Time Running Out For UK Firms To Claim VAT Refunds

by Robin Pilgrim, LawAndTax-News.com, London

11 February 2009

UK companies qualifying for a value-added tax refund as a result of a 2008 court decision now have less than two months to submit a claim to HM Revenue and Customs, tax and advisory firm PricewaterhouseCoopers has warned.

According to PwC, firms could recover significant amounts of money for input VAT not claimed in the period prior to May 1, 1997 and for output VAT over-declared in the period before December 4, 1996. Such claims can go as far back as 1973 when VAT was first introduced.

Input tax is incurred when a company that is registered for VAT buys goods or services from another supplier, and VAT is charged on the purchase cost. Similarly, output VAT is charged when the company sells its own goods or services and it charges its customers VAT at the same rate.

Mike Bailey, UK indirect tax leader, PricewaterhouseCoopers LLP, said:

“Virtually every long-standing business could have at least one potential VAT claim and many taxpayers who initially believed they could not make a claim have successfully gone on to do so."

“In the current economic climate, when cash flow is stretched, every business should examine if they have reason to submit a claim. With less than two months to benefit from this one off opportunity, companies must act now.”

In 1996 and 1997 the UK government introduced legislation which meant that any claim for overpaid or under-recovered VAT will have been subject to a three year time limit. However, in January 2008 the House of Lords ruled in the case of Fleming and Condé Nast that the UK’s implementation of the three year capping (as it is known) was in breach of European law because no allowance had been made for a transitional period in the UK legislation.

Furthermore, the House of Lords said that HMRC had failed to respect the ‘legitimate expectations’ of taxpayers who had could have made a claim before the time limits were introduced.

As a consequence of the House of Lords decision, taxpayers now have a window of opportunity (until 31 March 2009) to submit claims, which could also include additional claims for compound interest.

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