Law - VAT - Reclaims
Discussion
Not speeding, but if you are in business, VAT registered and you think that you might have been over-charged by the Government then read on below. This does not amount to advice - go see your accountant / lawyer.
Summary
The House of Lords has today ruled in favour of Condé Nast in deciding that the 3 year cap on refunds of VAT introduced in 1997 is unlawful. The decision opens the way for businesses to reclaim any VAT they have over-paid which was previously subject to the 3 year cap. The Government anticipate that the cost of refunds will be in excess of £1 billion of VAT.
Detail
In 1996 the Treasury was concerned that they would loose a case being heard before the European Court of Justice concerning the recovery of VAT on cars used for business use. They hastily introduced legislation to restrict the reclaim of VAT overpaid to no more than 3 previous years. In fact, the ECJ did not make the ruling that the Government feared but the capping legislation then remained after being introduced without warning.
Condé Nast had been overcharged VAT and claimed a refund of all of the baseless charge. HMRC agreed that Condé Nast had been incorrectly required to pay “as VAT” a debt that did not exist, but refused to repay more than three years worth of the sum over paid, citing the legislation mentioned above. Condé Nast argued that the failure to include a reasonable transitional period in the capping legislation rendered it incompatible with Community law principles in the light of the earlier ECJ decision in favour of Marks and Spencer. Today their Lordships confirmed that the Government's introduction of a 3 year time limit on filing claims for under-recovered input tax was defective and must be disapplied to claims for input tax incurred before 1 May 1997.
Implications and Action required
Until such time as the Government announce the introduction of a prospective and adequate transitional period, the current time limit is to be disapplied. This means that any business that has over-paid VAT at any time can now make a valid claim for repayment. Businesses should revisit any claims made for input tax incurred before 1 May 1997 and potentially for output tax they may have over-declared for VAT periods until 4 December 1996, that have been refused by HMRC on the basis of the three year cap rule. Businesses that have yet to submit claims should also now consider doing so.
Summary
The House of Lords has today ruled in favour of Condé Nast in deciding that the 3 year cap on refunds of VAT introduced in 1997 is unlawful. The decision opens the way for businesses to reclaim any VAT they have over-paid which was previously subject to the 3 year cap. The Government anticipate that the cost of refunds will be in excess of £1 billion of VAT.
Detail
In 1996 the Treasury was concerned that they would loose a case being heard before the European Court of Justice concerning the recovery of VAT on cars used for business use. They hastily introduced legislation to restrict the reclaim of VAT overpaid to no more than 3 previous years. In fact, the ECJ did not make the ruling that the Government feared but the capping legislation then remained after being introduced without warning.
Condé Nast had been overcharged VAT and claimed a refund of all of the baseless charge. HMRC agreed that Condé Nast had been incorrectly required to pay “as VAT” a debt that did not exist, but refused to repay more than three years worth of the sum over paid, citing the legislation mentioned above. Condé Nast argued that the failure to include a reasonable transitional period in the capping legislation rendered it incompatible with Community law principles in the light of the earlier ECJ decision in favour of Marks and Spencer. Today their Lordships confirmed that the Government's introduction of a 3 year time limit on filing claims for under-recovered input tax was defective and must be disapplied to claims for input tax incurred before 1 May 1997.
Implications and Action required
Until such time as the Government announce the introduction of a prospective and adequate transitional period, the current time limit is to be disapplied. This means that any business that has over-paid VAT at any time can now make a valid claim for repayment. Businesses should revisit any claims made for input tax incurred before 1 May 1997 and potentially for output tax they may have over-declared for VAT periods until 4 December 1996, that have been refused by HMRC on the basis of the three year cap rule. Businesses that have yet to submit claims should also now consider doing so.
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