Date of issue: 14th July 2005

BUSINESSES IN LINE FOR VAT WINDFALL?

Midlands businesses could find themselves in line for a windfall VAT payment following a Court of Appeal ruling and should seek advice now about putting in a claim for compound interest to be paid on VAT repayments.

So says chartered accountants Clement Keys, Birmingham, which is already processing claims for a number of its clients who stand to benefit from the landmark case involving Sempra Metals (formerly Metallgesellschaft Limited).

"The law states that if H M Revenue and Customs makes an error it will repay businesses the amount in question plus interest, which was traditionally calculated on a simple basis," says
Steven Simmonds, director of VAT services.

"This can now be challenged following the Court of Appeal decision in the Sempra Metals case, as the ruling states that under EU law compound interest is the only way of ensuring that the taxpayer is properly compensated where tax has been incorrectly collected."

While the Sempra Metals ruling concerns an overpayment of Corporation Tax, Clement Keys believes the decision is equally relevant to the payment of interest in VAT cases, since the wording in the legislation governing the payment of interest in Corporation Tax cases (FA 1989 s. 178) and VAT cases (FA 1996 s. 197) is identical.

"We would advise businesses which think they may be affected by this Court of Appeal decision to seek professional advice about reclaiming compound interest on VAT repayments, even if they have already been settled with a consideration for simple interest," concludes Steve Simmonds.