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Appeals - Totel's lost deposit

February 2017

TOTEL v HMRC : COURT OF APPEAL [2016] EWCA CIV 1310

If you want to appeal to the Tax Tribunal against a decision of HMRC then, in most cases, you are required by S84(3) VAT Act 1994 to deposit (with HMRC) the amount of disputed tax as a pre-condition of appealing.

Totel (who had been assessed by HMRC as owing almost £1.5M in wrongly claimed input tax) didn’t want to pay that amount of money up front so they argued that the pre-payment requirement breached the EU legal principle of “equivalence”.

The principle of “equivalence” requires that the rules regulating the right to recover taxes in breach of EU law must be no less favourable than those governing similar domestic taxes.

Totel argued that in appeals against domestic taxes, such as Income Tax and Stamp Duty Land Tax, there was no requirement for the disputed tax to be pre-paid so that the requirement for VAT did breach the principle of equivalence.

Lady Justice Arden made mince-meat of that argument, saying that there were four other domestic taxes (Landfill Tax, Insurance Premium Tax, Climate Change Levy and Aggregates Levy) where pre-payment was required but that, in any event, VAT was so different from all other domestic taxes that it could not be described as “similar” to any of them. As there were no similar domestic taxes to VAT it followed that VAT appeal procedures, including the requirement to deposit the disputed tax, could not breach the principle of equivalence.

So, the requirement for the deposit of disputed tax when appealing to the Tax Tribunal survived intact – which is unfortunate for your clients!

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