Nature of set-off between output and input tax

Rank Group made four claims for repayment of overpaid VAT under VATA 1994 s 80(1). HMRC repaid £98m for three claims but rejected the fourth as being out of time. The company said the repayment was incorrect because HMRC had not given credit for the associated input tax.

HMRC said the payment of output tax and the deduction of input tax within the same accounting period were an ‘inseparable whole’ for the purposes of s 80(1) and s 80(2A). A taxable person should not be able to reclaim over-declared output tax without taking into account the input tax because to do so would result in an ‘unjust enrichment’.

The Upper Tribunal accepted Rank’s contentions saying there was ‘no need to imply into s 80(1) and s 80(2A) a form of set-off to ensure that a taxable person takes the rough with the smooth because such a mechanism already exists...