Date of issue: 26th July 2005

ECJ RULING COULD LEAD TO VAT REFUND

According to chartered accountants Clement Keys, Birmingham, Midlands SMEs could be in line for a VAT refund following a recent European Court of Justice decision regarding the VAT treatment of legal and professional charges.

"Historically, the UK's position was that VAT incurred on legal and professional costs connected with share issues was directly attributable to the making of exempt supplies and was therefore irrecoverable," explains director of VAT services Steven Simmonds.

"When challenged through the Courts on this stance in 2004 Customs and Excise released a 'Business Brief' confirming that some legal and professional services associated with share issues could be considered general business expenses and the VAT recovered, in line with any existing partial exemption scheme.

"Now, the European Court of Justice (ECJ) ruling in the case of Kretztechnik AG v Finanzamt Linz appears to directly challenge Customs and Excise's view that the majority of costs directly related to a share issue cannot be recovered."

Clement Keys are advising businesses that if they can answer yes to the following questions, they may be able to claim a refund of VAT paid on legal and professional services:

· Have you issued shares in the last three years?

· Have you incurred VAT on legal and professional fees in connection with that share issue?

· Was the recovery of the VAT incurred blocked by Customs and Excise?

"This ECJ decision could be very good news for a wide variety of businesses and anyone who thinks they may be affected should consider submitting a protective claim pending a formal announcement on the matter from Customs and Excise," adds Steve.