All’s fair in VAT

VAT prepayment rules and the EU principle of equivalence

HMRC assessed the taxpayer to VAT of £1.5m on the ground that Totel had wrongly treated it as input tax in its VAT returns. 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 by Lord Hope in Test Claimants in the FII Group Litigation v CRC [2012] STC 1362:

‘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.’

There is no similar requirement for income tax appeals or those involving some indirect taxes such as stamp duty land tax.

Lady Justice Arden in the Court of Appeal said given the EU’s lack of harmonisation on the remedies for overpayment of...