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Landmark ruling on the Law of Limitation

Posted on 1 February 2021

In Franked Investment Income Group Litigation v HMRC [2020] UKSC 47, the Supreme Court departed from previous House of Lords' authority in the same run of cases regarding how mistakes of law should be treated for the purposes of section 32 Limitation Act 1980. This is relevant to any tax or VAT claim based on, or involving, a claim for restitution.

This judgment is part of the Franked Investment Income Group Litigation, which, by any standards, is colossal. The litigation was launched following a judgment of the Court of Justice of the European Union (CJEU) in 2001, which held that payments of Advance Corporation Tax were incompatible with EU Law. Put briefly, the claimants in the Group Litigation seek restitution from HMRC of vast sums of Advance Corporation Tax paid erroneously since 1973 (the year the UK joined the EEA).

There have already been no fewer than seven House of Lords/Supreme Court judgments on this subject, one of which, Deutsche Morgan Grenfell Group plc v Inland Revenue [2006] UKHL 49, is overruled by this latest judicial development in the saga. Now, a majority of the Supreme Court have held that the date it was discovered that the payments of Advance Corporation Tax were made under a mistake of Law was not the date of the key decision of the CJEU in 2001 (as had been held in the 2006 case). Instead, it was the date a claimant discovered, or could with reasonable diligence have discovered, the mistake. "Discovered" in this sense meaning recognising that a worthwhile claim arose. Put another way, it is when the claimant knew, or could with reasonable diligence have known, that he had made such a mistake "with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to [HMRC], taking advice and collecting evidence."

When that date will be is a question of fact. In this case, that date will now have to be decided by the High Court. The test laid out by the Supreme Court is convoluted and likely far from straightforward to apply in this case, and other cases to come.

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