But while advisers were celebrating, HM Revenue & Customs was preparing
itself to fight on.
‘This is a very complex judgment on which it would be premature to make any
comment until the House of Lords has handed down its judgment,’ the taxman said
It has been a typical tactic of HMRC in ECJ cases to fight every legal
challenge to the bitter end. It has been a strategy that has worked well for the
taxman, and when the ECJ teacake decision is referred back to the Lords, HMRC is
not going to change tack.
The teacake case has dragged on for more than a decade and relates to
overpaid VAT on chocolate teacakes.
The taxman has always accepted that the High Street retailer had overpaid VAT
on the teacakes for a number of years, but argued that repaying the full amount
would ‘unjustly enrich’ Marks & Spencer as around 90% of the VAT cost had
been passed on to customers.
Marks & Spencer has based its defence on the fact that while HMRC has
applied ‘unjust enrichment’ to its valid claim for wrongly paid tax, the taxman
has not applied the same principle to block comparable claims made by its
competitors, contravening the two European law principles of equal treatment and
Following the ECJ’s decision in favour of M&S, Tony McClenaghan, head of
indirect tax at Deloitte, which acted for M&S, said ‘commonsense’ had
‘It is unreasonable for different retailers to be treated differently in
relation to similar transactions,’ he added.
KPMG indirect tax partner Chris Fyles said the ECJ teacake decision had
served up ‘another example of where HMRC have made mistakes incorrectly
implementing legislation’, while Andrew Loan, assistant solicitor at law firm
Macfarlanes, was encouraging business who may have claims to act ‘as soon as
Advisers may reckon the fight is over, but although HMRC is on the back foot,
it has not conceded just yet.
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