the new limitation period is reasonable but also that the new legislation includes transitional arrangements allowing an adequate period after the enactment of the legislation for lodging claims for repayment which persons were entitled to submit under the original legislation.

40.	The Appellant argued that there were no transitional provisions in relation to the introduction of section 80(4ZA) contained in legislation, and Customs did not implement any administrative measures to provide for a transitional period.

41.	The Appellant argued that furthermore, the legislation was introduced with retrospective effect, as it only became certain that the terms of section 3 of the Finance Bill 1995 would be fully enacted into UK legislation on the date the Act received Royal Ascent on 25 June 2005, and yet the provisions are purported to be in force from 26 May 2005.  The Appellant argued that the manner in which section 80(4ZA) was implemented was therefore contrary to the principle of effectiveness.

42.	The Appellant argued that the effect of that claimed breach was to render section 80 (4ZA) ineffective to the extent that it related to output tax over-declared prior to 26 May 2005.  The tax in dispute in the present appeal was incurred prior to 26 May 2005.  The Appellant claimed that on that basis the Appellant is entitled to rely on the terms of the legislation applying prior to that date (namely that contained in the then section 80(4) which provided that a claim must be made within three years of payment of the tax).  On that basis the Appellant claimed that the claim was made within time as it was made within three years of 31 May 2004.

43.	It was further argued on behalf of the Appellant that administrative acts undertaken by the Commissioners in the context of the present appeal did not give effect to the requirements of the Directive.  In particular HMRC guidance did not allow a transitional period for taxpayers to submit claims following the reduction of the time limits introduced in the Finance Act 2005.  Furthermore the guidance offended the principle of “certainty” as the guidance was equivocal as to the time limits applying to overpaid VAT.  The Appellant argued that as the guidance was equivocal, the Appellant was entitled to rely on the terms of the guidance most favourable to it, which in this instance is contained in Notice 700 which indicated that claims would be paid where they are made within three years of the overpayment (HMRC Guidance notice 700/45 – “How to correct errors and make adjustments or claims”, was updated on 25 July 2005 by addendum to provide that from May 2005 the three year period should run from the date of return).

44.	The Appellant contended that the tribunal should give a decision in terms indicating that the claim was valid to the extent that it related to the period ending April 2004.

45.	It was submitted and argued on behalf of Customs that the absence of a transitional period for section 80(4ZA) does not contravene the principle of effectiveness.

46.	Customs considered the principle of effectiveness as summarised in the Marks & Spencer case, and the principles emerging from the Fleming case.  Customs considered that the outcome of the Fleming case was that the absence of a transitional period for the reduction of the time limit for deduction of input tax pursuant to regulation 29(1A) contravened the principle of effectiveness with the result that no transitional period has yet expired, but submitted that the absence of a transitional period for section 80(4ZA) in the current appeal did not contravene the principle of effectiveness for the following reasons:

(1)	The purpose of the changes brought in by the Finance Act 2005 was to ensure equality between repayment traders and payment traders in respect of the defence of unjust enrichment
(2)	Crucially there is no need for a transitional period because there is no directly effective right to be unjustly enriched
(3)	The change is not to the period of limitation but instead to how it is calculated
(4)	A budget notice was issued on 16 March 2005 explaining the proposed changes to section 80
(5)	A transitional period would have had to run for two years and two months in order to incorporate the Appellant’s claim
(6)	The changes only make a difference in the present case of one month
(7)	The Appellant had sufficient time to make a claim

47.	Customs argued that it was important not to see the Fleming decision as a panacea for saying that all legislation that does not include a transitional period is unlawful and must be disapplied.  Customs argued that it depended on first as to whether there is a time limit change at all (in the Fleming case there was a change from six years to three years), and secondly it also depends on whether or not there is a directly enforceable right that it may contravene.  Customs argued that section 80(4ZA) did not change the time limit at all because the time limit remained exactly the same, namely three years, and was not any shorter at all, but what is different is the date from when it was computed.

48.	I have considered the arguments of the parties as to effectiveness, and in particular the principles summarised in the Marks & Spencer two cases and the Fleming case.

49.	In the earlier 2002 ECJ case of Marks & Spencer Plc v. Customs & Excise Commissioners (case C-62/00) (Marks & Spencer II) the principle of effectiveness was summarised at paragraphs 34-42.  In particular the ECJ stated as follows at paragraph 34:

“34. It should be recalled at the outset that in the absence of community rules on the repayment of national charges wrongly levied it is for the domestic legal system of each Member State to designate the courts and tribunals having jurisdiction and to lay down 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 action (the principle of equivalence) and secondly, that they do not render virtually impossible or excessively difficult the exercise of rights confirmed by community law (the principle of effectiveness)”.

50.	The principles emerging from Marks & Spencer II and Grundig Italiana SpA. v. Ministero Della Finanze (case C-255/00) (2002) ECR 1-8003 were summarised as follows in the House of Lords case of Fleming (T/A Bodycraft) v. HMRC (2008) UKHL2, by Lord Neuberger, paragraph 79 as follows:

“a) It is open to the legislature of a Member State to impose a time limit within which a claim for input tax must be brought: Marks & Spencer II para 35;

b)	It is further open to the legislature to introduce a new time limit, or to shorten an existing time limit, within which such a claim must be brought, even where the right to claim has already arisen (an “accrued right”) when the new time limit (a “retrospective time limit” is introduced: Marks & Spencer paras 37 and 38.

c)	Any such time limits must, however, be “fixed in advance” if they are to “serve their purpose of legal certainty”: Marks & Spencer II para 39.

d)	Where a retrospective time limit is introduced, the legislation must include transitional provisions to accord those with accrued rights a reasonable time within which to make their claims before the new retrospective time limit applies: Marks & Spencer II para 38 and Grundig II para 38.

e)	In so far as the legislature introduces a retrospective time limit without a reasonable transitional provision (as in Grundig II) or without any transitional provisions (as in Marks & Spencer II), the national courts cannot enforce the retrospective time limit in relation to accrued right, at least for a reasonable period; otherwise their [sic] would be a breach of community law: see Autologic plc v Inland Revenue Commissioners [2006] 1 AC 118 paras 16 to 17;

f)	The adequacy of the period accorded by the transitional provision( “the transitional period”) is to be determined by reference, inter alia, to the principles of effectiveness and legitimate expectation: Marks & Spencer II paras 34 and 4, and Grundig para 40; in particular, it must not be so short as to render it “practically impossible or excessively difficult” for a person with an accrued right to make a claim: Marks & Spencer II para 34, and Grundig para 33;

g)	It is primarily a matter for the national courts to decide whether the length of any transitional period is adequate, although the ECJ will give a view if the transitional period is “clearly” so short as to inconsistent with Community law, Grundig II paras 39 and 40;

h)	The absence of a transitional period of adequate length is not, however, automatically fatal to the enforcement of the retrospective time limit: Grundig para 41;

i)	Where there is no adequate transitional period, it is for the national court to fashion the remedy necessary to avoid an infringement of Community law; Marks & Spencer II para 34, Grundig II paras 33, 36, 40 and 41, Autologic paras 16 and 17, and the ECJ’s decision in Metallgesellschaft Ltd and Ors v Commissioners of Inland Revenue (Joined Cases C-397/98 and C-410/98) [2001] ECR I-1727, at para 85;

j)	That remedy would, at least normally, be to disapply (perhaps only for a period) the operation of the retrospective application of the new time limit to claims based on accrued right: Marks & Spencer II paras 34 to 41, and Grundig II paras 38-40 and especially (with regard to temporary disapplication) para 41.”

51.	I have also considered the judgment of Lord Hope in the Fleming case and in particular paragraphs 6, 7, 8 and 9 thereof.

52.	I have considered the principle of effectiveness in the light of the decisions in the cases quoted, and have considered the arguments of the respective parties in this appeal.  I reject the arguments of the Appellant and accept and adopt the arguments of Customs.

53.	In the Fleming case an entirely different situation arose to that in the current appeal.  The Fleming case concerned a considerable reduction having been made in the time limits from six to three years.  The outcome of the Fleming case was that the absence of a transitional period for the reduction of the time limit for deduction of input tax pursuant to regulation 29(1A) contravened the principle of effectiveness with the result that no transitional period has yet expired.  The facts of the current appeal are quite different.  The current appeal relates to a claim by the Appellant for overpaid output tax under quite different legislation.  In the current appeal the Appellant’s claim was to be decided under section 80(4ZA) 1994.

54.	I find that the absence of the transitional period for section 80(4ZA) does not contravene the principle of effectiveness.  I find that the purpose of the changes brought in by the Finance Act 2005 was to ensure equality between repayment traders and payment traders in respect of the defence of unjust enrichment.  There was no need for a transitional period because there was no directly effective right to be unjustly enriched.  Accordingly there was no right to bring community law into play in that respect.  The change introduced by section 80(4ZA) was not to the period of limitation but as to how it was calculated, and the budget notice was issued on 16 March 2005 explaining the proposed changes to section 80.  I find that the change in the calculation did not make it excessively difficult or virtually impossible for the Appellant to exercise a right confirmed by community law.  This was not a case where the time limit had already expired at the date of the change or an Appellant had been left with only a short period of time to make a claim.  It was not a situation as in the Fleming situation where there was a three year difference from six to three years.  The Appellant was in a position to know of the changes and had sufficient time to make a claim.  The changes only made a difference of one month.  If there had been a transitional period it would have had to run for two years and two months in order to incorporate the Appellant’s claim.

55.	I find accordingly that Section 80(4ZA) should not be disapplied by virtue of the principle of effectiveness, that section 80(4ZA) does not contravene the principle of effectiveness, and further that the absence of a transitional period for section 80(4ZA) does not contravene the principle of effectiveness.

56.	Accordingly I find that Customs are not liable as the Appellant’s claim was made more than three years after the relevant date, which is the end of the prescribed accounting period, in pursuance to section 80(4ZA).  Section 80(4ZA) is not to be disapplied under the argument of effectiveness, and the Appellant is not entitled to rely on the previous legislation prior to 26 May 2004, namely that contained in section 80(4) which set out that the Commissioners shall not be liable to repay any amount paid to them more than three years before the making of the claim.

The third question – whether the claim is made pursuant to section 80(1) or section 80(1B) VATA 1994

57.	The third question to be decided in this appeal is whether the claim is made pursuant to section 80(1) or section 80(1B).

58.	Whilst the time limit of three years is the same in respect of both of these sections, the relevant date for the making of the claim is different.  The relevant date for a claim under paragraph section 80(1) is the end of the prescribed accounting period whereas in the case of a claim by virtue of subsection 1B it is the date on which the payment was made.

59.	The Appellant argued that the Appellant is a payment on account trader, and that when payments are made on account they are not made specifically against input tax or output tax, and it may be that there will be no net liability to account for VAT in the period.  The Appellant argued that if the sums were not paid by way of output tax or input tax, then the legislation prescribed that a claim must be submitted within three years of the date of the overpayment.  On that basis the tax was for these purposes paid on 31 May 2004, and the claim submitted on 31 May 2007.  The Appellant accordingly argued that the claim fell within the three year limitation period (subject to the view of the tribunal in relation to the fourth question).

60.	Accordingly the Appellant argued that a payment on account trader cannot make a payment by way of output tax or input tax due and that accordingly it followed that the Appellant’s rights to reclaim VAT must rest under section 80(1B) which relates to circumstances where an amount has been overpaid, but it had not been overpaid as a result of an amount of output tax or input tax being brought into account.  It was argued that an overpayment by a payment on account trader is not made as a result of the incorrect accounting for input tax or output tax, as at the time of making a payment on account no such account has been delivered.

61.	It was argued on behalf of Customs that the claim of the Appellant was made pursuant to section 80(1) rather than section 80(1B) as it related to the bringing into account as output tax an amount that was not output tax due.  This specifically brought the claim into section 80(1) and specifically excluded it from section 80(1B).  It was argued by Customs that this is not affected by the way the Appellant made payments pursuant to the payments on account scheme.  Customs argued that even though the payment was made before the account was delivered, it was still possible to categorise the claim as relating to the payment of output tax which was not due.

62.	Customs argued that the fact that a payment on account is on account of future liability for tax that may or may not occur still does not affect how that liability is categorised once that liability does actually occur.  The whole purpose of the payment on account system is to take into account the effect of output tax and input tax and does not mean it is a payment of something other than output tax or input tax, and is now properly labelled output tax.  Customs argued that it is not the method of payment that is relevant but it is the liability for payment that is relevant, and the liability for the Appellant was for output tax.

63.	Customs submitted that section 80(1B) was actually just a mop-up provision.  Customs argued that the Appellant’s claim could not be shoehorned into section 80(1B) just because at the time of payment the Appellant did not know what his liability was for.  This did not stop the liability being for output tax.

64.	I find that the claim of the Appellant is made pursuant to section 80(1) VATA 1994.  It is not made pursuant to section 80(1B).  I find that the Appellant’s claim relates to the bringing into account as output tax an amount that was not output tax due.  This specifically brings the claim into section 80(1) and specifically excludes it from section 80(1B).

65.	I find that the fact that the Appellant made payments pursuant to a payments on accounts scheme does not affect the issue.  The fact that the Appellant had made payment before the account was delivered did not result in the claim being pursuant to section 80(1).  The Appellant’s claim is properly categorised as relating to the payment of output tax which was not due, and in those circumstances the Appellant had three years from 30 April 2004 in which to submit a claim and not three years from 31 May 2004.  Accordingly the Appellant’s claim was out of time and Customs were not liable on the claim which was made more than three years after the relevant date.

The fourth question   – how the limitation period is to be computed
	- reckoning with or without the first day

66.	The fourth question which I have been asked to decide is only relevant if I had found that the period of reckoning for three years should be from 31 May 2004.  In those circumstances Customs were arguing that a claim was made more than three years after 31 May 2004 if it is made on31 May 2007, on the basis that a period of three years from 31 May 2004would end on 30 May 2007 and not 31 May 2007.  The Appellant contended that the first day of a period fell out of reckoning where a statute required some act to be carried out within a defined period.

67.	In the circumstances of this appeal it is not relevant to the success of the Appellant in this appeal as to whether the three years is reckoned with or without the first day, in view of my finding that the Appellant’s claim is made pursuant to section 80(1), and under section 80(4ZA) the end of the time limit was 30 April 2007 and the claim of the Appellant was out of time by one month.

68.	The question of reckoning with or without the first day would only be relevant if the Appellant’s claim was properly pursuant section 80(1B) under which by section 47A(e) the relevant date would be the date on which the payment was made.

69.	Accordingly the question of what difference a day makes is only relevant if the position was that the old law was applicable in the old subsection 80(4).  It is not relevant because it is the new law which is applicable rather than the old law.

Summary of the decision

70.	To summarise I have decided that the claim made by the Appellant for overpaid output tax made on 31 May 2007 was out of time in that it related to VAT overpaid in the period ending April 2004.  The Appellant’s time limit expired on 30 April 2007 being three years after the end of the prescribed accounting period.

71.	To summarise I have made the following decisions and findings:

(1)	That section 80(4ZA) VATA 1994 should not be disapplied by virtue of the principle of equivalence.
(2)	That section 80(4ZA) should not be disapplied by virtue of the principle of effectiveness.
(3)	That the Appellant’s claim was made pursuant to section 80(1) VATA 1994.
(4)	That whether or not the first day should be reckoned in a limitation period is not relevant to the Appellant’s claim as the Appellant’s limitation period had already expired whether or not the first day was reckoned.

72.	For the reasons set out in this decision I dismiss the Appellant’s appeal.  Customs did not seek an order for costs and I make no order as to costs.

MAN/2007/0791

Ian Vellins
CHAIRMAN
Release Date: 11 April 2008