There remains a short period during which claimants may make backdated claims to VAT overpaid in accordance with the European Court decision in Fleming. HMRC are concerned that some companies are claiming that amounts they have secured as repayments, together with the statutory interest thereon are not taxable on the company for direct tax purposes.

Revenue & Customs Brief 14/09 issued on 20 March 2009 takes a very firm line on this issue. It makes it clear that HMRC believes that all repayments of output tax and associated statutory interest are taxable to corporation tax, and states that claims by companies to the contrary will be followed up promptly.

In a short analysis of the issue, the Brief states that when output tax is repaid to a claimant, the sales which were previously accounted for understated the income of the claimant, by incorrectly accounting for too much VAT output tax. Thus, the repayment of this VAT, although possibly arising from a mistake of law, merely corrects the understated sales to the correct amount. The amounts repaid are not VAT, as VAT was incorrectly accounted for on the original transaction, and the repayment merely restates the turnover at the correct figure.

Similarly, a fairly plain case is made for the interest to be taxed under corporation tax; although the interest does not arise on a loan relationship, it does arise on a money debt and thus is within the scope of Corporation Tax.

HMRC goes on to state that companies failing to account for direct tax on these amounts is regarded as a "priority compliance risk" and mentions the litigation and settlement strategy - this presumably being a stern warning to those hoping to raise a counter argument.