24 January 2008
In a landmark decision, following 11 years of activity through the UK and European Courts, the House of Lords has thrown out the notorious three-year cap on back-dated VAT claims. When one considers the audacity of HMRC in introducing and then seeking to maintain this illegal legislation, this decision represents a major victory for the claimants in the two joined cases – Mr Fleming and Conde Nast Publications Ltd.
The background
Brought in illegally in 1996 & 1997, without the transitional period required by European law, the capping rules were used by HMRC to block claims for VAT incurred more than three years earlier. Businesses that had claims blocked for VAT incurred prior to 1996 and 1997 can now revisit those claims for the blocked amounts. We understand that there are currently several hundred claims already sitting with HMRC totalling in excess of ?100m; with no doubt more to follow.
Importantly, and despite HMRC’s efforts over the years to treat claims for under claimed input tax and overpaid output tax differently, the Lords do not appear to draw any great distinction, and it seems that both types of claim can now be revisited for input tax under claimed prior to May 1997, and output tax overpaid prior to July 1996. It seems to be accepted that later claims remain subject to the three-year cap because the introduction of the capping rules effectively gave businesses up to three years to correct any errors in their current VAT returns, but we will keep you up to date of any developments on this.
If you have had VAT claims restricted to only three-years, you really should speak with your usual UHY Hacker Young client partner or one of our VAT specialists immediately. We will keep you informed as more details about the decision come to light.
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