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<b>Tax News:</b> BT to take VAT appeal to Europe. By Louise Birkett

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9th Feb 2006
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BT's claim for a refund of £24 million in overpaid VAT has been referred to the European Court of Justice by the Court of Appeal.

The overpayment, originally of £40 million, was down to a glitch in a computer system that ran the monthly payment plans in 1991.

When someone whose account was in credit left the monthly scheme, a refund was given. As this reduced the amount of consideration, the VAT bill should also have been reduced. Instead, it was increased and the error wasn't discovered until 2003.

Unfortunately, the law is less than clear on what happens about HMRC's repayments of overpaid VAT. On the one hand the VAT Act 1994 says the taxpayer is entitled to a refund providing the claim is made within three years.

But a concession published by HMRC says there is no time limit when the error is a simple duplication of output tax or a tax point error. When HMRC said it would only refund the overpayments made three years before the claim, BT asked for a judicial review.

The high court turned down the request, with Mr Justice Lightman saying the deadline should stand. He also examined the issue of simple duplication, saying BT's case did not meet the criteria as the overpaid tax had been calculated by reference to the balance being refunded, not by reference to any taxable supply by the taxpayer to the customer.

The judge stated that EU law only provides a remedy when there has been an unlawful breach of community law. But the ECJ can provide a remedy if it is considered that national law is deficient in some way.

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