Cumbria County Council v Commissioners for Her Majesty's Revenue and Customs

Facts

Following the unprecedented foot and mouth disease outbreak of 2001, statutory responsibility for control and eradication rested with the Department for Environment Food and Rural Affairs. Cumbria, the epicentre of the epidemic with 893 cases, saw DEFRA seek assistance from Cumbria County Council, a local authority within the meaning of the Local Government Act 1972, which deployed its in-house provider Cumbria Contract Services to supply labour, plant and materials — including some 450 disposal lagoons — from March 2001 onwards. The arrangements were made orally and in haste, the council being told simply to charge its standard Civil Engineering Contractors Association daywork rates. The council raised 566 invoices totalling over £5.5 million excluding VAT and accounted for output tax on them, but DEFRA paid only 23 in full and disputed the remainder, alleging overcharging and inadequate substantiation. High Court proceedings followed and were compromised by a settlement agreement of 27 March 2007 under which DEFRA paid £200,000 inclusive of VAT and interest in full and final settlement. The council, having accounted for tax on some £1.1 million more than it received, sought bad debt relief and, alternatively, an adjustment of its VAT account for a decrease in consideration. The Commissioners refused both, and the council appealed.