Bad debt relief provisions incompatible with 6th VAT directive


Re: HMRC v GMAC (UK) [2016] EWCA Civ 1015

HMRC brought an appeal against an UT decision relating to VAT bad debt relief provisions.
Held: the ‘old scheme’ provisions failed the EU law test of proportionality, because the scheme included certain property and insolvency conditions. The property condition excluded bad debts from relief in any contract for supply of goods which contained a retention of title clause. The insolvency clause required legal proceedings to have been taken to obtain bankruptcy of debtor. Considering whether the Finance Act 1997, s39 (5) barred GMAC’s claim, the Court held that GMAC had more than adequate time to bring a claim due to the prolonged crossover of the old and new schemes, and alowed HMRC’s appeal on this ground. Finally, the Court emphasised that as the domestic machinery did not specify a time limit, there was no need to incorporate the EU reasonable time principle to bring a claim.