As part of his monthly column for Tax Journal, Victor Cramer reviews a recent High Court decision regarding VAT bad debt relief that had gone on for 27 years. 

The BDR saga started with Goldsmiths (Jewellers) Ltd (Case C-330/95). In BT Plc v HMRC [2021] EWHC 1095 (BT), the High Court may have sounded the final bell.

The history of BDR litigation is tortuous. A review would generate a substantial carbon footprint. Nevertheless, BT has wider implications for common law tax claims, and possibly HMRC’s unjust enrichment defence.



BT deals with a claim for restitution and damages arising out historic defects in the UK BDR regime. It covered two periods:

  • 1 January 1978 to 30 September 1978, when the UK had no BDR scheme; and
  • 1 October 1978 to 31 March 1989, when the UK had a non-compliant BDR scheme (‘the old scheme’).

FA 1997 s 39(5) barred access to the old scheme after a long and confusing transition to the new scheme. The Court of Appeal has already found that s 39(5) was lawful, so BT’s only option was a common law claim. BT sought to avoid s 39(5) by bringing a restitution and damages claim.


The availability of common law remedies

Taxpayers often resort to common law claims in an attempt to resurrect long dead claims. The courts often respond with the last rites. The sound of the court hammering nails into the coffin drowns out the odd groan of taxpayer success from within.

The zenith of taxpayer success is probably para 204 of Test Claimants in the FII Group Litigation v IRC and another [2012] UKSC 19 (FII). Lord Sumption concluded that the exclusion of common law rights cannot be implied in the face of a breach of EU law.

On its face, para 204 supported BT. Context is, however, king. Paragraph 204 addresses refunds to which the taxpayer had a right, but where the mechanism was at HMRC’s discretion. By contrast, the BDR mechanism was and is absolute if the conditions are met.

If FII is the zenith for common law alternatives, then BT is the nadir, and it also the likely entropic end state – the heat death of the BDR litigation universe, if you will.

BT concludes (citing Southern Gas Networks Plc v Thames Water Utilities Ltd [2018] EWCA Civ 33) that ouster does not have to be express, or even necessary by implication. The statutory regime merely has to exist and cover the similar ground to the common law alternative.

VAT law is replete with recovery mechanisms. Absent the discovery of some form of VAT dark matter it is hard to see how any common law remedies remain. Statutory remedies are much like Schrodinger’s VAT; once their existence is observed, the alternate possibilities fall away.


Unjust enrichment

By way of footnote, the case raises an interesting point about unjust enrichment. BT argues that HMRC would be unjustly enriched if it retains the tax. HMRC says that BT had a right to claim which it did not exercise in time. Any enrichment arises from the failure to claim, not the original payment. Retention of the tax would not cause enrichment, nor be unjust.

The unjust enrichment defence in VATA 1994 s 80(3) is explicit. It only applies where the crediting of an amount by HMRC causes the unjust enrichment. If HMRC’s argument is correct, then taxpayers are not enriched by a VAT repayment but by customers failing to claim their share of that credit. Section 80(3) may be amended by the law of unintended consequences.

This is one to keep an eye on.


Victor wrote this article the Tax Journal, click here to view.



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