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VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, outlines some of the issues involved in claiming VAT refunds.

Three-Year Capping

Following the recent Court of Appeal decisions in Fleming t/a 'Bodycraft, and Conde Nast Publications Ltd, the six-month 'transitional window' introduced for making claims prior to the introduction of the three-year capping provisions in 1997 have been deemed illegal (the transitional window was only retrospectively introduced by HMRC in 2002 following the ECJ decision in the Marks & Spencer case). HMRC refute the argument that their provisions were illegal, and are currently seeking to take Fleming (and probably Conde Nast) to the House of Lords,

General refunds

On the face of it, businesses have the opportunity to claim any VAT refunds not made for periods prior to the three-year cap, and although HMRC are not agreeing to repay such claims at this point, it should not stop businesses from submitting 'protective claims in the meantime. Whether businesses still have the records, resources, and time to warrant producing such claims, however, is a key issue. We would suggest businesses at least consider whether they could have been in a position to claim prior to 1 May 1997, and take it from there.

Toothbrush scheme

One immediate spin-off from the above is the round of marketing letter being issued in relation to the 'toothbrush scheme' employed in the dentist sector. HMRC eventually killed off the scheme by introducing a second 'de minimis limit' from late 1994, but the Court of Appeal decisions mean that it can now be argued that any claims that were not made prior to the three-year cap are now eligible again, and should be submitted immediately (although HMRC closed the loophole, they agreed under the equity terms of the Taxpayer's Charter to allow any business to make a one-off claim for the period 1992 to 1995). Again, consideration should be given to dentist practices or other similar businesses that were essentially exempt but had some taxable income and related input tax below the old de minimis limit.

Care Homes

Another sector of business currently being courted for refund opportunities is the private care industry. Following the 'Kingscrest' case, which saw a profit-making care home successfully argue that its supplies were not exempt, and as such, could register for VAT and claim back substantial input tax, HMRC widened the exemption in 2002. Notwithstanding, there is still an opportunity for certain care homes to retrospectively register for VAT up to the point the law changed, and claim back VAT (less any output tax also due). The opportunity only really arises, however, where there was a reasonable proportion of local authority funded residents in the home (the higher the proportion the better). The other problem, again, is whether the records, resources and time warrant the claim to evaluate the existence of a claim.

Doctors

Following the 1 April 2006 changes in Prescription Pricing Authority funding, dispensing doctors are no longer able to have the VAT paid for on purchases of drugs they dispense. In view of this, HMRC are allowing dispensing GP practices to voluntarily register for VAT and claim back all the VAT incurred on such purchases. This is because the supply of drugs dispensed against an NHS prescriptions is zero-rated.

It should be noted that registration will trigger a VAT charge on other taxable supplies such as private prescriptions and (probably later this year) the fees charged for medical reports in personal injury cases and similar circumstances.

In December 2005, HMRC removed the exemption for Fixed Odds Betting Terminals & 'Section 16 machines'. In light of the ECJ's decision in the Linneweber case earlier in 2005 concerning an anomaly in the German VAT exemption on the physical location of betting machines, a strong argument then arose that the UK VAT treatment of other types of gaming machines prior to 6.12.05 was incorrect. There is now an opportunity to claim a refund of overpaid VAT, albeit that HMRC strongly reject the matter. Businesses in the sector are being marketed for the submission of protective claims, although it must be pointed out that the original three-year window is already down to 29 months.

Private Tuition

The Empowerment Enterprises case was heard in the Court of Session on 4/5 July 2006, and a decision is soon. The case concerns the validity of the UK exemption for private tuition, which currently excludes limited companies and employees/contactors of unincorporated entities. Should HMRC lose the case, there will be an opportunity for a VAT refund in relation to VAT wrongly accounted for on what would then be an exempt supply (less related input tax). In some cases, business will have been incorrectly VAT registered from day one, and will be able to deregister. It would remain to be seen whether HMRC would subsequently pursue the matter to the House of Lords and./or the ECJ, of course.

July 2006

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@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:

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional)

Mark is a Consultant Editor with Bloomsbury Professional, and co-author of ‘Incorporating and Disincorporating a Business’.

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb (www.taxationweb.co.uk) in 2002.