Direct Action for VAT Repayment: Upper Tribunal's Decision in Revenue And Customs v. Earlsferry Thistle Golf Club

Introduction

In the landmark case of Revenue And Customs v. Earlsferry Thistle Golf Club ([2014] UKUT 0250 (TCC)), the Upper Tribunal (Tax and Chancery Chamber) addressed a pivotal issue concerning the jurisdiction of tribunals in handling Value Added Tax (VAT) disputes. The case revolved around Earlsferry Thistle Golf Club (ET), a non-VAT registered entity, challenging Her Majesty's Revenue and Customs (HMRC) for the repayment of VAT erroneously charged on exempt supplies. The crux of the matter was whether ET, as a recipient of the supply, could directly appeal to HMRC for VAT repayment or if such claims were exclusively reserved for VAT-registered suppliers under the VAT Act 1994.

Summary of the Judgment

The Upper Tribunal, presided over by Lord Tyre, ultimately ruled in favor of HMRC, allowing the appeal to strike out ET's application. The decision was grounded in the interpretation of section 80 of the VAT Act 1994, which restricts claims for VAT repayment to the party that accounted for and paid the VAT—typically the supplier. ET's attempt to directly claim repayment from HMRC was deemed outside the tribunal's jurisdiction. The judgment emphasized the necessity for claimants to pursue VAT repayment through the supplier unless it was proven that such recovery was virtually impossible or excessively difficult.

Analysis

Precedents Cited

The judgment extensively referenced key European Court of Justice (ECJ) decisions that influenced the interpretation of VAT recovery rights:

Reemtsma Cigarettenfabriken GmbH v Ministero delle Finanze [2008]: Established that while national laws may allow only suppliers to reclaim VAT, they must also permit recipients to recover VAT through civil actions if supplier recovery is unattainable.
Danfoss A/S v Skatteministeriet [2013]: Reinforced that member states must provide recipients with means to recover VAT when supplier recovery is excessively difficult, aligning with the EU's principle of effectiveness.
Investment Trust Companies (in liquidation) v HMRC [2012]: Affirmed that section 80(7) of the VAT Act excludes non-suppliers from claiming VAT reimbursements directly from HMRC, except under circumstances mandated by EU law.
Canterbury Hockey Club v HMRC [2008]: Demonstrated that recipients can appeal under section 83(1)(b) of the VAT Act in certain contexts.

Legal Reasoning

The tribunal's analysis hinged on the interplay between national VAT legislation and EU law principles, particularly the principle of effectiveness, which mandates that EU law rights be fully exercisable.

Section 80 of VATA 1994: Restricts VAT repayment claims to the entity that accounted for the VAT, typically the supplier. ET, not being VAT-registered, fell outside this scope.
Principle of Effectiveness: According to ECJ rulings, if national law does not provide a direct means for recipients to reclaim VAT, the state must ensure that recipients can recover VAT through alternative legal avenues, such as ordinary civil actions.
Tribunal Jurisdiction: The Upper Tribunal concluded that existing frameworks did not authorize the tribunal to hear ET's direct repayment claim, as such claims fall outside the statutory appeal mechanisms provided by section 83(1)(b).

Impact

This judgment reinforces the stringent boundaries set by national legislation on VAT recovery claims, particularly emphasizing the limited scope of tribunal jurisdictions. It underscores the necessity for recipients to either secure VAT-registered suppliers who can claim repayments or to pursue alternative legal remedies if supplier recovery proves impractical. Future cases will reference this decision when determining the standing of recipients in VAT repayment disputes and the appropriate legal channels for such claims.

Complex Concepts Simplified

Section 80 of the VAT Act 1994

Section 80 delineates the circumstances under which VAT repayments can be claimed. Primarily, it allows only the party that initially accounted for and paid the VAT to reclaim it. This means that if a VAT-registered supplier erroneously charges VAT, only they can directly seek repayment from HMRC, not the recipients of their supplies.

Principle of Effectiveness

Originating from EU law, the principle of effectiveness requires that rights conferred by EU legislation be genuinely exercisable. In the context of VAT, this means that if a recipient cannot reclaim VAT directly from the tax authority due to national law restrictions, the state must ensure there are viable legal avenues—like civil lawsuits—to facilitate such recoveries.

Direct Effect Claim

A direct effect claim refers to the ability of individuals or entities to rely directly on EU law provisions in national courts. ET's attempt to directly claim VAT repayment from HMRC was an assertion of such a right, challenging the restrictions imposed by national VAT legislation.

Conclusion

The Upper Tribunal's decision in Revenue And Customs v. Earlsferry Thistle Golf Club underscores the limitations imposed by national VAT laws on the mechanisms available for VAT repayment claims. While EU principles advocate for the effectiveness of rights, the judgment clarifies that national tribunals may not possess the jurisdiction to entertain direct claims by recipients absent explicit statutory provisions. Consequently, recipients like ET must navigate alternative legal pathways to reclaim erroneously charged VAT, ensuring compliance with both national and EU legal frameworks. This case serves as a critical reference point for future disputes involving VAT recovery rights and the delineation of tribunal jurisdictions.