Date of issue: 16th April 2008

HMRC RULING COULD OPEN THE FLOODGATES TO VAT CLAIMS

Chartered accountant Clement Keys has welcomed the decision by HM Revenue & Customs to extend the period in which businesses can recover VAT they have overpaid or underclaimed, but says it could open the floodgates to major pay outs as some businesses – including not for profit golf clubs, theatre groups and motor dealerships - will be entitled to claw back considerable sums.  

HMRC has accepted the House of Lords decision in the Michael Fleming and Condé Nast Publications Ltd cases and will now accept claims for output tax that has been overpaid or overdeclared and input tax that has been underclaimed which would otherwise have been blocked by the three-year cap.  

Output tax claims can be submitted for VAT accounting periods up to 4 December 1996, while input tax can be reclaimed for accounting periods up to 1 May 1997.  Claims relating to accounting periods ending on or after these dates are capped at three years.

“Problems arose when, in 1996, the government reduced the time limits for input and output tax claims to three years but did not bring in transitional provisions to permit businesses to make claims for a limited period under the old rules,” says director of Indirect Tax Services Steven Simmonds.  

“The European Court of Justice considered this to be a breach of Community law, which could not be resolved by the administrative transitional regime HMRC introduced in 2002 to try and remedy the situation, so the announcement that businesses can now pursue some VAT claims dating back more then three years is very welcome news indeed.”  

Importantly, Mr Simmonds says that businesses whose earlier VAT claims were reduced or restricted by HMRC also stand to benefit.  They may now be entitled to recover the restricted amounts and are advised to review their records with a view to submitting requests for the release of those funds.

 HM Revenue & Customs has indicated there will be a further announcement once the full implications of the House of Lords decision have been considered, and while no deadline has been published, Clement Keys is urging businesses to contact HMRC or their professional adviser and to present claims as soon as possible.