• Back claims for overpaid VAT could reach over £100 million
• Court of Appeal reaffirms that UK introduction of three year cap is defective without transitional provisions

UK companies may be able to recover over £100 million of overpaid VAT following a Court of Appeal ruling in the Conde Nast case today. The Court reaffirmed that the Government’s introduction of a three year time limit on filing claims for overpaid VAT is defective without transitional provisions, opening the doors for businesses to claim back the overpaid VAT.

Businesses can now make claims for under-recovered VAT which they failed to file before the Government introduced (on 1 May 1997) a new and much shorter time limit for reclaiming overpaid VAT.

The Court of Appeal has, for the second time this year, decided that the UK government cannot rely on the current three year time limit to refuse reclaims for input VAT incurred before 1 May 1997. Today’s decision in the Conde Nast Publications’ (CNP) case upholds a 2002 decision by the European Court of Justice (ECJ), where the UK lost in a case taken by Marks and Spencer. 

Tony McClenaghan, Head of Indirect Tax at Deloitte, which advised in both the CNP and the Marks and Spencer cases, said: “This case potentially affects all businesses that might have valid claims for under recovered input VAT. Any company which may benefit from this case should consider submitting a claim to HM Revenue & Customs (HMRC) straight away.

“Subject to petitioning the House of Lords for an appeal, the Government will now be forced to remedy the defective law, allowing businesses which could have made claims for input VAT under the old law but were unable to because of the three year cap, now to do so with HMRC. We estimate that taxpayers who have already lodged claims will seek immediate repayment of the overpaid VAT.  The claims are likely to amount to at least £100 million.”

The Conde Nast case held that if EU Member States reduce the time limits for taxpayers to make claims for overpaid VAT, then the Member State must provide a reasonable transitional period for taxpayers to put in claims which they could have made under the old time limits.  The case criticised the UK’s first wave of three year capping for VAT announced in 1996.

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Notes to editors:

Background to case

The Conde Nast appeal concerned an attempt by CNP to retrospectively recover input VAT on staff entertainment going back to 1973.  However, HMRC refused most of the claim for the VAT on the basis the claim was outside the 3 year cap laid down by the VAT Regulations 1995, Reg 29(1A).  Conde Nast contested this through the courts contending that the legislation introduced on 1 May 1997, which capped input VAT claims to 3 years was defective, in so far as it did not contain any transitional arrangements to allow taxpayers to bring claims which the previous law would have allowed them to make.  It was contended that this defect was in breach of the law laid down by the European Court of Justice in Marks and Spencer and was a breach of legitimate expectations.

Following the Marks and Spencer case, the Government tried to remedy its defective law by allowing certain taxpayers to put in claims for overpaid VAT up to June 2003.  However, the Government did not extend this concession to under claimed input VAT, which taxpayers are normally allowed to claim on their VAT returns. The government again failed to legislate for a transitional period when it introduced a three year time limit for making claims for input VAT in 1997. 

Earlier this year in the case of Michael Fleming t/a Bodycraft (Fleming), the Court of Appeal held that the UK law, without any transitional period, was defective and in breach of EU law. The Court of Appeal in CNP reaffirmed this position and refused a reference to the European Court of Justice (ECJ) on this point. HMRC cannot now rely on the existing legislation to block taxpayers’ claims for input VAT which they failed to claim before 1 May 1997.

Deloitte’s Indirect Taxes Team advised CNP and has been heavily involved in challenging the UK’s introduction of the 3 year time limit for VAT since it began the case for Marks and Spencer in 1996.

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and people excel. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT. 

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The information contained in this press release is correct at the time of going to press.