GMAC (UK) Plc – Court Of Appeal Discovers VAT Bad Financial ObligationUncollectable Bill Relief Provisions Incompatible With EU Law

In HMRC v GMAC (UK) Plc [2016] EWCA Civ 1015, the Court of Appeal has held that the UKs legislation, which disallowed bad debtuncollectable bill relief declares unless the debtor was insolvent and the property in the items had actually passed, was incompatible with EU law.


This case associated to an appeal brought by HMRC against an Upper Tribunal (UT) decision connecting to the VAT bad debtuncollectable bill relief provisions.

The appellant purchased automobiles from independent dealers (who had actually agreed sales with clients) and sold them under hire purchase contracts. In February 2006, the appellant made a claim to HMRC for bad financial obligation relief in respect of products made under the hire purchase agreements got in into prior to 20 March 1997.

Article 11C(1) of the Sixth Council Instruction 77/388/ECC (now Article 90 of Council Regulation 2006/112/EC), offered that, when it comes to cancellation, refusal or total or partial non-payment of factor to consider, or where the rate is reduced after the supply takes placeoccurs, the taxable amount is lowered under conditions that are identified by the member state. In the case of total or partial non-payment, member states may derogate from this guideline.

The UK carried out Article 11C(1) by a bad financial obligationan uncollectable bill relief plan which allowed a person who had actually accounted for output tax on a supply to claim a refund of VAT to the extent the consideration for the supply was not paid (the Old Plan). There were conditions attached which stated that the residential or commercial property in the goods provided need to have passed from the plaintiff (the Home Condition) and the debtor should be insolvent (the Insolvency Condition).

The UK legislation governing bad financial obligation relief was changed in 1997 to get rid of the Property Condition and the Insolvency Condition (the New Scheme). Bad financial obligationUncollectable bill relief is now readily available if consideration for the supply has been writtencrossed out in the complaintants accounts. Under the New Scheme, pursuant to area 39(5), Finance Act 1997, no claim under the Old Plan can be made after 19 March 1997. Even more, no claim for a refund might be made under the New Scheme in relation to any supply that took placeoccurred before 1 April 1989.

The appellant was ineligible for bad financial obligation relief because title did not pass under its hire purchase agreements and it normally did not pursue insolvency procedures against defaulting customers. Its claim for bad financial obligation relief rested on the direct effect of Article 11C(1) and the incompatibility of the Insolvency and Home Conditions.

The appellant succeeded in the both the First-tier Tax Tribunal (FTT) and the UT. It was held that the Insolvency and Residential or commercial property Conditions were incompatible with Article 11C(1). The UT likewise found that the intro of area 39(5) hindered the appellants vested right to claim bad debtuncollectable bill relief which was eliminated retrospectively without any transitional measures.

HMRC attracted the Court of Appeal.

Court of Appeals judgment

The Court held that the Old Scheme provisions failed the EU law test of proportionality due to the Residential or commercial property and the Insolvency Issues. The Property Condition left out bad debts from relief in any contract for the supply of items which contained a retention of title stipulation. The Insolvency Condition required legal procedures to have actually been required to acquire insolvency of the debtor.

In thinking about whether area 39(5), Finance Act 1997, barred the appellants claim, the Court enabled HMRCs appeal holding that GMAC had more than adequate time to bring a claim due to the prolonged crossover of the Old and New plans and it was therefore not excessively difficult or essentially difficult for the business to exercise its EU rights. The Court highlighted that this was not a case where rights were eliminated without any prior notice. Lastly, the Court agreed with the UT that, as the appellant had bought a claim under an arrangement of domestic law (rather than directly implementing EU law rights) which did not specify a time limit, there was no requirement to incorporate the EU reasonable time principle to bring a claim.


The choice is largely of academic interest (expect for those with historic bad debtuncollectable bill claims) as it relates to a bad debtan uncollectable bill regime that is no longer in force. However, there were some fascinating observations made by the Court regarding the interaction between domestic and EU law. Where a taxpayer imposes its EU law rights pursuant to domestic law that has no time at all limits, the general EU law responsibility to act within a sensible time does not apply. If the appellant had actually looked for to enforce its EU rights without recommendation to domestic law, the position might have been various. Provided the sums at stake, the business might useget approval to interest the Supreme Court.

A copy of the judgment is available to see here