Lloyds Banking Group Plc & Ors v Revenue And Customs & Anor

Factual and Procedural Background

The appeals concern disputes over entitlement to repayment of overpaid Value Added Tax (VAT) collected by HM Revenue and Customs ("HMRC") due to incorrect interpretations of VAT law relating to various transactions, including those involving bingo halls, fleet car discounts, and hire purchase agreements. The central issue arises from the VAT treatment of supplies made by companies that were members of VAT groups formed under UK legislation implementing Article 11 of the Council Directive 2006/112/EC ("PVD"). Under UK law, VAT groups appoint a "representative member" who accounts for VAT on behalf of the group members.

The core dispute is whether the right to claim repayment of unlawfully overpaid VAT under section 80 of the Value Added Tax Act 1994 ("VATA") lies exclusively with the representative member or whether a real world supplier who has left the VAT group retains those rights. HMRC accepts claims from the representative member but rejects claims from real world suppliers who have left the group, even where the VAT group has dissolved.

Several appeals arose from different corporate groups, including those involving Chartered Trust plc (now Blackhorse Ltd), MG Rover Group Ltd, and Gala Leisure Ltd. The First-tier Tribunal and Upper Tribunal decisions generally upheld HMRC's interpretation that the representative member alone may claim repayment. The Supreme Court's 2018 decision in Taylor Clark Leisure plc v Revenue and Customs Commissioners was held binding on the interpretation of domestic law but did not resolve all EU law compliance issues raised.

Legal Issues Presented

1. Whether sections 43 and 80 VATA, implementing Article 11 PVD, comply with EU law regarding VAT grouping and the rights of members to claim repayment of unlawfully levied VAT.
2. Whether the San Giorgio principle entitles real world suppliers who have left a VAT group or where the VAT group has dissolved to claim repayment of overpaid VAT directly from HMRC.
3. Whether the UK law's conferral of the right to claim repayment solely on the representative member violates the principle of effectiveness under EU law.
4. Whether any exceptional circumstances justify allowing persons other than the representative member to claim repayment under the San Giorgio rights.
5. The implications of the Supreme Court's decision in Taylor Clark on these issues.

Arguments of the Parties

Joint Appellants' Arguments

• Article 11 PVD creates a "single taxable person" composed collectively of the VAT group members, not a separate legal entity represented by one member; thus, the San Giorgio rights to reclaim unlawfully levied VAT belong to the real world suppliers whose supplies generated the VAT.
• The member states' discretion under Article 11 is limited to eligibility and membership criteria, not to altering substantive rights such as the San Giorgio rights arising from VAT overpayments.
• When a real world supplier leaves a VAT group, it carries with it the right to reclaim overpaid VAT; conferring this right solely on the representative member is inconsistent with EU law.
• The UK model improperly creates a separate legal entity (the representative member) holding the San Giorgio rights, which EU law does not permit.
• The principle of effectiveness under EU law requires that those who have borne the economic burden of unlawfully levied VAT must be able to claim repayment; restricting claims to the representative member may violate this principle.
• Exceptional circumstances, such as long delays in recovery, lack of information about representative members, and failure of representative members to make claims, justify allowing real world suppliers or assignees to claim repayment.

HMRC and Respondents' Arguments

• The UK legislation implementing Article 11, particularly sections 43 and 80 VATA, is a permissible and compliant implementation that treats the representative member as the single taxable person for VAT purposes.
• The San Giorgio right to recover unlawfully levied VAT lies with the person who accounted for the VAT to HMRC, which is the representative member, not the individual group members.
• EU law does not require member states to allow real world suppliers who have left a group to claim repayment directly from tax authorities.
• The principle of effectiveness is satisfied by the UK system where the representative member claims repayment, and customers of real world suppliers have civil remedies against those suppliers.
• Exceptional circumstances justifying claims by parties other than the representative member are limited and not established in these appeals.
• The Supreme Court's decision in Taylor Clark confirms that under domestic law only the representative member may claim repayment under section 80.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed examination of the EU VAT Directive provisions, relevant CJEU case law, and UK domestic legislation implementing VAT grouping. It acknowledged that Article 11 PVD permits member states to treat groups of closely linked persons as a single taxable person but leaves broad discretion as to implementation.

The court found the UK model, which designates one member as the representative member responsible for VAT accounting and claiming repayments, to be a permissible and compliant implementation of Article 11. It noted that the representative member is not a quasi-legal entity but a legal person recognized by national law to represent the group for VAT purposes.

Regarding the San Giorgio rights, the court emphasized that EU law grants the right to recover unlawfully levied taxes but allows national law to set conditions that do not render the exercise of those rights virtually impossible. The court rejected the Joint Appellants' argument that the real world suppliers retain the right to claim repayment after leaving the VAT group, concluding that the San Giorgio rights are effectively exercised by the representative member.

The court held that the economic burden of the tax is borne only by the representative member and its customers, not by individual members once grouped. It also underscored that any internal arrangements about distribution of recovered VAT among group members are matters of domestic law and commercial agreement, not EU law.

On the issue of dissolution of VAT groups, the court found no lacuna in the law and concluded that the last representative member retains the right to claim repayment, even if it is no longer a taxable person. The court rejected claims based on who bore the economic burden of the tax after dissolution.

Finally, the court considered whether exceptional circumstances justified departing from the general rule that only the representative member may claim repayment. It found no such circumstances established in these appeals and held that the existing statutory and regulatory framework, including reimbursement arrangements under section 80A VATA, provides adequate protection.

Holding and Implications

The appeals are dismissed.

The court held that the UK VAT grouping provisions (sections 43 to 44 VATA) validly implement Article 11 PVD, and that the right to claim repayment of unlawfully overpaid VAT under section 80 VATA lies solely with the representative member of the VAT group. This approach complies with the San Giorgio principle and the principle of effectiveness under EU law.

The court rejected the argument that real world suppliers retain a direct right to claim repayment once they leave a VAT group or after the VAT group dissolves. It confirmed that the last representative member continues to hold the claim after dissolution, regardless of whether it remains a taxable person.

No exceptional circumstances were found to justify allowing claims by parties other than the representative member in these cases. The decision clarifies the legal position for VAT group repayment claims in the UK and affirms the binding effect of the Supreme Court's ruling in Taylor Clark.

No new precedent altering the scope of San Giorgio rights or VAT grouping implementation was established beyond confirming compliance of the UK model with EU law.