Amending the date of VAT grouping

The Upper Tribunal has held that the FTT had no jurisdiction to hear an appeal by the taxpayer against HMRC's refusal to change the date from which a VAT group member had been registered: Dollar Financial UK Ltd v HMRC [2023] UKUT 256. Section 43B did not provide any basis for making an application to change an existing VAT group registration date and accordingly no appeal lay to the tribunal against a decision not to allow such a change.

The only remedy for a taxpayer in such circumstances would be to seek judicial review of HMRC's decision not to change the date of registration under its discretionary care and management powers.

The decision emphasises the importance of the initial application for VAT grouping as there is no statutory basis for seeking an amendment to the date of VAT grouping once it has been accepted.

Background

Dollar Financial UK Ltd (DFUK) was the representative member of a VAT group. In 2013, it applied for its US parent, Dollar Financial Group Inc (DFUS) to join the UK VAT group with immediate effect. HMRC issued a letter approving DFUS' inclusion in the VAT group from 27 June 2013, the date of the application.

In 2016, DFUK wrote to HMRC requesting an amendment to the date on which DFUS was added to its VAT group on the basis that it had a fixed establishment in the UK from an earlier date (July 2012) and had provided management services to DFUK during that earlier period. The request for earlier VAT group inclusion was to avoid the need for DFUS to retrospectively register for VAT in the UK and account for VAT on those management services.

HMRC refused that application, partly on the basis that it did not accept that DPUS had a UK fixed establishment from the earlier date and partly on the basis that there were no "exceptional circumstances" to allow the backdating of a grouping application in this case.

DFUK decided to appeal HMRC's decision not to allow backdating of the VAT group registration. HMRC applied for that appeal to be struck out on the basis that DFUK had not made a valid application under the VAT grouping rules. The FTT agreed with HMRC. Although HMRC purported to make a decision under VATA 1994 s.43B to refuse the application, that decision was a nullity and accordingly there was no appealable decision.

Upper Tribunal decision

The central question was whether the FTT had jurisdiction to hear the appeal under VATA 1994 s.83(1)(a) which allowed appeals with respect to the registration or cancellation of registration of any person.

DFUK submitted that the letter it sent to HMRC amounted to an application under s.43B(2) for a body to be treated as part of a VAT group. The FTT had held that this provision only allowed another body to be grouped that isn't already part of the group. DFUK submitted that was wrong and the provision imposed no bar on present group members applying to be a member at an earlier time. HMRC contended that the FTT decision was correct and that, once an application had been approved, there is no scope for the taxpayer to change its mind about the effective date.

The UT has held that s.43B(2)(a), on its plain wording, only applies where an application is made for an additional entity to be added to an existing VAT group. It did not allow an existing member to apply and it could not be read in a way that DFUS was "another body corporate" because it was not a member of the group between July 2012 and 27 June 2013. "Simply put, a member of the group cannot apply again to be treated as a member of the group if they are already a member of the group."

If Parliament had intended to allow a VAT group member to apply to amend the date from which it became a member it could easily have done so, but s.43B did not encompass such an option. As such, the FTT was correct to conclude that no valid application had been made under s.43B so as to give rise to a right of appeal, nor could such an application have been made.

Finally, the UT rejected the argument that the FTT should have considered that DFUK had a right of appeal under s.83(1)(a) on the basis that the decision related to the registration of DFUS. DFUK contended that the letter to HMRC had noted that DFUS should have registered for VAT and DFUK sought to achieve that not by requesting separate registration but by backdating the VAT grouping. This was incorrect. Both the letter and HMRC decision were clearly focussed on an amendment to the date of the VAT grouping, not the separate registration of DFUS for VAT. Registration and grouping are two distinct matters and DFUK's arguments conflated those two matters. The letter from DFUK did not amount to a notification of a liability to register for VAT in accordance with VATA 1994 Schedule 1 and HMRC's decision did not amount to an appealable decision on such a matter.

Comment

The UT noted that the decision does not leave entities such as DFUK without any recourse to a remedy. It would be open to the taxpayer to invite a decision from HMRC in the exercise of their discretionary care and management responsibilities. A decision would not give rise to a right of appeal under s.83, but could be challenged by applying for judicial review.