VAT repayment had no legal basis

In London School of Accountancy and Management Limited v HMRC [2022] TC08559, the First Tier Tribunal (FTT) found that a VAT repayment claimed by a company in liquidation had no legal basis, was not supported by reliable evidence and would have resulted in unjust enrichment.

• London School of Accountancy and Management Limited (LSAM) provided higher education to students until 2012.
  • LSAM went into administration in October 2012 before entering a Creditors’ voluntary liquidation in June 2013.
• Between April and June 2015, the joint liquidators created credit notes, backdated to 30 September 2012, for supplies made to approximately 4,000 former students.
  • It was claimed that these were issued to the former students to allow them to take action as Unsecured creditors having paid a course fee for courses which were not delivered.
  • The liquidator indicated that the former students were unlikely to receive full refunds.
• In June 2015, a final VAT return was submitted for the period ending September 2012. This included an adjustment which reduced output VAT in the period by £782,505.76, said to relate to the supply of £3.72m of courses that were undelivered.
• HMRC rejected the output VAT adjustment and raised an assessment accordingly.
• Following HMRC upholding its decision in a Statutory review, LSAM Appealed to the First Tier Tribunal (FTT).

The FTT dismissed LSAM’s appeal, finding that:

• There was no legal basis for a VAT repayment under Article 90 of the Principal VAT Directive as there was no reduction in price resulting in part or all of the consideration not having been received by LSAM.
  • The credit notes were theoretical and did not represent a decrease in real-world consideration.
  • As there was no decrease in consideration as an economic reality, there was no reduction in the taxable amount.
• There was no evidence to substantiate that there had been an historical output VAT overpayment which might have fallen within s.80 VATA 1994.
  • In any case, such a claim would have been subject to a four-year limitation period and the defence of Unjust enrichment.
• Even if the repayment claim had a legal basis, the evidence of its quantum had “multiple defects, inconsistent formulae, and dubious interpretation of data” meaning it was wholly unsupportable.

Useful guides on this topic

Reclaims and unjust enrichment
When can VAT reclaims be made? What are the time limits? What is unjust enrichment? Why might unjust enrichment prevent HMRC from making VAT repayments? 

Tax debts and insolvency
This guide summarises the treatment of tax debts to HMRC in insolvency cases.

Liquidation
How do you wind up (liquidate) a company? What types of liquidation are there? What are the formalities and the tax consequences of liquidation?

Assessments: Best judgement
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment?

Bad debts: VAT recovery
When can you recover VAT on a bad debt? How much VAT is payable to HMRC or recoverable from HMRC when only part of an invoice is paid? 

External link

London School of Accountancy and Management Limited v HMRC [2022] TC08559