Taxman faces 'VAT bill of £100m'

The Court of Appeal has given UK businesses the all-clear to claim back under-recovered VAT, in a move that could see HM Revenue & Customs payout over £100million.

In June last year, media giant Conde Nast Ltd was told by the High Court it could not retrospectively recover input VAT on staff entertainment going back to 1973.

The majority of the claim was rejected because, as HMRC argued, the publisher’s claim fell outside the three-year cap laid down by new VAT regulations of 1995.

Conde Nast countered this through the courts, saying the legislation introduced on May 1 1997, which capped the time to claim repayments was defective.

This was because the legislation was absent of any “transitional agreements” to allow taxpayers to bring claims which the previous law would have allowed them to make, its lawyers said.

Three Appeal judges have now agreed, ruling that the government’s introduction of a three-year time limit on filing claims for overpaid VAT is, without such provisions, defective.

The verdict is expected to pave the way for numerous companies to claim under-recovered VAT which they failed to file before the 1997 legislation – a move that gave businesses a much shorter time limit for reclaiming overpayments.

In light of the verdict, experts at Deloitte predict the VAT man to face claims totalling over £100million.

“This case potentially affects all businesses that might have valid claims for under-recovered input VAT,” said Tony McClenaghan, head of indirect tax at Deloitte.

“Any company which may benefit from this case should consider submitting a claim to HM Revenue & Customs straight away.”

“Subject to petitioning the House of Lords for an appeal, the government will now be forced to remedy the defective law, allowing businesses which could have made claims for input VAT under the old law but were unable to because of the three year cap, now to do so with HMRC.

“We estimate that taxpayers who have already lodged claims will seek immediate repayment of the overpaid VAT. The claims are likely to amount to at least £100 million.”

However as HMRC is due to appeal the Appeal Court’s verdict, independent consultants at VATease say the tax authority is “not accepting claims for VAT paid prior to the 1997…cap.”

“If…Conde Nast are successful at the House of Lords then there will be an opportunity to reclaim VAT overpaid prior to the 3-year cap introduction. However, as there is no time limit yet applicable for the submission of such claims there is no need to submit a protective claim.”

Earlier this year in the case of Michael Fleming, the Court of Appeal held that the UK law, introduced in 1997, was defective and in breach of EU law.

The ruling in favour of Fleming represents the second defeat for the government, but HMRC has appealed, and is also expected to do so in the Conde Nast case.

Experts at VATease continued: “I would recommend that you await the outcome of the House of Lords hearing in the Fleming case. If that goes against HMRC you will be able to submit a claim for the VAT overpaid.”


24th July 2006

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