Introduction

The case of Chubb Limited v. Revenue & Customs ([2013] UKFTT 579 (TC)) revolves around a Value Added Tax (VAT) dispute between Chubb Limited and Her Majesty's Revenue and Customs (HMRC). Chubb, acting as the representative member of the Chubb VAT Group, appealed against HMRC's decision to deny a claim for £334,572 under sections 24 and 25 of the Value Added Tax Act 1994 (VATA) and Regulation 29 of the VAT Regulations. The core issue pertains to whether the representative member, Chubb, could sustain a VAT input tax claim on behalf of a former group member, Y&V Limited, which had been dissolved prior to the claim.

Summary of the Judgment

The First-tier Tribunal (Tax Chamber) dismissed Chubb's appeal against HMRC, upholding HMRC's refusal to pay the claimed VAT amount. The Tribunal found that:

• Y&V Limited was not a member of the Chubb VAT Group at the time the relevant supplies were made.
• Chubb failed to demonstrate that the right to recover the input tax had been validly assigned to it.
• The overpayment of VAT was neither established nor quantified by Chubb.

Consequently, the Tribunal concluded that the conditions for section 43 VATA were not met, and the grouping provisions did not apply. Additionally, there was no evidence of an assignment of rights that would entitle Chubb to make the VAT claim on behalf of Y&V.

Analysis

Precedents Cited

The Judgment references the European Court of Justice decision in Kretztechnik AG v Finanzamt Linz ([2005] STC 1118), which established that input tax related to share issues can be recoverable under certain conditions. Chubb's argument leaned on this precedent to assert that input VAT on the 1987 share issue by Y&V Limited should be recoverable. However, the Tribunal found that this precedent did not extend to situations where the VAT group membership status at the time of the supply does not support the claim.

Legal Reasoning

The Tribunal meticulously dissected the statutory framework governing VAT groups, specifically sections 24, 25, and 43 of VATA 1994, and Regulation 29 of the VAT Regulations. Key points in the legal reasoning included:

• Group Membership Timing: The Tribunal emphasized that for the grouping provisions to apply, the member must be part of the VAT group at the time of the supply. Since Y&V joined the group in 1992, after the 1987 share issue, the grouping rules were inapplicable to the relevant transactions.
• Assignment of Rights: Under section 136 of the Law of Property Act 1925 (LPA), the assignment of a chose in action requires specific conditions, including writing and notice. Chubb failed to provide evidence of such an assignment from Y&V or through its corporate structure.
• Bona Vacantia: Upon dissolution, Y&V's assets, including any VAT claims, vested in the Crown as per section 1012 of the Companies Act 2006. Without a valid assignment, these claims could not transfer to Chubb.
• Burden of Proof: The onus was on Chubb to demonstrate both the overpayment of VAT and the valid assignment of rights. The Tribunal found that Chubb did not meet these evidentiary requirements.

Impact

This Judgment reinforces the stringent requirements for representative members of VAT groups to sustain input tax claims. It underscores the importance of:

• Ensuring timely and proper group membership during relevant transactions.
• Maintaining clear and documented assignments of tax recovery rights.
• Failing to adhere to these prerequisites can result in the denial of significant tax claims.

Future cases involving VAT group claims will likely reference this Judgment to evaluate the legitimacy of representative members' claims, especially concerning the timing of group membership and the proper assignment of rights.

Complex Concepts Simplified

VAT Grouping

VAT grouping allows multiple companies under common control to be treated as a single entity for VAT purposes. This simplifies VAT accounting by consolidating input and output taxes across the group. A representative member handles the VAT obligations, and transactions within the group are disregarded.

Representative Member

The representative member of a VAT group is responsible for all VAT-related matters of the group. It can make claims for input tax on behalf of the group members, provided certain conditions are met regarding group membership and the timing of transactions.

Chose in Action

A chose in action is a legal term referring to a right to something (for example, the right to sue or receive payment). To transfer this right, specific legal requirements must be satisfied, including written agreements and proper notice.

Bona Vacantia

Bona vacantia refers to property that has no owner and thus reverts to the Crown. When a company is dissolved, its assets, including any claims it holds, become bona vacantia unless formally restored.

Assignment of Rights

The assignment of rights involves transferring a legal claim or right from one party to another. This process must be executed according to legal requirements to be valid and enforceable.

Conclusion

The Judgment in Chubb Ltd v. Revenue & Customs serves as a pivotal reference point for VAT group claims, particularly concerning the extent to which a representative member can assert rights on behalf of former group members. The decision underscores the critical importance of establishing and maintaining proper group membership and ensuring the valid assignment of tax recovery rights. Without meeting these prerequisites, VAT claims are vulnerable to dismissal, as demonstrated by the Tribunal's ruling against Chubb. Legal practitioners and corporate entities must heed these requirements to safeguard their tax recovery interests within VAT group structures.