Terra Firma Chambers' Denis Edwards represented Lothian Health Board in their successful Court of Session appeal regarding overpaid VAT. 

In NHS Lothian Health Board v. HMRC [2020] CSIH 14, the Inner House of the Court of Session decided a significant case on a taxpayer’s remedies for the recovery of overpaid VAT going back many years.  In its unanimous judgment, the Court clarifies the law of evidence as it applies to overpayment claims.  The Court also explains the role of both HMRC and the First-tier Tribunal in determining the sums which HMRC is required to pay back in accordance with the EU law general principle of effectiveness.

The Court allowed Lothian’s appeal from decisions of the First-tier Tribunal and the Upper Tribunal.  They had both concluded that the burden of proving overpayment claims was solely on the taxpayer and even the best evidence available to calculate the amount of an historic overpayment was insufficient to satisfy the normal standard of proof in civil cases. 

The Court concluded that the lower tribunals had not given the principle of effectiveness the weight which EU law required in historical overpayment claims.  In its judgment, the Court considers the CJEU’s landmark decision in Case 199/82, San Giorgio, which establishes the right to restitution of taxes and levies paid in breach of EU law.

The Court’s judgment provides a rare discussion of what San Giorgio means for the law of evidence in domestic law.  The Court concludes that it requires the domestic laws of evidence to by applied compatibly with the effectiveness principle, so that a taxpayer’s recovery rights are not made excessively difficult or impossible in practice.  This was all the more so where the UK government bore most of the responsibility for the taxpayer’s evidential difficulties.

In addition, the Court explained that both HMRC and the tribunals had to assist in the determination of overpayment amounts, given the fundamental EU law right to recover overpayments of tax paid in breach of EU law.  It was not lawful for HMRC to obstruct the taxpayer’s rights, given that the UK had throughout the period from 1973 until 2009 been in breach of EU law in various respects.  The tribunals also had duties to use their best endeavours to determine amounts of overpayments when it was accepted that there had been an overpayment.  It was not sufficient compliance with EU law simply to apply the burden and standard of proof to dismiss claims without consideration of the overriding duties on the state to comply with the effectiveness principle.

The implications of the judgment are likely to govern outstanding repayment claims from NHS bodies throughout the UK of more than £140 million.