Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Properly being Board – UKSCBlog

On this publish, Jack Prytherch, Of Counsel inside the Tax crew at CMS, previews the selection awaited from the Supreme Courtroom in Commissioners for Her Majesty’s Revenue and Customs v NHS Lothian Properly being Board [2020] CSIH 14. The attraction was heard by the Supreme Courtroom on 8 and 9 June 2022. The Supreme Courtroom was requested to consider the fitting technique that should be taken by HMRC and the courts to proof, and the burden and regular of proof, in historic claims for the restoration of overpaid VAT.


The laws in relation to VAT broadly confers a correct to deduct the amount of any VAT on enter expenditure for enterprise actions. The place such ‘enter tax’ is unrecovered so that VAT has been overpaid, it is potential to make a declare for prior durations (subject to any related statutory deadlines).

Claims for overpaid VAT, most likely going once more as far as the inception of VAT in 1973, are commonly known as ‘Fleming claims.’ They’re so generally known as after the selection of the House of Lords in Fleming (shopping for and promoting as Bodycraft) and Condé Nast Publications Ltd v Commissioners for Her Majesty’s Revenue and Customs [2008] UKHL 2, which concerned one of the best ways whereby the then UK statutory time limit on making claims for overpaid VAT had been launched. Finance Act 2008, s 121 was subsequently launched to limit the scope for making such claims by introducing a model new transitional interval ending April 1, 2009, sooner than which any such claims wanted to be made.

The taxpayer, NHS Lothian Properly being Board (“NHS Lothian”), is an NHS perception liable for the supply of nicely being firms contained in the Lothian house of ​​Scotland. Together with its predecessors, NHS Lothian operated scientific laboratories in the midst of the interval between 1974 and 1997. Most of the work carried out inside the laboratories was carried out for the scientific capabilities of the taxpayer and subsequently composed of non-business actions for VAT capabilities. Nonetheless, NHS Lothian moreover carried out work for people outdoor the NHS, along with native authorities and pharmaceutical firms, which constituted enterprise actions for VAT capabilities (that signifies that enter tax incurred for the wants of such actions should have been recoverable). Sadly, earlier to 1994, the VAT obligation of NHS boards similar to NHS Lothian was handled by the Scottish Office, and thru that interval (and until the 12 months 1995/1996) it was the ultimate apply of public our our bodies to not make claims to recuperate enter tax on enterprise actions.

In the direction of that background, NHS Lothian made a world Fleming declare for the interval from 1 April 1974 to 30 April 1997 which included the enterprise actions of its laboratories. That declare was rejected by HMRC and NHS Lothian appealed to the First-tier Tribunal (Tax Chamber) (“FTT“).

Selections of the Tribunals

The primary problem in Fleming claims is often not the existence of the taxpayer’s declare to recuperate overpaid VAT nonetheless as a substitute whether or not or not that declare might be quantified with ample accuracy to permit an order for reimbursement to be made. The reason for that’s that historic financial knowledge are susceptible to have been destroyed or in another case misplaced over time. Taxpayers are subsequently reliant on one other proof to assist historic claims.

For the wants of its Fleming declare, NHS Lothian had primarily based its calculations on a separate declare made for the 12 months 2006/2007 in respect of which financial knowledge remained obtainable and for which HMRC had agreed that the recoverable amount should be 14.7% of the complete costs of the laboratories. NHS Lothian sought to extrapolate that exact same agreed proportion backward to earlier years and as well as provided detailed proof, accepted by the FTT, that the actions of the laboratories had not modified significantly all via the associated interval.

Nonetheless, the FTT held that the proof provided by NHS Lothian was not actual to utilize as a basis for the quantification of the declare. For example, whereas NHS Lothian had provided witness proof confirming that there had been no changes to the ultimate pattern of train over the associated interval, there had not been any reference to reliable essential information (eg, product sales ledgers or copy tax invoices), and the time-scale involved undermined the seemingly accuracy of the proposed extrapolation as portions have been positive to fluctuate. The FTT subsequently dismissed NHS Lothian’s declare in its entirety, and that decision was subsequently upheld by the Larger Tribunal.

Decision appealed

On attraction to the Inside House of the Courtroom of Session, two principal questions arose:

  • firstly, whether or not or not the fundamental correct to reimbursement of overpaid VAT, assured by EU laws and the principle of effectiveness, implies that, if the taxpayer’s methodology for calculating the amount of repayments have been rejected, HMRC and the Tribunals weren’t permitted to reject absolutely the taxpayer’s declare solely on the concept of difficulties with determining a satisfactory methodology or difficulties of proof; and
  • secondly, whether or not or not, having regard to the fundamental EU laws requirement that the acceptable to recuperate overpaid VAT should not be rendered excessively troublesome or not attainable in apply beneath residence laws (the principle of effectiveness), HMRC and the Tribunals should undertake a flexible technique to the burden and regular of proof in reference to historic claims for reimbursement.

The Inside House answered every questions inside the affirmative and allowed NHS Lothian’s attraction, isolating the FTT’s selection and remitting the case to a in one other method constituted FTT for reconsideration. It is that decision of the Inside House that is the subject of the attraction to the Supreme Courtroom.

In accordance with the Inside House, the FTT had imposed too extreme a examine on the NHS Lothian as a result of the taxpayer. The existence of a declare to recuperate overpaid VAT was not in problem; all that was in dispute was the quantum. That meant that some amount of enter tax needs to be because of taxpayer (whereas, if the FTT have been applicable, none of that amount will be recovered). As such, the place it is clear that some reimbursement of tax is due, the Inside House considered that it should often be potential to succeed in at some sort of quantification of the amount due and “distinctive circumstances” will be required to render such quantification not attainable. If essential, the FTT ought to hold out the acceptable calculations itself or a minimum of state the concepts by reference to which the calculation should be made. As a last resort, it additionally must be potential to low value an estimated amount to reflect the uncertainty.

On this case, the reason for the scarcity of essential proof was the historic nature of the declare, which the Inside House well-known was largely introduced on by the failure of the UK to appropriately implement the EU laws correct to reclaim enter tax and as well as by the reality that NHS Lothian’s VAT affairs have been at one time beneath direct authorities administration. In such circumstances, a “pretty generous technique” should be taken to historic claims and the failure of the taxpayer to provide essential proof could not be given the extent of significance as attributed by the FTT.

The Inside House determined, subsequently, that the very important question should be whether or not or not, inside the light of the absence of ample essential proof, the taxpayer has succeeded in proving the quantification of its declare on the stability of prospects via using such secondary proof as exists and drawing inferences from that proof. In accordance with the Inside House, that is not a examine of certainty and even near certainty, nonetheless as a substitute a question of whether or not or not the taxpayer’s calculation of the reimbursement due is further susceptible to amount to an accurate quantification of its declare than the selection (ie, no enter tax being repayable the least bit).


This case highlights the difficulties that could be confronted by taxpayers in evidencing historic Fleming claims for overpaid VAT, along with the sturdy technique taken by HMRC in respect of such claims. The number of wonderful Fleming claims, for obvious causes, is diminishing. Nonetheless, the upcoming selection of the Supreme Courtroom additionally must have relevance to completely different circumstances the place the taxpayer is required to provide proof to quantify a declare for reimbursement and the ultimate concepts that should be utilized by HMRC and the FTT in such circumstances.