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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, outlines current HMRC practice on dealing with ‘uncapped’ VAT claims.

Three-year capping

The latest chapter in this long-running saga was the recent issue of Business Brief 13/06 by HMRC, which set out their current position in the ongoing challenge to the UK’s three-year cap for input tax and output tax claims.

In the Brief, HMRC accept that the current position following the Court of Appeal’s decision in Fleming, is that any claim to recover output tax overcharged prior to 4 December 1996, or input tax claimed prior to 1 May 1997, is effectively uncapped. HMRC are, therefore agreeing to process claims, provided they meet specified requirements on form and content.

The Brief makes it clear that HMRC will continue to fight the litigation, and is seeking to get the Court of Appeal decision in Fleming overturned in the House of Lords. With this in mind, HMRC make it a precondition of processing claims that claimants sign an undertaking that any amounts paid to them will be repaid to HMRC plus interest, if HMRC are ultimately successful.

Key points

A summary of the key points in the Brief is as follows:

• Taxpayers wishing to submit new claims for VAT previously subject to the 3-year cap may now do so. Those that have not yet submitted claims should do so now;

• Taxpayers who have previously submitted claims are requested to write to HMRC requesting that their claims be processed;

• In both cases, taxpayers are requested to provide HMRC with certain specified information in support of the claim (including the reason for the claim and any supporting calculations).

• Notably, HMRC are not currently asking taxpayers to demonstrate that they would have made a claim in the event that the capping legislation did provide for a transitional period allowing taxpayers to submit claims (the so called ‘would have/could have claimed’ test);

• Claims for overcharged output tax will only be repaid where HMRC are satisfied that repayment will not result in an ‘unjust enrichment’ of the claimant;

• Claimants submitting new claims, or asking for existing claims to be reconsidered are requested to submit an undertaking to HMRC confirming they will repay the money and interest to HMRC if they are ultimately successful at the House of Lords.

Comment

It is a matter of debate as to whether HMRC can reasonably demand an undertaking as a precondition of payment. On a practical level, however, arguing this point may only serve to delay the processing of a claim. The main area of difficulty is likely to be the identification and quantification of new claims, given the 6-year time limit for retention of business records. Most businesses are unlikely to hold any records prior to 1999. Another issue will be whether HMRC will argue unjust enrichment on the claim.

Andrew Needham
September 2006

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com


VAT Solutions (UK) Ltd
1 Dundonald Avenue
Stockton Heath
Warrington
WA4 6JT

(T) 01925 212244
(F) 01925 212255
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: