HM Revenue and Customs Brief 4/17 - judgment of the Supreme Court in Investment Trust Companies
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The purpose of this
This brief sets out the HM Revenue and Customs’ (HMRC) view of
the judgment of the Supreme Court in Investment Trust Companies (ITC) (in
liquidation) v HMRC.
was about claims made by final consumers against HMRC for VAT that had been
wrongly charged to them by their suppliers.
This brief replaces Revenue
and Customs Brief 15 (2013) published on 10 July 2013.
This brief is aimed primarily at professional tax advisors and
lawyers, although it may be of interest to others.
doesn’t require any action to be taken.
will be writing to those traders who have already put in High Court or
County Court claims.
Section 80 claims
A person who makes ‘taxable supplies’ (a ‘taxable person’)
must register for VAT
and charge VAT
on the supplies of goods and services that they make to their customers.
In the course of making their taxable supplies, the taxable
person will buy in supplies of goods or services from other traders who
will have charged VAT
on their supplies.
When the taxable person prepares a VAT return at the end
of the prescribed accounting period, they need to show the total amount
of VAT due on
supplies that they’ve made to customers (the output tax). They also
need to show the total amount of VAT
paid to the suppliers on supplies that they’ve bought in (the input
tax). They then need to deduct the input tax from the output tax to
arrive at the amount of VAT
due to HMRC
for the accounting period.
If a taxable person has accounted for output tax and later
discovers that they didn’t need to, they can make a claim under section
80 of the VAT
Act 1994 to recover the wrongly declared output tax.
That claim is subject to a statutory 4 year time limit and
must be reduced by any input tax that was wrongly deducted.
The only person entitled to make a claim under section 80 is
the person who accounted for the VAT
or a person to whom the right to make the claim has been transferred.
For example, under section 136(1) of the Law of Property Act 1925
(England and Wales), section 87(1) of the Judicature (Northern Ireland)
Act 1978 or by an assignation in Scotland.
will refuse to pay a claim if they can show that payment of the claim
would ‘unjustly enrich’ the claimant. That is to say, because they
passed the burden of the VAT
charge on to their customers, paying the claim would amount to them
receiving the value of the over-declared output tax twice (once from
the customer and once from HMRC).
In June 2007, the European Court of Justice released its
judgment in Claverhouse (2008) STC 1180 ruling that certain supplies of
investment management services, which HMRC had
believed were liable to VAT
at the standard rate, were exempt.
As a result of that judgment, HMRC received,
and paid, section 80 claims made by fund managers (the suppliers) for
output tax over-declared on supplies of investment management services
made to investment trust companies (the customers).
The suppliers accepted that they had passed the economic
burden of the wrongly charged VAT
on to their customers. They also accepted that they had suffered no
loss or damage to their business as a result of having done so.
In short, they accepted that they would be ‘unjustly enriched’
by payment of their claims.
The suppliers therefore agreed to reimburse to their customers
anything paid to them by HMRC.
However, because the supplier, when they prepare the VAT return, is entitled
to deduct the input tax (for example, £25) from the output tax (for
example, £100), the amount which has been charged to the customers as
output tax (the £100) is greater than the amount that’s paid to HMRC (for
Under the terms of section 80, HMRC is only
liable to pay the supplier the £75.
Nine trust companies made common law claims against HMRC in the High
Court for the difference.
The claims made by the trust companies were not statutory
claims. They were common law claims in restitution.
Court’s judgment in ITC
On 11 April 2017, the Supreme Court handed down its judgment
and dismissed the trust companies’ claims in full.
The Supreme Court agreed with HMRC that the
only person entitled to make a claim against them is the supplier who
had accounted for the VAT
Importantly, the court held that the customers did have a
claim but that it was against the suppliers and not against HMRC.
Where a customer believes that a supplier has wrongly charged
them VAT, the
remedy is to make a claim against the supplier.
This is a commercial matter and the right to claim against the
supplier will depend on the terms of the contract under which the goods
or services were supplied.
In simple terms, the customer has simply been overcharged by
The effect of the
Anyone who believes that they have a claim that isn’t
precluded by the Supreme Court’s judgment must bring their claim in the
In England and Wales claims have to be made in the County
Court if the claim is for less than £100,000 or in the High Court if
it’s for more.
In Scotland, claims should be made in the Sheriff Court if the
claim is for less than £100,000 or in the Sheriff Court or Court of
Session if it’s for more.
In Northern Ireland, claims need to be made in the County
Court if the claim is for less than £30,000 or in the High Court if
it’s for more.
Claims must be made in the courts and can’t be made directly
Claimants should check procedures on the relevant courts’ websites.
The circumstances under which a customer is able to make a
claim direct against HMRC
are extremely limited.
Claims of the type discussed in this brief are outside the
scope of HMRC’s
legislation and guidance manuals. If you believe you may be entitled to
make a claim, you should seek professional advice.
Guidance on reclaiming overpaid tax for taxpayers who have
paid VAT to HMRC – including
on time limits and unjust enrichment – can be found in VAT Notice 700/45: how
to correct VAT
errors and make adjustments or claims and the VAT Refunds Manual.
About the Author
© Crown Copyright 2017.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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