I have also considered the judgment of Lord Hope in the Fleming case and in particular paragraphs 6, 7, 8 and 9 thereof.
I have considered the principle of effectiveness in the light of the decisions in the cases quoted, and have considered the arguments of the respective parties in this appeal. I reject the arguments of the Appellant and accept and adopt the arguments of Customs.
In the Fleming case an entirely different situation arose to that in the current appeal. The Fleming case concerned a considerable reduction having been made in the time limits from six to three years. The outcome of the Fleming case was that the absence of a transitional period for the reduction of the time limit for deduction of input tax pursuant to regulation 29(1A) contravened the principle of effectiveness with the result that no transitional period has yet expired. The facts of the current appeal are quite different. The current appeal relates to a claim by the Appellant for overpaid output tax under quite different legislation. In the current appeal the Appellant's claim was to be decided under section 80(4ZA) 1994.
I find that the absence of the transitional period for section 80(4ZA) does not contravene the principle of effectiveness. I find that the purpose of the changes brought in by the Finance Act 2005 was to ensure equality between repayment traders and payment traders in respect of the defence of unjust enrichment. There was no need for a transitional period because there was no directly effective right to be unjustly enriched. Accordingly there was no right to bring community law into play in that respect. The change introduced by section 80(4ZA) was not to the period of limitation but as to how it was calculated, and the budget notice was issued on 16 March 2005 explaining the proposed changes to section 80. I find that the change in the calculation did not make it excessively difficult or virtually impossible for the Appellant to exercise a right confirmed by community law. This was not a case where the time limit had already expired at the date of the change or an Appellant had been left with only a short period of time to make a claim. It was not a situation as in the Fleming situation where there was a three year difference from six to three years. The Appellant was in a position to know of the changes and had sufficient time to make a claim. The changes only made a difference of one month. If there had been a transitional period it would have had to run for two years and two months in order to incorporate the Appellant's claim.
I find accordingly that Section 80(4ZA) should not be disapplied by virtue of the principle of effectiveness, that section 80(4ZA) does not contravene the principle of effectiveness, and further that the absence of a transitional period for section 80(4ZA) does not contravene the principle of effectiveness.
Accordingly I find that Customs are not liable as the Appellant's claim was made more than three years after the relevant date, which is the end of the prescribed accounting period, in pursuance to section 80(4ZA). Section 80(4ZA) is not to be disapplied under the argument of effectiveness, and the Appellant is not entitled to rely on the previous legislation prior to 26 May 2004, namely that contained in section 80(4) which set out that the Commissioners shall not be liable to repay any amount paid to them more than three years before the making of the claim.
The third question to be decided in this appeal is whether the claim is made pursuant to section 80(1) or section 80(1B).
Whilst the time limit of three years is the same in respect of both of these sections, the relevant date for the making of the claim is different. The relevant date for a claim under paragraph section 80(1) is the end of the prescribed accounting period whereas in the case of a claim by virtue of subsection 1B it is the date on which the payment was made.
The Appellant argued that the Appellant is a payment on account trader, and that when payments are made on account they are not made specifically against input tax or output tax, and it may be that there will be no net liability to account for VAT in the period. The Appellant argued that if the sums were not paid by way of output tax or input tax, then the legislation prescribed that a claim must be submitted within three years of the date of the overpayment. On that basis the tax was for these purposes paid on 31 May 2004, and the claim submitted on 31 May 2007. The Appellant accordingly argued that the claim fell within the three year limitation period (subject to the view of the tribunal in relation to the fourth question).
Accordingly the Appellant argued that a payment on account trader cannot make a payment by way of output tax or input tax due and that accordingly it followed that the Appellant's rights to reclaim VAT must rest under section 80(1B) which relates to circumstances where an amount has been overpaid, but it had not been overpaid as a result of an amount of output tax or input tax being brought into account. It was argued that an overpayment by a payment on account trader is not made as a result of the incorrect accounting for input tax or output tax, as at the time of making a payment on account no such account has been delivered.
It was argued on behalf of Customs that the claim of the Appellant was made pursuant to section 80(1) rather than section 80(1B) as it related to the bringing into account as output tax an amount that was not output tax due. This specifically brought the claim into section 80(1) and specifically excluded it from section 80(1B). It was argued by Customs that this is not affected by the way the Appellant made payments pursuant to the payments on account scheme. Customs argued that even though the payment was made before the account was delivered, it was still possible to categorise the claim as relating to the payment of output tax which was not due.
Customs argued that the fact that a payment on account is on account of future liability for tax that may or may not occur still does not affect how that liability is categorised once that liability does actually occur. The whole purpose of the payment on account system is to take into account the effect of output tax and input tax and does not mean it is a payment of something other than output tax or input tax, and is now properly labelled output tax. Customs argued that it is not the method of payment that is relevant but it is the liability for payment that is relevant, and the liability for the Appellant was for output tax.
Customs submitted that section 80(1B) was actually just a mop-up provision. Customs argued that the Appellant's claim could not be shoehorned into section 80(1B) just because at the time of payment the Appellant did not know what his liability was for. This did not stop the liability being for output tax.
I find that the claim of the Appellant is made pursuant to section 80(1) VATA 1994. It is not made pursuant to section 80(1B). I find that the Appellant's claim relates to the bringing into account as output tax an amount that was not output tax due. This specifically brings the claim into section 80(1) and specifically excludes it from section 80(1B).
I find that the fact that the Appellant made payments pursuant to a payments on accounts scheme does not affect the issue. The fact that the Appellant had made payment before the account was delivered did not result in the claim being pursuant to section 80(1). The Appellant's claim is properly categorised as relating to the payment of output tax which was not due, and in those circumstances the Appellant had three years from 30 April 2004 in which to submit a claim and not three years from 31 May 2004. Accordingly the Appellant's claim was out of time and Customs were not liable on the claim which was made more than three years after the relevant date.
- reckoning with or without the first day
The fourth question which I have been asked to decide is only relevant if I had found that the period of reckoning for three years should be from 31 May 2004. In those circumstances Customs were arguing that a claim was made more than three years after 31 May 2004 if it is made on31 May 2007, on the basis that a period of three years from 31 May 2004would end on 30 May 2007 and not 31 May 2007. The Appellant contended that the first day of a period fell out of reckoning where a statute required some act to be carried out within a defined period.
In the circumstances of this appeal it is not relevant to the success of the Appellant in this appeal as to whether the three years is reckoned with or without the first day, in view of my finding that the Appellant's claim is made pursuant to section 80(1), and under section 80(4ZA) the end of the time limit was 30 April 2007 and the claim of the Appellant was out of time by one month.
The question of reckoning with or without the first day would only be relevant if the Appellant's claim was properly pursuant section 80(1B) under which by section 47A(e) the relevant date would be the date on which the payment was made.
Accordingly the question of what difference a day makes is only relevant if the position was that the old law was applicable in the old subsection 80(4). It is not relevant because it is the new law which is applicable rather than the old law.
To summarise I have decided that the claim made by the Appellant for overpaid output tax made on 31 May 2007 was out of time in that it related to VAT overpaid in the period ending April 2004. The Appellant's time limit expired on 30 April 2007 being three years after the end of the prescribed accounting period.
To summarise I have made the following decisions and findings:
For the reasons set out in this decision I dismiss the Appellant's appeal. Customs did not seek an order for costs and I make no order as to costs.
MAN/2007/0791