Unless they can show that they would suffer hardship as a result, traders who wish to challenge assessments to VAT are first required to pay, or at least deposit, the tax demanded before they can mount an appeal. That requirement has long been highly controversial, but its lawfulness has now been upheld by a Supreme Court ruling.

The case concerned a company that disputed a number of VAT assessments, but objected to the so-called ‘pay now, appeal later’ rule enshrined in Section 84 of the Value Added Tax Act 1994. It argued that the rule is contrary to the principle of equivalence, which forbids the law of individual member states from discriminating against claims based on EU law by affording them inferior procedural treatment to that given to comparable domestic claims.

The company pointed out that whilst the rule applies to VAT, which has its roots in EU law, no such rule applies to Income Tax, Capital Gains Tax, Corporation Tax and Stamp Duty Land Tax – all UK domestic taxes. The equivalence argument was first made before the Court of Appeal, but was rejected.

In dismissing the company’s challenge to that decision, the Supreme Court found that none of the domestic taxes cited could be viewed as true comparators to VAT. The burden of VAT falls upon consumers, although it is collected by the trader and accounted for by the latter to HM Revenue and Customs. That arrangement could not stand comparison with taxes, for example Income Tax, which are directly levied. There was nothing inappropriate about traders who are assessed to VAT being required to pay or deposit tax in dispute, which they have or should have collected.