Dear Colleagues,

There is yet another decision on restitution on overpaid tax. In Littlewoods Retail Ltd & Ors v HM Revenue and Customs [2010] EWHC 1071 (Ch) (http://www.bailii.org/ew/cases/EWHC/Ch/2010/1071.html), Vos J had to consider various issues arising from a claim for some £1 billion in overpayments of value added tax. In the light of the two recent decisions of the Court of Appeal in FII and FJ Chalke, there are various interesting points, particularly as regards the approach to the Woolwich claim in FII. Some issues are referred to the European Court of Justice for decision.

Members might be especially interested in the approach to the defence of change of position, which was left open in both of the Court of Appeal decisions, which can be found at [97]ff ("Issue 4). It is held that change of position should not be open to the Revenue to rely on change of position as a defence to the Woolwich claim, even after the removal of the putative demand requirement in FII, but the Revenue can attempt to rely on it as a defence to a mistake claim. But Vos J goes on to hold that such a defence has not been made out by the Revenue, at [122]-[125]:

 1.  "In short, I do not accept that VAT receipts of the level of those made by Littlewoods in each fiscal year since 1973 were material to government expenditure. There was simply no evidence before me on which I could conclude, as Henderson J did that "departmental spending plans are themselves likely to be predicated in part on the receipt of [these] identifiable tax revenues". Quite the reverse, the evidence was that these VAT revenues were immaterial to government expenditure plans, and went ultimately to reducing government borrowing at the end of each fiscal year. There was a suggestion from Mr Neale that, insofar as the receipts created a surplus, the government might benefit from lower interest rates on Government debt, but he explained that the precise relationship between interest rates and debt was unclear. Recent events in Greece demonstrate clearly that, at an extreme level, the more a government borrows internationally, the higher rates of interest it can expect to pay. Any benefit the government did receive by way of lower borrowing rates (which I doubt would be discernible) could, if appropriate be taken into account in the assessment of quantum, which I am not undertaking at this stage.

 2.  On the facts that I have found, therefore, the overpayments were not material to government spending decisions in each fiscal year. And, at the end of each year, government borrowing was most probably reduced by the amount of the overpayments in that year. This does not, however, answer the crucial question, namely whether future government borrowing was affected by the overpayments beyond the end of each fiscal year. This depends on the evidence about how the government sets the level of its borrowing, which was somewhat exiguous. But doing the best I can on the basis of Mr Neale's evidence, it seems to me that the benefit that the government actually derived requires an assessment of the quantum of the claim. This will take place (if it is ultimately required) on the basis of the exhaustion of benefits defence, which as I have already said, I regard as more an argument about the quantum of the claim.

 1.  In my judgment, the change of position defence cannot succeed, because at the end of the fiscal year, the government has prima facie received a benefit in that its borrowing has been reduced by the amount of the VAT overpayment in that year. That benefit may or may not be carried forward, but the change of position defence fails because the Commissioners have failed to prove, the burden being on them, that they increased their spending in any way on the basis of the expectation or the happening of the overpayment, even if they can show that they either spent or used the overpayment to reduce borrowing.

 1.  My answer to this issue is, therefore, that the Commissioners have not made out their change of position defence on the facts in respect of the mistake-based restitutionary claims (if Littlewoods have such claims). Had such a defence been available to the Commissioners as a matter of law to the Woolwich based claims, that too would not have been made out. "

Best wishes,

James

--

James Lee

Lecturer

Director of the LLB Programme

Birmingham Law School

University of Birmingham

Edgbaston

Birmingham

 B152TT, United Kingdom

Tel: +44 (0)121 414 3629

E-mail: j.s.f.lee@bham.ac.uk

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