Commissioners for Her Majesty’s Income and Customs v NHS Lothian Well being Board – UKSCBlog

On this put up, Jack Prytherch, Of Counsel within the Tax crew at CMS, previews the choice awaited from the Supreme Court docket in Commissioners for Her Majesty’s Income and Customs v NHS Lothian Well being Board [2020] CSIH 14. The enchantment was heard by the Supreme Court docket on 8 and 9 June 2022. The Supreme Court docket was requested to contemplate the right strategy that must be taken by HMRC and the courts to proof, and the burden and commonplace of proof, in historic claims for the restoration of overpaid VAT.


The legislation in relation to VAT broadly confers a proper to deduct the quantity of any VAT on enter expenditure for enterprise actions. The place such ‘enter tax’ is unrecovered in order that VAT has been overpaid, it’s potential to make a declare for prior durations (topic to any relevant statutory cut-off dates).

Claims for overpaid VAT, doubtlessly going again so far as the inception of VAT in 1973, are referred to as ‘Fleming claims.’ They’re so known as after the choice of the Home of Lords in Fleming (buying and selling as Bodycraft) and Condé Nast Publications Ltd v Commissioners for Her Majesty’s Income and Customs [2008] UKHL 2, which involved the way in which by which the then UK statutory time restrict on making claims for overpaid VAT had been launched. Finance Act 2008, s 121 was subsequently launched to restrict the scope for making such claims by introducing a brand new transitional interval ending April 1, 2009, earlier than which any such claims needed to be made.

The taxpayer, NHS Lothian Well being Board (“NHS Lothian”), is an NHS belief answerable for the availability of well being companies throughout the Lothian space of ​​Scotland. Along with its predecessors, NHS Lothian operated scientific laboratories in the course of the interval between 1974 and 1997. Many of the work carried out within the laboratories was carried out for the scientific functions of the taxpayer and subsequently composed of non-business actions for VAT functions. However, NHS Lothian additionally carried out work for individuals outdoors the NHS, together with native authorities and pharmaceutical firms, which constituted enterprise actions for VAT functions (that means that enter tax incurred for the needs of such actions ought to have been recoverable). Sadly, previous to 1994, the VAT legal responsibility of NHS boards corresponding to NHS Lothian was dealt with by the Scottish Workplace, and through that interval (and till the yr 1995/1996) it was the overall follow of public our bodies to not make claims to get better enter tax on enterprise actions.

Towards that background, NHS Lothian made a world Fleming declare for the interval from 1 April 1974 to 30 April 1997 which included the enterprise actions of its laboratories. That declare was rejected by HMRC and NHS Lothian appealed to the First-tier Tribunal (Tax Chamber) (“FTT“).

Choices of the Tribunals

The first situation in Fleming claims is usually not the existence of the taxpayer’s declare to get better overpaid VAT however as a substitute whether or not that declare may be quantified with enough accuracy to allow an order for reimbursement to be made. The explanation for that is that historic monetary data are more likely to have been destroyed or in any other case misplaced over time. Taxpayers are subsequently reliant on another proof to help historic claims.

For the needs of its Fleming declare, NHS Lothian had based mostly its calculations on a separate declare made for the yr 2006/2007 in respect of which monetary data remained obtainable and for which HMRC had agreed that the recoverable quantity must be 14.7% of the overall prices of the laboratories. NHS Lothian sought to extrapolate that very same agreed proportion backward to earlier years and in addition introduced detailed proof, accepted by the FTT, that the actions of the laboratories had not modified considerably all through the related interval.

Nonetheless, the FTT held that the proof introduced by NHS Lothian was not exact to make use of as a foundation for the quantification of the declare. For instance, whereas NHS Lothian had introduced witness proof confirming that there had been no modifications to the overall sample of exercise over the related interval, there had not been any reference to dependable major information (eg, gross sales ledgers or copy tax invoices), and the time-scale concerned undermined the seemingly accuracy of the proposed extrapolation as quantities have been sure to fluctuate. The FTT subsequently dismissed NHS Lothian’s declare in its entirety, and that call was subsequently upheld by the Higher Tribunal.

Choice appealed

On enchantment to the Interior Home of the Court docket of Session, two principal questions arose:

  • firstly, whether or not the elemental proper to reimbursement of overpaid VAT, assured by EU legislation and the precept of effectiveness, signifies that, if the taxpayer’s methodology for calculating the quantity of repayments have been rejected, HMRC and the Tribunals weren’t permitted to reject fully the taxpayer’s declare solely on the idea of difficulties with figuring out a passable methodology or difficulties of proof; and
  • secondly, whether or not, having regard to the elemental EU legislation requirement that the best to get better overpaid VAT shouldn’t be rendered excessively troublesome or not possible in follow beneath home legislation (the precept of effectiveness), HMRC and the Tribunals ought to undertake a versatile strategy to the burden and commonplace of proof in reference to historic claims for reimbursement.

The Interior Home answered each questions within the affirmative and allowed NHS Lothian’s enchantment, setting apart the FTT’s determination and remitting the case to a in a different way constituted FTT for reconsideration. It’s that call of the Interior Home that’s the topic of the enchantment to the Supreme Court docket.

In line with the Interior Home, the FTT had imposed too excessive a take a look at on the NHS Lothian because the taxpayer. The existence of a declare to get better overpaid VAT was not in situation; all that was in dispute was the quantum. That meant that some quantity of enter tax should be as a result of taxpayer (whereas, if the FTT have been appropriate, none of that quantity could be recovered). As such, the place it’s clear that some reimbursement of tax is due, the Interior Home thought of that it ought to usually be potential to reach at some type of quantification of the quantity due and “distinctive circumstances” could be required to render such quantification not possible. If vital, the FTT ought to carry out the suitable calculations itself or a minimum of state the rules by reference to which the calculation must be made. As a final resort, it must also be potential to low cost an estimated quantity to replicate the uncertainty.

On this case, the rationale for the dearth of major proof was the historic nature of the declare, which the Interior Home famous was largely attributable to the failure of the UK to correctly implement the EU legislation proper to reclaim enter tax and in addition by the truth that NHS Lothian’s VAT affairs have been at one time beneath direct authorities management. In such circumstances, a “fairly beneficiant strategy” must be taken to historic claims and the failure of the taxpayer to supply major proof couldn’t be given the extent of significance as attributed by the FTT.

The Interior Home decided, subsequently, that the crucial query must be whether or not, within the gentle of the absence of enough major proof, the taxpayer has succeeded in proving the quantification of its declare on the steadiness of possibilities by utilizing such secondary proof as exists and drawing inferences from that proof. In line with the Interior Home, that’s not a take a look at of certainty and even close to certainty, however as a substitute a query of whether or not the taxpayer’s calculation of the reimbursement due is extra more likely to quantity to a correct quantification of its declare than the choice (ie, no enter tax being repayable in any respect).


This case highlights the difficulties that may be confronted by taxpayers in evidencing historic Fleming claims for overpaid VAT, in addition to the powerful strategy taken by HMRC in respect of such claims. The variety of excellent Fleming claims, for apparent causes, is diminishing. Nonetheless, the upcoming determination of the Supreme Court docket must also have relevance to different conditions the place the taxpayer is required to supply proof to quantify a declare for reimbursement and the overall rules that must be utilized by HMRC and the FTT in such circumstances.

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