UK taxpayer fails to recover VAT incorrectly charged by supplier from HMRC

Metatron, established and registered for VAT in Slovenia, bought goods through the eBay platform from UK suppliers. Pre-Brexit, the supplies of goods should have been zero-rated in UK as an intra-community dispatch, but Metatron was incorrectly charged UK VAT. The suppliers refused Metatron’s request to zero rate and refund the VAT charged to them. Therefore, Metatron made two refund claims to HMRC under section 39 of VATA 1994, one before Brexit and the second after Brexit.

For the first claim, HMRC considered the case of Reemtsma C-35/05 in which CJEU had determined limited circumstances in which direct repayment of incorrectly charged VAT to a customer may be recovered from the tax authority . However, HMRC didn’t consider the grounds of Reemtsma case for the second claim because of its policy that these claims cannot be brought against HMRC after Brexit.

Metatron appealed against HMRC’s decision to refuse its claims for the refund of VAT, and HMRC applied for the appeals to be struck out on the basis that under the Tribunal procedure rules, FTT had no jurisdiction to consider its refusal on the refund claims in such circumstances and secondly that the appeals had no reasonable prospect of succeeding.

On the other issues, FTT agreed to strike out both claims on the basis that the appeals had no reasonable process of success. This is because VAT regulation 173B excluded a repayment claim relating to the supply of goods which are dispatched to an EU country; and that the amount incorrectly charged as VAT is not VAT to be eligible for a input tax claim or refund from HMRC under the refund scheme for overseas businesses

While FTT didn’t decide whether HMRC was correct that the Reemtsma claims cannot be brought against HMRC after Brexit, it did acknowledge that practitioners have different views.

KEY TAKEAWAY

Businesses must ensure that any amount charged as VAT by their suppliers is correct, as incorrectly charged VAT is not eligible for recovery from the tax authority.