Constantgreen Ltd v Revenue & Customs Commissioners (VADT20303) (2007)


A claimant had not acted unreasonably when handling its claim for repayment of input tax and it was therefore entitled to interest on the amount of the repayment in accordance with the Value Added Tax Act 1994 s.84(8) and it was appropriate to award interest at the same rate as that charged on an overdraft taken out in the interim to replace the withheld money.


The appellant building and development company (C) appealed against the amount of interest paid by the respondent commissioners in relation to overdue repayments of input tax. C carried out work which it believed was directly related to a zero-rated supply and submitted a repayment claim to the commissioners. Following enquiries that claim was refused. Shortly after that date C took out an overdraft facility at base rate plus 2.75 per cent. Evidence was later given that this was partly because of the refusal of its claim. The commissioner's decision was upheld upon review. C appealed against that decision but the commissioners were granted five separate extensions to the time limit to serve their statement of case, causing a delay of approximately five months. The appeal hearing took place to carry out a fact-finding exercise and after C's principal witness gave evidence, the commissioners conceded and the appeal was allowed by consent. The commissioners subsequently repaid C's first claim. During the course of the dispute C had undertaken further work on the properties which had resulted in it making additional claims for repayment. Those claims were paid over 30 days from the date they conceded the appeal and as a result they paid interest to C in accordance with the Value Added Tax Act 1994 s.78. C submitted that it was entitled to simple interest at the rate of 2.75 per cent over base rate on the amount of repayment claimed, starting from when the sum was paid to the commissioners in relation to the first amount and from 16 days after the date of the relevant return in relation to the other amounts. The commissioners contended that no order for interest should be made as the information provided by C's principal witness was fundamentally different to the information previously provided and that that difference should be taken into account under s.84(8). They further submitted that the start date for the award of interest on the later repayments was 30 days after they conceded the claim on appeal and that the rate of 2.75 per cent above base was not justified unless C could show that its bank account was overdrawn for the entirety of the period for which it was deprived of the tax.


(1) C was entitled to interest under s.84(8) as the tribunal found that the repayment claim had not been paid. The delay in bringing the matter before the tribunal appeared to rest with the commissioners, in particular the time taken to submit a statement of case. C's conduct in handling the claim was that of a reasonable claimant. Throughout the dispute C maintained the same argument, provided the commissioners with evidence of its claim and responded to their enquiries, R (on the application of UK Tradecorp Ltd) v Customs and Excise Commissioners (2004) EWHC 2515 (Admin), (2005) STC 138 distinguished. The allegation that the principal witness introduced new evidence was more a change of emphasis rather than a deliberate withholding of evidence. C had an arguable case which would turn on the facts. The commissioners had the benefit of the use of C's money during the currency of the dispute, RSPCA v Revenue and Customs Commissioners (2007) EWHC 422 (Ch), (2007) BTC 5578 considered. C's conduct in handling its repayment claim did not constitute unreasonable behaviour and was not a relevant consideration for determining C's interest claim under s.84(8). C was entitled to an award of interest under that section. (2) The commissioner's code of practice stated that traders could expect them to authorise payment of most correct repayment returns within 10 working days of their receipt. The commissioners completed their verification exercise when they initially refused the repayment claim. They had not explained why they required more than the 10 working days for subsequent claims, which would concern the same project already subjected to detailed scrutiny. They had not made out their case for 30 days. As a result the award of interest in respect of the initial sum should commence when C was required to repay it and the further award should start 16 days from the date when the returns for the amounts would have been received by the commissioners had they not refused the initial claim. (3) C was deprived of its tax for over two years which it could have applied as working capital. In those circumstances it was unjust to apply the rate of interest as prescribed by s.78. The appropriate starting point was simple interest at base rate plus one percent which was the conventional practice in commercial cases. The rate at which C would have had to borrow money to replace the tax wrongly withheld was at base rate plus 2.75 per cent. The principal criterion for fixing the rate under s.84(8) was to determine the rate at which the tax payer would have had to borrow money to replace that which was withheld. The evidence of base plus 2.75 per cent adduced by C was sufficient to displace the conventional commercial rate.

Appeal allowed