One of the effects of leaving the EU has been the retention of EU case law regarding VAT up to the start of 2020.  EU case law has established that member states must provide means for traders to obtain relief from VAT and if those means are ‘impossible or excessively difficult’ then there should be other ways for the trader to obtain relief.

The taxpayer ran an invoice factoring business but its accounting systems for clients couldn’t allocate cash receipts to particular invoices.  When claiming bad debt relief, it made its claim on a pari passu basis.  HMRC disallowed these claims stating that the UK VAT regulations required it to operate a single bad debt relief VAT account that detailed which particular invoices or part of invoices had been written off.

The taxpayer held that the requirement to operate a single bad debt VAT account was contrary to retained EU law and that there should be another method to claim the refund.  Sadly, for the taxpayer it raised this argument at the Court of Appeal (CoA) and not at an earlier first instance hearing.

The CoA found that the UK VAT legislation and the regulations from that legislation were not in contravention with retained EU law as the use of a single bad debt VAT account was not that an onerous obstacle and there were other means to obtain refund, such as appeal to the First-tier Tribunal (FTT).  The CoA found that the taxpayer hadn’t submitted the necessary reconciliations to the FTT in order to obtain the requested refund and therefore the FTT was correct to find that the debt didn’t exist, though this finding was overturned by the Upper Tribunal.  The CoA held that the taxpayer couldn’t have a second go at making the claim via the CoA.

The decision can be found at: Regency Factor Plc v The Commissioners for HMRC – Find case law (nationalarchives.gov.uk)

Please let us know if you have any questions on VAT compliance and the record retention requirements for making bad debt relief claims.  Please contact us if HMRC have rejected a claim for relief.  We are experienced with these issues and can provide guidance and negotiation assistance.