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HMRC internal manual

Business Income Manual

Specific receipts: refunds of sums paid as VAT: Shop Direct Group v Commissioners for Her Majesty's Revenue and Customs [2016] UKSC 7

Shop Direct Group v Commissioners for Her Majesty’s Revenue and Customs [2016] UKSC 7

HMRC have been successful at each stage of litigation, most recently following the Supreme Court decision in February 2016. The lower courts had previously found for HMRC that the ‘true source’ of each of the VAT Repayments (VRPs 1-8) was the trade in which the original overpayments of VAT arose, and accordingly the VRPs were trading receipts arising out of those trades. It was also held that onward transmission of the repayment by the VAT Representative Member of the VAT group to the trader or successor cannot strip the repayment of its nature or character.

Those VRPs that were received by the trader carrying on the trade from which the original VAT overpayments arose were held to be trade receipts taxable on the recipient. For other VRPs it was necessary to consider the Post Cessation Receipts provisions; nonetheless it was held that repayments received by those apellents which did not carry on the former trades were so taxable.

Only Shop Direct Group (SDG) pursued an appeal to the Court of Appeal. The focus of its appeal was on the relevance of transfers of the trades in the course of which the overpayments (VRP2) had been made. The Court of Appeal however confirmed that SDG was liable to CT on the sums resulting from VRP2, as Post Cessation Receipts under s103 ICTA1988.

The court also upheld earlier decisions that the associated interest (IP2) was chargeable to CT under the Loan Relationship Rules.

The Supreme Court upheld the decision of the Court of Appeal in relation to the application of the Post Cessation Receipts legislation. The judgement confirmed HMRC’s long held view of those provisions, in particular that a Post Cessation Receipt is chargeable on the recipient, irrespective of whether the recipient was the original trader. BIM90020.