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Grant Thornton – Totel Ltd v HMRC (UK)

Indirect Tax Update 40/2014.

This case concerns a claim for the repayment of input VAT allegedly incurred by the taxpayer in 2006 on the purchase of a quantity of mobile telephones. According to HMRC, the particular model of telephone that was the subject of the transactions in question were not in fact generally available at the time of the purported transactions. As such, it took the view the transactions had not taken place and issued assessments to recover the VAT it had already paid to the taxpayer. In December 2006, Totel Ltd appealed to the First-tier Tribunal and submitted a hardship application which was refused. In the meantime, the law relating to Hardship applications was changed so that the First-tier Tribunal became the final arbiter in relation to hardship. However, Totel challenged that change of law in judicial review proceedings. The eventual result from the Court of Appeal was that the question of hardship could, in fact, be appealed to the Upper Tribunal. After five years of litigation on a preliminary point, the appeal against the First-tier Tribunal’s decision on the hardship issue was heard by the Upper Tribunal. Unfortunately for the taxpayer, the Upper Tribunal dismissed each and every one of the taxpayer’s submissions. The First-tier Tribunal’s decision was not flawed and did not contravene the taxpayer’s EU law rights nor offend the principles of the Convention on Human Rights. Comment – It is by no means clear whether the taxpayer in this case will seek leave to appeal the decision of the Upper Tribunal to the Court of Appeal. On the face of it, it would seem that the taxpayer has exhausted all of its arguments and, as a result, it seems unlikely that the court would grant it leave to appeal. If that is the case, the taxpayer will either be required to pay the VAT in question and proceed with its substantive appeal (the issue being whether the VAT incurred on the purchase of the mobile phones in 2006 can be reclaimed as input tax) or, more likely in the circumstances, withdraw its appeal and repay the input tax it claimed. Although based on an unusual set of facts, this case is important because it confirms that if the First- tier Tribunal refuses an application on hardship grounds, an appeal does lie to the Upper Tribunal. 


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