PKF Encourages VAT Claims After HMRC Loses Appeal

by Robin Pilgrim, LawAndTax-News.com, London

29 August 2006

Accountantcy firm PKF has welcomed last week's announcement by the UK's tax authority HMRC that it is prepared to settle retrospective claims for refunds of VAT after losing an Appeal Court hearing.

PKF VAT expert, Gerry Myton said: “Even though HMRC is continuing with the Fleming and Conde Nast cases in the House of Lords, this announcement is a recognition that HMRC may ultimately have to concede defeat in the long-running VAT litigation over the introduction of a three year cap back in 1996. While the decision is not final, HMRC is firmly on the back foot.

“My advice to taxpayers that have kept their records from that time is to review their VAT accounting prior to 30 April 1997 and, if they consider an error has been made, seek professional advice before making a claim.”

HMRC announced: 'Pending the outcome of the appeal to the House of Lords, HMRC will give effect to the Court of Appeal's judgment for those who wish to make a claim, under the terms of this Business Brief, which includes a requirement to repay, with interest, in the event that this judgment is overturned. Many taxpayers may choose to await the final outcome of the litigation. In either event, claims arising out of this litigation will carry an entitlement to make a claim for statutory, simple interest (under section 78 of the VAT Act 1994).'

In 1996 and 1997, the Government had introduced a 3-year limitation period on claims for repayment of overpaid VAT, the correction of errors and late claims to input tax. It is now accepted, following the ECJ's judgment in Marks & Spencer Plc -v- CCE [2002] STC 1036 (M&S), that the statutory 3-year limitation periods (introduced with no express transitional periods during which taxpayers were able to make claims under the pre-existing rules) were, in certain cases, wrongly relied upon by HMRC against taxpayers.

HMRC continued: 'The exclusion of claims (particularly those made under regulation 29 of the VAT Regulations 1995 (input tax)) from the scope of Business Brief 22/02, and the refusal of claims made in accordance with it, led to a number of appeals to the VAT & Duties Tribunal challenging both the manner in which the relevant 3-year limitation periods were enacted and HMRC's response to the M&S judgment. Many of these appeals were decided in favour of HMRC but the Court of Appeal in Fleming found against them and held that persons whose right to deduct input tax arose before the date on which the new time limit was enacted, that is to say before 1 May 1997, should be allowed to claim without imposition of the 3-year cap.

' Taxpayers who believe that they are entitled to benefit from the Court of Appeal's judgment in Fleming, and who wish to claim without waiting until the matter is finally determined in the House of Lords, should proceed as follows:

'Where a claim, relating to an event more than three years earlier, has already been made and remains 'active', either because no appealable decision has yet been given by HMRC or because the matter is subject to appeal, taxpayers should write to HMRC (see the address below) asking for their claim to be considered in accordance with this Business Brief.

'In all other cases, a fresh claim can be made where an amount:

• has been improperly paid as VAT before 4 December 1996; or
• has been overdeclared as output tax in an accounting period ending before 4 December 1996; or
• became deductible as input tax on or before 30 April 1997 and has not yet been deducted.

'In all cases, the claimant must sign an undertaking to the effect that, if the ultimate determination of litigation removes his
entitlement, any credit given, or money paid, to him, will be returned to HMRC with interest.'

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