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Fleming v. The Commissioners for Her Majesty's Revenue and Customs

Denis Edwards is being led by David Southern, of 3 Temple Tax Chambers, in this appeal being heard by the House of Lords between 12th-14th November 2007. Denis and Mr. Southern act for the Respondent, Mr. Fleming, in the Revenue’s appeal from the Court of Appeal decision upholding his claim for repayment of overpaid VAT (see Fleming v. HMRC [2006] EWCA Civ 70). The appeal is being heard by the House of Lords together with HMRC v. Condé Nast Publications Ltd ([2006] EWCA Civ 976), which raises substantially the same issues.

The appeals raise important questions concerning the relationship between European Community (EC) law and national law. In short, where national legislation fails to give effect to EC law, does the legislation fall to be dis-applied and if so, to what extent? Must it be dis-applied for all purposes or only so far as necessary to give effect to the EC law principle of effectiveness? In giving effect to the EC law principle of effectiveness, what are the limits of the national courts’ power to construe the legislation so as to be compatible with EC law?

 In 1997, the UK passed legislation (Regulation 29(1A) of the VAT Regulations 1995) imposing a 3 year cap on a taxpayer’s right to reclaim under-deducted input tax. This legislation was given retroactive effect and no transitional period to protect accrued rights was provided. At the time when Regulation 29(1A) entered force (1.5.97), taxpayers had a right under EC law to recover the overpaid tax whenever it had been paid.

In October 2000, Mr. Fleming claimed for input tax paid in 1989 and 1990. The Revenue rejected his claim, relying on the 3 year cap introduced by Regulation 29(1A). Before both the VAT and Duties Tribunal and the High Court, he lost his claim.

 The Court of Appeal upheld Mr. Fleming’s claim on two alternative grounds. Either Regulation 29(1A) fell to be dis-applied because, contrary to EC law, it failed to provide a transitional period to protect accrued rights to repayment which existed at the time it was enacted. Or the Revenue could only rely on Regulation 29(1A) so as to reject repayment claims made 6 months after 11.7.02. The significance of this date arises from the date of the European Court of Justice’s decision in Marks and Spencer v. Customs and Excise Commissioners [2002] ECR I-6325, which ruled that EC law required transitional periods (subsequently suggested to be 6 months) to protect accrued rights whenever limitation periods for making claims were shortened.

 If the House of Lords adopts the latter approach, it follows that the national courts must “read-in” to Regulation 29(1A) a transitional period to protect the accrued rights of taxpayers under EC law to reclaim overpaid VAT. However, this approach presents the difficult question of determining when, compatibly with the EC law principle of effectiveness, this transitional period should begin and end.