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

On this publish, 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 attraction was heard by the Supreme Court docket on 8 and 9 June 2022. The Supreme Court docket was requested to think about the proper strategy that must be taken by HMRC and the courts to proof, and the burden and customary of proof, in historic claims for the restoration of overpaid VAT.


The regulation 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 deadlines).

Claims for overpaid VAT, doubtlessly going again so far as the inception of VAT in 1973, are often called ‘Fleming claims.’ They’re so referred to 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 best way wherein 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 through the interval between 1974 and 1997. A lot of the work carried out within the laboratories was carried out for the scientific functions of the taxpayer and due to this fact 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 corporations, which constituted enterprise actions for VAT functions (which 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 equivalent to NHS Lothian was dealt with by the Scottish Workplace, and through that interval (and till the yr 1995/1996) it was the final apply of public our bodies to not make claims to get well enter tax on enterprise actions.

In opposition to 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“).

Selections of the Tribunals

The first problem in Fleming claims is usually not the existence of the taxpayer’s declare to get well overpaid VAT however as an alternative whether or not that declare could be quantified with enough accuracy to allow an order for reimbursement to be made. The explanation for that is that historic monetary data are prone to have been destroyed or in any other case misplaced over time. Taxpayers are due to this fact reliant on another proof to assist 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 out there and for which HMRC had agreed that the recoverable quantity must be 14.7% of the entire prices of the laboratories. NHS Lothian sought to extrapolate that very same agreed share backward to earlier years and likewise introduced detailed proof, accepted by the FTT, that the actions of the laboratories had not modified considerably all through the related interval.

Nevertheless, 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 adjustments to the final sample of exercise over the related interval, there had not been any reference to dependable main knowledge (eg, gross sales ledgers or copy tax invoices), and the time-scale concerned undermined the possible accuracy of the proposed extrapolation as quantities have been sure to fluctuate. The FTT due to this fact dismissed NHS Lothian’s declare in its entirety, and that call was subsequently upheld by the Higher Tribunal.

Resolution appealed

On attraction to the Inside 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 regulation 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 premise of difficulties with figuring out a passable methodology or difficulties of proof; and
  • secondly, whether or not, having regard to the elemental EU regulation requirement that the fitting to get well overpaid VAT shouldn’t be rendered excessively tough or unimaginable in apply beneath home regulation (the precept of effectiveness), HMRC and the Tribunals ought to undertake a versatile strategy to the burden and customary of proof in reference to historic claims for reimbursement.

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

In line with the Inside 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 well overpaid VAT was not in problem; all that was in dispute was the quantum. That meant that some quantity of enter tax should be because of the taxpayer (whereas, if the FTT have been right, none of that quantity could be recovered). As such, the place it’s clear that some reimbursement of tax is due, the Inside Home thought of that it ought to usually be potential to reach at some form of quantification of the quantity due and “distinctive circumstances” could be required to render such quantification unimaginable. If obligatory, the FTT ought to carry out the suitable calculations itself or at the very least 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 explanation for the dearth of main proof was the historic nature of the declare, which the Inside Home famous was largely brought on by the failure of the UK to correctly implement the EU regulation proper to reclaim enter tax and likewise by the truth that NHS Lothian’s VAT affairs have been at one time beneath direct authorities management. In such circumstances, a “moderately beneficiant strategy” must be taken to historic claims and the failure of the taxpayer to provide main proof couldn’t be given the extent of significance as attributed by the FTT.

The Inside Home decided, due to this fact, that the crucial query must be whether or not, within the gentle of the absence of enough main 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 Inside Home, that isn’t a take a look at of certainty and even close to certainty, however as an alternative a query of whether or not the taxpayer’s calculation of the reimbursement due is extra prone 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 robust strategy taken by HMRC in respect of such claims. The variety of excellent Fleming claims, for apparent causes, is diminishing. Nevertheless, the upcoming resolution of the Supreme Court docket must also have relevance to different conditions the place the taxpayer is required to provide proof to quantify a declare for reimbursement and the final rules that must be utilized by HMRC and the FTT in such circumstances.

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