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Shop Direct Group v CRC, Court of Appeal
The taxpayer company received a VAT repayment of £125m in September 2007, along with statutory interest of £175m.
The repayment related to a series of overpayments made by the taxpayer and a number of associated businesses within the same VAT group. All the other firms had ceased by the time of the repayment.
The taxpayer had been dormant since October 2005 and its trade transferred to another company.
HMRC assessed the taxpayer to corporation tax on the VAT repayment on the basis it was a post-cessation receipt within TA 1988, s 103(1). The firm was also assessed on the interest under s 18(3A), on the basis it represented a profit within case III of schedule D.
The company appealed, claiming the payments were outside the scope of corporation tax because they related to businesses that had ceased trading.
The First-tier Tribunal dismissed the appeal, saying the repayment rights were vested in the taxpayer by the time the repayment was made. The Upper Tribunal upheld the decision, against which the taxpayer appealed.
The Court of Appeal said s 103(1) imposed a tax charge on any recipient of a post-cessation receipt, regardless of whether it was the original trader. The judge accepted a “mere agent or nominee might not be chargeable to tax, but any recipient entitled to keep it is chargeable”.
The court added that the interest payment arose from a money debt that the Revenue was obliged to repay to the taxpayer and was therefore correctly chargeable to corporation tax.
The taxpayer’s appeal was dismissed.
