In a case concerning an online retail group in the UK the Court of Appeal has determined that the taxpayer must pay corporation tax in respect of VAT repayments received. The consequence of this victory for the tax authority is that many taxpayers will be unable to proceed with claims for tax repayments. The Court of Appeal upheld the decision of the Upper and First Tier Tribunals that corporate tax was payable on the VAT refunds and on the related interest. HMRC had made these VAT repayments after some members of the Shop Direct group of companies had reclaimed VAT that had been paid incorrectly.
HMRC argued that the VAT repayments formed part of the trading income of Shop Direct group and for this reason corporation tax was due. The interest received by the group in respect of the payments was also subject to corporate tax under the loan relationships rules. The Court of Appeal agreed with this position.
