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Restriction on repayment supplements

21st Oct 2021
VAT Consultant vatadvice.org
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HMRC are liable to pay a taxpayer a Repayment Supplement (RS) where a repayment due to the taxpayer is delayed more than 30 days. VAT Act 1994, s79 provides for this and allows HMRC to raise and answer any reasonable enquiry relating to the Return or claim in question.

A variation arrived at the Tax Tribunal where the taxpayer had requested that the repayment be paid to an associated company. The repayment of around £71m was due to Bollinway Properties Ltd on the purchase of a property portfolio from Toys R Us Properties Ltd (TRUP). Bollinway requested that the repayment be made to TRUP to offset its output tax liability. The FTT held that the fact that Bollinway had assigned the benefit of the repayment to a third party meant that it had relinquished its entitlement to RS.

One difficulty the company faced was that it did not request the offset from HMRC until after the due date of the Return.  

Bizarrely (although it did not matter in this case), HMRC argued that the RS would constitute a windfall to the taxpayer! RS is essentially a compensation due to the taxpayer in light of HMRC’s dilatoriness. Call it a windfall if you wish!

The central issue is explained in paras 111-132 and is worthy of careful reading. It may also be subject to appeal, since it might be argued that the decision frustrates the purpose of s79 in this type of situation.

Whether HMRC repayment supplement manual addresses this issue is unclear. Guidance at VATRS10220 was commented on. The page certainly refers to ‘a case involving set-off,’ but whether that means set-off against the output tax liability of another taxpayer is a moot point.

The crucial factor is the wording in s79(1) states, ‘in any case where a person is entitled to a VAT credit…’ The FTT concluded that, since Bollinway had assigned its right to a credit to a third party, it could not be entitled to a RS.

www.bailii.org/uk/cases/UKFTT/TC/2021/TC08251.html

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