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On 2 March 2012, the High Court (Henderson J) gave judgment in Investment Trust Companies (in liquidation) v HMRC [2012] EWHC 458 (Ch). Between 1990 and 2002, the claimants paid sums to managers by way of VAT on supplies of investment management services. The managers accounted for and paid sums by way of VAT to HMRC, after deducting attributable input tax. In 2007, the ECJ held in JP Morgan Claverhouse that the managers’ supplies should have been exempt. The managers made claims for repayment under section 80 of the VAT Act 1994. HMRC repaid to the managers the over-declared output tax (referred as the £100), less the over-claimed input tax (referred as the £25); claims in respect of the periods from December 1996 to 2002 were time barred by s.80(4) VATA (referred to as the “Dead Period”). The managers passed the sums back to the trusts (i.e. £75 for uncapped periods, £0 for the Dead Period). The trusts brought direct mistake-based restitution claims against HMRC for restitution of the £25 (uncapped) and £100 (Dead Period).
The court held (1) that as a matter of common law, the claimants had direct mistake-based restitution claims against HMRC; (2) that such claims were excluded by section 80(7) VATA; (3) that, following the ECJ’s decision in Reemtsma and Danfoss, EU law required the claimants to have a direct claim against HMRC for payment of the £25 in respect of uncapped periods, but not for payment of the £100 in respect in respect of the Dead Period; and (4) whether the national court had to disapply the statutory exclusion to permit a mistake-based restitutionary claim (which would allow claims going back to 1990) or only a “Woolwich” claim (in which case most claims would be statute-barred) would be stayed pending the Supreme Court’s judgment in the Franked Investment Income (FII) litigation and the ECJ’s judgment in Littlewoods.