Prepayment rules and the EU principle of equivalence

HMRC assessed the taxpayer to VAT of £1.5m on the ground that it had incorrectly claimed input tax on purchases of mobile phones.

Totel appealed. It said the prepayment rule under which it had to pay the disputed VAT before appealing (VATA 1994 s 84(3)) infringed the EU equivalence principle described in Test Claimants in the FII Group Litigation v CRC [2012] STC 1362. Lord Hope said: ‘The principle of equivalence requires that the rules regulating the right to recover taxes levied in breach of EU law must be no less favourable than those governing similar domestic actions.’

The Court of Appeal dismissed Totel’s appeal so it took the case to the Supreme Court.

Lord Briggs gave the lead judgment with which the other justices agreed. He said the Court of Appeal had been correct to conclude that none of the domestic taxes were true comparators with VAT. A trader...