The Upper Tribunal has published its judgment on the appeal in respect of the earlier FTT case HBOS and Lloyds Banking Group v HMRC (https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08249.pdf).
The case addressed bad debt relief in respect of cars acquired via hire purchase. Under UK VAT legislation bad debt relief was denied as legal title had not passed.
However, in 2016 this was held to be incompatible with EU law and tax relief was allowed.
The case considered VATA 1994, s. 78 whereby HMRC owe interest where there has been a delay in making payment as a result of official error.
The case hinged on whether the taxpayers were owed interest from the date that they had made a bad debt claim or the earlier date when the conditions for the claim had actually been satisfied. The taxpayers argued that they had not made the claim when the conditions had been met because, at that time, the enacted UK law did not permit such a claim, but the subsequent EU ruling showed that a claim had actually been possible at that point. Refund of tax had therefore been delayed due to an error in enacting the UK legislation and this was covered by s. 78.
The FTT had ruled that the government’s error in the enactment of the legislation was not covered by s. 78. However, the UT has now ruled that decision was incorrect in law and s. 78 does indeed apply.
The UT therefore allowed the appeal establishing the principle that interest may run from the date that the conditions were satisfied rather than the date of subsequent claim. The quantum of interest is to be determined by the parties or, failing that, the FTT.