In The Rank Group PLC v HMRC [2018] TC06483, the First-Tier Tribunal (FTT) found that where input VAT overclaimed is set-off against output VAT overpaid, that input VAT has not been 'paid' back to HMRC.

  • The Rank Group operates bingo clubs.
  • Following a European Court decision, it was found to have incorrectly been charging VAT, in accordance with HMRC practice. The supplies should have been exempt.
  • The Rank Group successfully Reclaimed VAT from HMRC for periods from 1973 to 2009.
  • Most of these claims were made in time, and HMRC made VAT repayments. An additional claim made in 2011 was found to be out of time and no repayment was made.
  • HMRC insisted that only the net amount of output VAT in excess of input VAT for the valid periods could be claimed.
  • The Rank Group believed that HMRC were not entitled to set-off the input VAT in full for those valid periods. Instead, they believed HMRC had to reduce the set-off amount by the amount Rank Group would have received if the other claims made out of time were valid.
  • When Rank Group received their refunds (net of set-off), they appealed on the basis they had paid VAT to HMRC which was not actually due, the VAT paid being the amount set-off.

To have a chance of making the claim, the taxpayer had to show that the input VAT set-off against the output VAT constituted VAT 'paid' to HMRC.

  • S81(3A) of the Value Added Tax Act 1994 gave HMRC the right to set-off the output VAT in this case:
    • HMRC were liable to pay an amount to Rank Group,
    • The amount falls to be due in consequence of a mistake previously made under  the drafting of VATA, being the decision by the European Courts
    • By reason of that mistake, a liability of Rank Group to pay VAT was not assessed.
  • To the extent set-off the amount of input VAT and output VAT liabilities are treated as ‘discharged’, per s81(3).
  • The FTT concluded that the set-off by HMRC did not amount to the payment of VAT by Rank Group: ‘discharged’ meant there had been no payment so they could not make a claim for overpaid VAT in relation to the set-off input VAT.

The appeal was dismissed.


Reclaims and unjust enrichment


External link: The Rank Group PLC v HMRC [2018] TC06483


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