In 1997 HMRC (then known as HM Customs & Excise) imposed a three year cap on reclaiming overpaid VAT, well yesterday the House of Lords upheld the Court of Appeals findings and confirmed these measure where in fact illegal.
The cases of Fleming (t/a Bodycraft) and Condé Nast Publications could now lead the way to allowing UK companies reclaiming over £1bn in overpaid VAT.
The two respondents in the judgment Fleming (t/a Bodycraft) v HMRC and Condé Nast Publications Limited v HMRC had found that their six year reclaims were effectively time barred when HMRC introduced the three year limit in 1997.
Condé Nast had argued that it was entitled to recover the extra input VAT in respect of staff entertainment it paid from 1 April 1973 to 30 April 1997. It had failed to deduct those figures when accounting for VAT in past periods.
Condé Nast, advised by Deloitte, said it was able to claim back so far because the UK law to cap the claim was defective and in breach of EU law around principles of effectiveness and uncertainty.
It said the UK had not included rules to allow transition from the previous uncapped system to the new limited system which came into effect in 1997.
Lord Hope said: ‘To be compatible with EU law, taxpayers were entitled to be told in advance of any transitional arrangements that would enable them to submit late accrued claims for the deduction of input tax despite the introduction of the time limit.’
It is because no transitional arrangements exist that this case succeeded. Lord Hope went on to say of the lack of transitional arrangements:
Until that is done the three year time limit must be disapplied in the case of all claims for the deduction of input tax that had accrued before the introduction of the time limit.
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