In the First Tier Tribunal (FTT) case of NHS Lothian Health Board “the Board” the judge was asked to consider whether the Board had a valid Fleming claim* in respect of certain laboratory services performed from 1974 to 1997. The relevant services were, inter alia; Nequas work, food-testing, water-testing, non-medical testing of samples, especially for public health, and research and development.
The appeal was rejected. Although the Tribunal accepted the considerable evidence and testimony from members of staff working for the Board during the relevant years, and had decided that the relevant supplies were subject to VAT (they were not exempt of non-business) unfortunately, there was insufficient documentary evidence to actually quantify the amount of input tax claimed. Of course, in order to recover input tax, it had to relate to taxable (business) supplies made by the appellant. The Tribunal was required to consider whether the business income of the laboratories could be calculated. The FTT considered that whilst the evidence was helpful in determining that taxable supplies were made, that evidence fell short of facilitating its quantification. While the business income was almost certainly significant, the Tribunal did not consider that it has been quantified satisfactorily for the whole period.
The appellant contended that a set percentage representing business income could be projected backwards to earlier VAT periods. The Tribunal did not consider such an approach “reasonable or acceptable” and that the timescale involved also undermined the likely accuracy of the process of extrapolation. (The Tribunal suggested that there is a need to have a verifiable percentage, calculated by reference to prime records at regular intervals. For example, it might well be acceptable in a 25 year period to have verifiable figures every five years, and if there is not significant variation, to use extrapolated figures for the intervening years). There was also uncertainty about the Board’s partial exemption position and how, historically, apportionment was carried out.
This case demonstrates the difficulty of making retrospective claims that go back to the early 1970s, that’s over 40 years ago! It is to be expected that certain records may be absent and HMRC has previously agreed that the required information may be established by other methods, however, a claim has to be made on the basis of “something more concrete” than a backwards projection of a percentage figure calculated from more contemporary records. The judge gave an example of evidence that may be acceptable in these circumstances.
The outcome does seem somewhat unfair given the fact that all parties agree that VAT was overpaid due to an error made by HMRC, but the level of evidence required to support a Fleming claim has to be of a certain standard to be accepted.
As always in VAT – record keeping is of the utmost importance.
* Background to Fleming claims
Fleming claims’ are claims for underdeclared or overpaid VAT, potentially going back as far as the inception of VAT in 1973. They followed the House of Lords judgements in January 2008 in the cases of Fleming and Conde Nast (Fleming) which concerned the way that the three year time limit on making claims had been introduced. In Revenue and Customs Brief 07/08, published on 20 February 2008, claims were invited in respect of overpaid output tax for accounting periods ending before 1 May 1997. Subsequent legislation in the 2008 Finance Act limited the scope for making claims for these accounting periods by introducing a new transitional period ending 1 April 2009, before which any such claims had to be made.