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HMRC internal manual

VAT Refunds Manual

What to do with abusive claims

What is an abusive claim?

A claim may be abusive because it

  • has already been adjudicated against the claimant but they resubmit it;
  • is submitted repeatedly in an attempt to get it paid; or
  • is submitted on the basis of spurious legal arguments to achieve an unjustified advantage.

What to do where a claim has already been adjudicated against the claimant

Where a person has

  • brought a VAT claim (whether for output tax under section 80 of the VAT Act 1994 or for input tax under regulation 29 of the VAT Regulations 1995),
  • that claim has been rejected,
  • the claimant has appealed to the First-tier Tribunal against that rejection,
  • the Tribunal or a higher court has found against the claimant either in whole or in part; and
  • the claimant has not appealed the Tribunal or a higher court judgment and so it became final and binding

you should reject as abusive any attempt by the claimant to resubmit that claim.

The claimant will have a right of appeal against the rejection of the claim under section 83(1)(c) (for input tax claims) or 83(1)(t) (for output tax claims) of the VAT Act 1994, but an application should be made to the Tribunal to have the appeal struck out on the grounds that it is an abuse of process.

What to do where a claim has already been rejected but is resubmitted unchanged

Where a person has

  • submitted a claim that has been properly rejected, and
  • there having been no change in the relevant case law, that person resubmits that claim in exactly the same form

you should reject that resubmitted claim as abusive.

Claims should be rejected as abusive only where they are in all respects identical to the previous claim that was rejected. If the facts have changed or the legal arguments have changed it is not a repeat claim and should be treated as a bona fide claim.

Where a claim is rejected on the grounds of abuse, the claimant will have a right of appeal against the rejection of the claim under section 83(1)(c) (for input tax claims) or 83(1)(t) (for output tax claims) of the VAT Act 1994, but an application should be made to the Tribunal to have the appeal struck out on the grounds that it is an abuse of process – see John Wilkins (Motor Engineers) Ltd –v- CRC [2010] STC 2148, paragraphs 65 and 76.

What to do where you receive an abusive claim seeking an unjustifiable windfall

The European Court of Justice (EJC) has held that EU law cannot be relied on for abusive or fraudulent ends.

Businesses and individuals who seek to rely on the direct effect of an EU provision cannot ‘cherry pick’ in order to produce an advantageous result – that provision must be given its full effect. A claim which relies on only one part of a provision to the unjustified advantage of the claimant may well be abusive.

The term ‘abusive claim’ here means that the claimant has sought to use EU legislation or the case law of the ECJ (or UK legislation and case law intended to implement the EU provisions) in order to obtain a result which is contrary to the intentions of the EU legislator and contrary to the intention of the ECJ. That result is an unjustified tax advantage. For example

After a judgment that supplies of X are exempt rather than taxable, a trader makes a claim for the output tax that he over-declared on his supplies of X but doesn’t declare the input tax that he deducted wrongly on the understanding that his supplies were taxable.

The rationale behind the claim is that the claimant has a Community law right to recover the over-declared output tax and that HMRC are not entitled to recover the input tax because they cannot rely on their failure to implement Community law properly.

This applies equally to late claims for input tax which take no account of undeclared, associated output tax.

Such claims were described by the Upper Tribunal in its judgment in Birmingham Hippodrome Theatre Trust Ltd –v- CRC [2013] UKUT 57 (TCC) as ‘incongruent claims’ – any claim by which the claimant seeks to obtain a result which is contrary to the intentions of the EU legislator and the intention of the CJEU is ‘… incongruent with the Directive.’

In its judgment on Birmingham Hippodrome’s appeal, the Court of Appeal held that where a taxable person has accounted for output tax on supplies on which none was due, his right is to be put back in the position that he would have been in had the mistake not been made. He is not entitled to have his claim paid where that would leave him better off than he would have been had he not made the mistake.

Claims fall within the scope of this guidance if, even before the claim is paid, the business is better off as a result of the mistake than it would have been had the mistake not been made. That might happen, for example, because, in accounting periods outside the scope of the claim, they made very large input tax deductions or significant under-declarations of output tax.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)