RT Rate: Legitimate expectation rights not engaged

In RT Rate Ltd and Others v HMRC [2020] UKFTT 392 (TC), the First-tier Tribunal (FTT) has held that it does not have jurisdiction to consider claims for repayment of VAT based on the EU law principle of legitimate expectation.

Background

In 2003, the appellant motor traders made claims for repayment of overpaid output tax on supplies of demonstrator vehicles under section 80, VATA 1994. Those claims were based on the 'Italian Tables' which were compiled by HMRC to help traders determine the output tax wrongly accounted for on sales of demonstrator vehicles for each year going back to the introduction of VAT in 1973. The claims were paid by HMRC. 

The appellants later alleged that the Italian Tables contained an error arising from incorrect assumptions in relation to car tax, which was abolished in November 1992. In 2016, they sought to make amended claims seeking further repayments of overpaid output tax between 1973 and November 1992. HMRC refused the claims on the basis that the original claims were closed and they were in any event new claims which were outside the April 2009 time limit, implemented by section 121, Finance Act 2008. 

The appellants appealed, arguing that: 

(i) they had a legitimate expectation under EU law that their claims would not be treated as closed on a materially incorrect basis; and 

(ii) in 2018 HMRC had settled claims by another motor trader which were the same as their claims, and the EU law principle of equal treatment required HMRC to afford the same treatment to the appellants.

FTT decision 

The appeals were dismissed.

The FTT first considered whether it had jurisdiction to consider and give effect to the EU law principle of legitimate expectation. The FTT followed the well-known case of Noor v Revenue and Customs Commissioners [2013] UKUT 71 (TCC), in which the Upper Tribunal held that section 83(1), VATA 1994, did not confer a general supervisory jurisdiction on the FTT and it was only open to the FTT to consider public law issues if it was necessary to do so in the context of deciding issues clearly falling within its jurisdiction. The FTT concluded that in light of Noor, and the comments made in Metropolitan International Schools Ltd v Revenue and Customs Commissioners [2019] EWCA Civ 156 and Marks & Spencer Plc v Revenue and Customs Commissioners (No.1) [1999] STC 205, section 83(1) did not give it jurisdiction to consider and give effect to the EU law principle of legitimate expectation. The appellants' remedy for any breach of that principle had to be pursued by way of judicial review proceedings in the High Court.

The FTT then considered whether the appellants had a legitimate expectation that their original claims would not be treated as closed on a materially incorrect basis. The FTT held that even if it was wrong on the issue of jurisdiction, it would not have been reasonable for the appellants to have expected that HMRC was giving an assurance as to the accuracy of the Italian Tables. Even if they did have a reasonable expectation that the tables were correct, they would not have had a reasonable expectation that, if the tables turned out to be incorrect, then HMRC would permit closed claims to be re-opened. The purpose of the tables was to provide traders with an alternative to adducing their own evidence as to the extent to which they had overpaid VAT on sales of demonstrator vehicles going back over many years. If a trader had relied on the tables, they had adopted what were known to be estimates acceptable to HMRC in calculating the gross profit per unit in each year. Those estimates were based on information supplied by trade associations and could be incorrect for a number of reasons. Accordingly, the appellants did not have had a reasonable expectation that HMRC was giving an unconditional assurance as to the accuracy of the tables.

The FTT then considered whether the appellants' claims were out of time. It concluded that the tables were materially incorrect because they failed to take into account the incidence of car tax. However, if the appellants had had a legitimate expectation that they could still make a claim, such an expectation would not have included an expectation that Parliament would not enact legislation imposing a time limit on claims made under section 80(1), VATA 1994. The effect of section 121, Finance Act 2008, was to provide a time limit of April 2009 for making claims for the repayment of VAT. It was no answer for the appellants to say that their claims were not new claims, but rather, existing claims which they were permitted to re-open. Once section121 had been enacted, the appellants could not have had a reasonable expectation that their claims could be re-opened after April 2009.

Finally, the FTT considered whether the appellants were entitled to rely on the EU law principle of equal treatment. The FTT doubted that the principle of equal treatment could apply in relation to an isolated decision which treated a single taxpayer more favourably than others in the absence of some legislative or policy basis for the unequal treatment. The burden had been on the appellants to show that HMRC had breached the principle of equal treatment and they had failed to do that. Simply establishing that HMRC had settled a claim made by the other trader was not sufficient; the appellants should have adduced evidence as to the circumstances of the other trader's claims and settlement with HMRC.

Comment

The FTT commented that there was force in the appellants' arguments (and that these arguments had not been considered fully or at all in Noor), but that it considered itself bound by previous cases to hold that it had no jurisdiction in relation to legitimate expectation, whether under EU or domestic law.

As we commented in our previous blog (Boulting), as the FTT has no inherent jurisdiction to hear public law arguments, including in relation to a breach of a taxpayer’s legitimate expectation, the High Court should generally be willing to hear such arguments but unfortunately this is not always the case in practice, which is a concern. 

The decision can be viewed here.