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Procedure.Tax
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S3: VAT repayment supplement
Right to supplement
"(1) In any case where—
(a) a person is entitled to a VAT credit, or
(b) a body which is registered and to which section 33 applies is entitled to a refund under that section, or
(c) a body which is registered and to which section 33A applies is entitled to a refund under that section, or
(d) the proprietor of an Academy who is registered is entitled to a refund under section 33B, or
(e) a charity which is registered is entitled to a refund under section 33C,
and the conditions mentioned in subsection (2) below are satisfied, the amount which, apart from this section, would be due by way of that payment or refund shall be increased by the addition of a supplement equal to 5 per cent of that amount or £50, whichever is the greater."
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(2) The said conditions are—
(a) that the requisite return or claim is received by the Commissioners not later than the last day on which it is required to be furnished or made, and
(b) that a written instruction directing the making of the payment or refund is not issued by the Commissioners within the relevant period, and
(c) that the amount shown on that return or claim as due by way of payment or refund does not exceed the payment or refund which was in fact due by more than 5 per cent of that payment or refund or £250, whichever is the greater." (VATA 1994, s.79(1) - (2))
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Requisite return or claim
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"(6) In this section “requisite return or claim” means—
(a) in relation to a payment, the return for the prescribed accounting period concerned which is required to be furnished in accordance with regulations under this Act, and
(b) in relation to a refund, the claim for that refund which is required to be made in accordance with the Commissioners' determination under section 33 or (as the case may be) the Commissioners' determination under, and the provisions of, section 33A, 33B or 33C." (VATA 1994, s.79(6))
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Relevant period
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"(2A) The relevant period in relation to a return or claim is the period of 30 days beginning with the later of—
(a) the day after the last day of the prescribed accounting period to which the return or claim relates, and
(b) the date of the receipt by the Commissioners of the return or claim." (VATA 1994, s.79(2A))
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Disregard period of reasonable inquiries, correcting errors and continuing failure to submit returns
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"In computing the period of 30 days referred to in section 79(2)(b) of the Act, periods referable to the following matters shall be left out of account—
(a) the raising and answering of any reasonable inquiry relating to the requisite return or claim,
(b) the correction by the Commissioners of any errors or omissions in that requisite return or claim, and
(c) in any case to which section 79(1)(a) of the Act applies, the following matters, namely—
(i) any such continuing failure to submit returns as is referred to in section 25(5) of the Act, and
(ii) compliance with any such condition as is referred to in paragraph 4(1) of Schedule 11 to the Act." (SI 1995/2518, r.198)
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"(4) In determining for the purposes of regulations under subsection (3) above whether any period is referable to the raising and answering of such an inquiry as is mentioned in that subsection, there shall be taken to be so referable any period which—
(a) begins with the date on which the Commissioners first consider it necessary to make such an inquiry, and
(b) ends with the date on which the Commissioners—
(i) satisfy themselves that they have received a complete answer to the inquiry, or
(ii) determine not to make the inquiry or, if they have made it, not to pursue it further,
but excluding so much of that period as may be prescribed; and it is immaterial whether any inquiry is in fact made or whether it is or might have been made of the person or body making the requisite return or claim or of an authorised person or of some other person." (VATA 1994, s.79(4))
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Determining the length of the period
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"For the purpose of determining the duration of the periods referred to in regulation 198, the following rules shall apply—
(a) in the case of the period mentioned in regulation 198(a), it shall be taken to have begun on the date when the Commissioners first raised the inquiry and it shall be taken to have ended on the date when they received a complete answer to their inquiry;
(b) in the case of the period mentioned in regulation 198(b), it shall be taken to have begun on the date when the error or omission first came to the notice of the Commissioners and it shall be taken to have ended on the date when the error or omission was corrected by them;
(c) in the case of the period mentioned in regulation 198(c)(i), it shall be determined in accordance with a certificate of the Commissioners under paragraph 14(1)(b) of Schedule 11 to the Act;
(d) in the case of the period mentioned in regulation 198(c)(ii), it shall be taken to have begun on the date of the service of the written notice of the Commissioners which required the production of documents or the giving of security, and it shall be taken to have ended on the date when they received the required documents or the required security." (SI 1995/2518, r.199)
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Treatment of supplement
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"(5) Except for the purpose of determining the amount of the supplement—
(a) a supplement paid to any person under subsection (1)(a) above shall be treated as an amount due to him by way of credit under section 25(3), and
(b) a supplement paid to any body under subsection (1)(b) above shall be treated as an amount due to it by way of refund under section 33, and
(c) a supplement paid to any body under subsection (1)(c) shall be treated as an amount due to it by way of refund under section 33A, and
(d) a supplement paid to the proprietor of an Academy under subsection (1)(d) shall be treated as an amount due to that proprietor by way of refund under section 33B, and
(e) a supplement paid to a charity under subsection (1)(e) shall be treated as an amount due to the charity by way of refund under section 33C." (VATA 1994, s.79(5))
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Purpose is to ensure diligent processing
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“The aim of repayment supplement is to ensure that HMRC are diligent in processing and making payment of VAT reclaims. However, the 30 day period in which HMRC can reasonably be expected to process diligently claims must be balanced by a reasonable expectation that they have the information and documentation reasonably necessary to verify the claim Marlico Limited [2015] UKFTT 528 paras 77 and 78).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(1), Judge Amanda Brown).
No supplement for claims made outside a VAT return
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“It is common ground that section 79(2) does not explicitly state that the claim to payment of VAT credit must be made in the return. Accordingly, HMRC must establish that this is necessarily implied. Necessarily is the not same thing as reasonably or sensibly. Having considered the rival arguments summarised above, I have come to the conclusion that HMRC are correct and that this is necessarily implied.” (HMRC v. Our Communications Limited [2013] UKUT 595 (TCC), §§27…28, Arnold J).
Repayment instruction must be issued within relevant period
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Burden on HMRC
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“We should also add that we agree with the observation in Beast that the burden of proving whether and when an instruction directing payment was issued lies on HMRC.” (Vogrie Farms v. HMRC [2015] UKFTT 531 (TC), §39).
Relevant period begins on and includes the day of receipt of the claim
“The parties are agreed that period starts from receipt of claim by HMRC on 7 March 2013. It is also clear on the face of the legislation that the 30 day period begins with the date of the receipt of the claim i.e. the 30 day period includes the day of receipt of the claim.” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §80).
Repayment instruction can be in any written form
“In our view, the phrase written instructions means just that and can take any written form. There is no legislative restriction on the form of writing. Accordingly, instructions in electronic form must be regarded as written instructions. Any other conclusion in this modern age would be absurd.” (Vogrie Farms v. HMRC [2015] UKFTT 531 (TC), §33).
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Repayment instruction not required to be notified to taxpayer
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“It is pertinent to begin with what s79(2)(b) does not say. It does not refer to a cheque or payable order. It does not say to whom the written instructions have to be issued; and, in particular, it does not say they have to be issued to a third party. It does not require a cheque to be issued. It does not require payment to be made by a specified date. It does not require payment or written instructions to be made or issued by any particular method such as recorded delivery. Any one or more of these matters could have been stipulated in the legislation, primary or secondary, but this has not been done. None of these matters needs to be read into the legislation even if it were legitimate to do so…The phrase directing the making of the payment seems to us to be equally straightforward. While it is true that a payable order or a cheque may be a written instruction which directs the making of a payment, it is equally possible that the cheque or payable order is the consequence of the issue of written instructions directing the making of a payment. That seems to be the position here.” (Vogrie Farms v. HMRC [2015] UKFTT 531 (TC), §34).
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“Again, the trigger for the end of the period is internal to the Commissioners; it is when they instruct payment, not when that payment is received by the Appellant. We do not accept the Appellant’s arguments on this point that the relevant date here is the date when payment is received into the Appellant’s bank account. On the face of the legislation it is the Appellant who takes the risk of any delay in payment processing in the banking system, the time, from HMRC’s perspective, stops at the point when they take the last action necessary by them to make the payment.” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §92).
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“Issuing” does not require communication with a third party
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“Having considered its terms, the VOPS 240 in this case is clearly a written instruction directing the making of a payment or refund. As this instruction was issued on 3 March 2016, within the relevant period, the qualifying condition in s 79(2)(b) VATA has not been satisfied.” (Tarn-Pure AG Ltd v. HMRC [2017] UKFTT 102 (TC), §15).
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“Nor does issuing necessarily mean communicating with a third party, although it may include it. Beast in the Heart is an example of written instructions taking the form of instructions by HMRC to their bankers to transfer funds to a trader’s bank and thus directing the making of payment to the trader. The tribunal in that appeal, which had some unusual procedural twists, took the view that for a written instruction directing payment to be issued by HMRC some act was required by which instructions go forth from the Commissioners: something which happened between officers of the Commissioners is not enough…We have difficulty with that dictum. HMRC argue that it was made per incuriam and cite Rhokana. While we did not find that case helpful, the dictum does not seem to us to take full account of the statutory language. In many cases, the issue of a cheque in settlement of a repayment claim will normally be preceded by instructions directing that a cheque be dispatched. These will be internal communications between one department and another, as here, and often by electronic means. Such instructions appear to us to fall four square within the statutory language, even although it can be accepted that the provision was or may have been designed to achieve prompt repayment by HMRC of overpaid tax.” (Vogrie Farms v. HMRC [2015] UKFTT 531 (TC), §§37…38).
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Requesting authority to pay not the same as issuing instruction to pay
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“The Tribunal is of the view that the written instruction to make payment is that of Peter Ford who approved the payments. The emails from Mr Taylor and Doug Armstrong were, in the Tribunal’s view, requesting authority and did not represent a written instruction making payment as authority could have been denied. Once Peter Ford had approved the payments the remaining process leading to payment were administrative.” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §121, Judge Amanda Brown).
Reasonable enquiry
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Reasonable enquiry test applies to each part of a repayment claim separately
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“The Tribunal considers it is clear from the judgment in Olympia that, certainly in that case, HMRC considered that repayment supplement was due in relation to a part payment and that part payments are clearly the proportionate response in situations in which part of a VAT credit is accepted or established. It is true to say that the tribunal was not looking at the scope of reasonable inquiries but this Tribunal considers that it is implicit from the facts of the case that HMRC were investigating independently the 25 different transactions giving rise to the input tax claimed and that one by one or group by group they were satisfied that the claims were established and repayments were made save for the last few.” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §121, Judge Amanda Brown).
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Only begins when HMRC first consider it necessary to make a specific inquiry rather than general inquiry
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“ In order to constitute an inquiry HMRC must be contemplating return specific inquires and not some general investigation (Purple International VTD 18243 para 26, Cellular Solutions (T. Wells) Limited VTD 19903 para 9).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(3), Judge Amanda Brown).
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“As Judge Short stated in Marlico Limited, the 30 day exclusion period for HMRC to make reasonable enquiries begins on the date when “the commissioners first consider it necessary to make an inquiry”. She went on to note the discrepancy between the subjective test at Section 79(4)(a) VATA and the objective wording of Regulation 199 of the VAT Regulations which refers to the date when an inquiry is “first raised”. The tribunal agree with Judge Short that the legislation refers to a specific inquiry, being the “reasonable inquiry relating to the requisite return” and requires HMRC to have identified more than a general need for information. HMRC need to have formulated a specific question which needs to be answered by the taxpayer.” (Corrigan v. HMRC [2016] UKFTT 180 (TC), §63).
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“Our view is that the legislation requires HMRC to have identified more than a general need for information, HMRC need to have formulated a specific question which needs to be answered by the Appellant. This is supported by the FTT decision referred to by HMRC, Future Components Limited v Revenue & Customs Commissioners ([2010] UKFTT 101 (TC)). In this case we think that the first time that a specific question was raised was in HMRC’s letter of 22 March…” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §82).
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Enquiry must be a question
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“An inquiry must be a question (Cellular Solutions (T. Wells) Limited para 14 from L Rowland & Co Retail Ltd; Raptor Commerce Limited [2010] UKFTT 335 para 56).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(5), Judge Amanda Brown).
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Enquiry need not be addressed to taxpayer
“An inquiry may be made of any person including another officer of HMRC (S&I Electronics Plc VTD 20078 para 37, Raptor Commerce Limited para 68).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(6), Judge Amanda Brown).
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Multiple enquiries possible
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“It is possible to have multiple inquiries which may be successive or simultaneous relating to a single period (Cellular Solutions (T. Wells) Limited para 12).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(4), Judge Amanda Brown).
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Time stops running when HMRC make decision rather than communicate it (probably)
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“The repayment supplement clock stops running against HMRC when the officer forms an opinion that it is necessary to ask questions of someone (S&I Electronics Plc para 37).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(7), Judge Amanda Brown).
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“The exclusion from the 30 day period (“stop clock period”) for HMRC to make reasonable enquiries begins on the date when “the commissioners first consider it necessary to make such an inquiry” (under s 79(4)(a)). On the face of the legislation this trigger relates only to the decision made by HMRC, not the time when it is communicated to the Appellant, although there is a discrepancy between the subjective test in s 79(4)(a) and the objective wording of Regulation 199 which refers to the date when an inquiry is “first raised”. However the onus is on HMRC to evidence when it was that they considered it necessary to make “such an inquiry”.” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §81).
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Burden of proof on HMRC
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“The burden of proof rests with HMRC to show when the clock should stop running against them (Marlico Limited para 81).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(11), Judge Amanda Brown).
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Time starts running when complete answer provided (may be the same day)
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“The tribunal considered therefore that the “inquiry” began and ended on 30 July 2013, notwithstanding that it took five hours of travelling to complete the round trip; that no specific questions had been put to SC prior to that date; that it was common ground that the specific questions were answered on 30 July 2013; and, accordingly, one day should be taken out of account as referable to the raising and answering of HMRC’s reasonable inquiry into SC’s VAT return for the period 05/13.” (Corrigan v. HMRC [2016] UKFTT 180 (TC), §65).
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“The date on which the reasonable inquiry was raised was 28 April 2014. The date on which HMRC were satisfied that they had received a complete answer to that inquiry was about an hour later on the same day. That period must be left out of account. It occurred on 28 April 2014. 28 April 2014 is a date that must therefore be left out of account.” (Vogrie Farms v. HMRC [2015] UKFTT 531 (TC), §41).
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Time when HMRC satisfied they have an answer to enquiry (not when they decide to make repayment)
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“ The repayment supplement clock will begin to run against HMRC again when the Commissioners are satisfied that they have a complete answer and not when they have considered the information and concluded whether repayment is appropriate (Alliance & Leicester plc para 21).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(10), Judge Amanda Brown).
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“Like the trigger for the start of the reasonable inquiry time, on the face of the legislation the end of the period is entirely dependent on a determination by the Commissioners that they “satisfy themselves that they have received a complete answer to the inquiry” under s 79(4)(b). In contrast, Regulation 199 refers to “the date when they received a complete answer to their inquiry” The end date is not dependent on any notification to the Appellant, but again, the onus is on HMRC to demonstrate when they considered that their inquiries were complete.” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §90).
Reasonable enquiry must be proportionate and prompted by a proper motive of verification
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“ An inquiry will be reasonable provided that the questions are proportionate and not prompted by an ulterior motive that is of no immediate relevance to the verification of the claim (Alliance & Leicester plc VTD 20094 para 18).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(8), Judge Amanda Brown).
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Unreasonable to ask for information HMRC know the taxpayer will not have or be able to obtain
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“An inquiry will be unreasonable where HMRC seek information that they know the taxpayer will not have and cannot obtain (Marlico Limited para 82).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(9), Judge Amanda Brown).
Unreasonable to ask for information contrary to HMRC’s public notices
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“Our conclusion on this point is that, given HMRC’s previous dealings with this Appellant and the information which was given to HMRC at the meeting with the Appellant on 19 February, it was not reasonable for HMRC to ask either for hard copy AAD information or for original CMRs. As referred to by the Appellant in their correspondence with HMRC, it is made clear in HMRC’s own guidance notes for the public, Notice 725, that when indirect exports are made evidence other than the original CMRs is what is required from taxpayers. Equally, Notice 197 states that the EMCS means that “there should no longer be any paper based movements when excise goods are moving throughout the UK and EU in duty suspension”. It is hard to see how it can be reasonable for an officer of HMRC to ask for information which is other than that publicly stated to be the information required from taxpayers making this kind of supply.” (Marlico Ltd v. HMRC [2015] UKFTT 528 (TC), §88).