13 June 2018
In this particular case the opportunity for Birmingham Hippodrome to claim £1m of over-declared VAT presented itself when the three year cap was suspended for periods before 1996. However, had the three year cap been suspended for all periods, the Birmingham Hippodrome would have owed HMRC £2m for the period post dating 1996 in which it had claimed a large amount of VAT on the basis that its services were taxable. Although HMRC could not assess VAT in that period (because of the cap) it argued against the view that it should pay a further £1m to Birmingham Hippodrome for the historical period given that there was an offsetting amount albeit behind the wall of the capping provisions.
The Upper Tribunal sought to interpret the VAT legislation which allows an offset of one debt against another as including an offset within a capped period in order, presumably, to avoid what would have appeared a manifest unfairness to HMRC. What this proves in general is that the legislation that requires the offset of one liability against another VAT liability transcends the capping rules.
Whilst this could be appealed, there have been two adverse decisions and it seems likely that the taxpayer will withdraw from the battle.