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In Rio Tinto London v HMRC, a decision released on 27 November, the First-tier Tribunal has clarified the circumstances in which there is a “reduction of consideration” giving rise to a right to VAT repayment under regulation 38 of the VAT Regulations 1995 (which implements Article 90 of the Principal VAT Directive).
The Tribunal dismissed a claim by an employer for a repayment of around £1.5 million VAT that it had accounted for on various services that it had supplied to the trustees of its defined-benefit employee pension fund. The basis of the claim was that it had agreed with the fund a retrospective 30% price reduction (dating back to 1973) and had accordingly made a payment of just over £6 million to the fund. It therefore argued that there had been a reduction in consideration for the purposes of regulation 38 and that it was entitled to a corresponding repayment of VAT.
The Tribunal rejected that claim. It noted that the employer had argued that the 30% “price reduction” had been justified by an HMRC Notice on the VAT treatment of supplies to pension funds (700/17), but that that argument had not survived cross-examination, and that in cross-examination the employer had been unable to explain on what basis the figure of 30% had been agreed.
The Tribunal concluded that the payment had been made in order to present the price adjustment as a decrease in consideration for the purposes of regulation 38 and, possibly, to confer a gratuitous benefit on the fund. The Tribunal then held that, though a “reduction in consideration” for the purposes of regulation 38 could be agreed after the supply and without there being any contractual provision for it, there had to be “some change in circumstance or the occurrence of an event (other than a mere change in view of the correct VAT treatment of the supply) after the supply has been made which leads or obliges the supplier (or the supplier and customer) to consider that the original invoiced consideration should be altered“. That had not happened in that case and so HMRC had been right to reject the claim.
George Peretz represented HMRC before the Tribunal