In the High Court, BMW AG, an export company, has succeeded in overturning HM Revenue & Customs (HMRC’s) direction that the company should make quarterly returns in line with its associated UK manufacturing company.
BMW AG, as an exporter, was always in a net repayment position. The normal policy in these cases is to allow monthly filing. Being principally supplied by its associated company, the group effectively recovered VAT in one company before it was due to pay it in the other company.
Where associated businesses are in this type of arrangement it is HMRC’s policy to direct that the filing dates should be aligned.
The issue was whether it was irrational or unfair to treat an export company differently where it was associated with its supplier and where it was not.
The company argued that where the imposition of an associated export company did no more than shift to that company a cashflow benefit equivalent to the benefit, the UK supplier would have obtained if it were the direct exporter, then there was no unjustified or unintended benefit to the group as a whole.
The Court decided HMRC had not considered the effect on the company’s third party business of moving to quarterly filing, nor did the decision letter address whether the company had gained an unjustified and unintended cashflow benefit. Rather, HMRC appeared to have assumed that if there were no significant administrative difficulties or expenses involved in completing quarterly returns, then the cashflow benefit obtained had to be unjustified and unintended.
The finding was that it was not logical or fair to apply a policy under the assumption that the benefit would be unjustified and unintended if there was a mismatch of accounting periods that was not explained by administrative difficulties, and, ignoring what the position would be if the trader had exported his cars directly.
This decision presents a potential cashflow opportunity for exporters, but we understand that HMRC may, in future, challenge another group on this issue, following due process more accurately and making sufficient enquiries into the group’s situation to justify its decision.
For more information, and to discuss how this decision may affect your business, please contact Vaughn Chown or Tom Kivlehan or enter your details and submit the online form below.