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<b>Tax News:</b> Community law ruling potentially opens VAT repayment floodgates. By Nichola Ross Martin

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7th Mar 2006
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Companies could reclaim a fortune in VAT repayments following a recent court ruling.

The VAT Regulations 1985 were amended on 1st May 1997 by reducing the time limit on repayment claims from six to three years (reg 29(1A). To make matters worse for late claimants, the UK law allowed no transitional provisions, unlike Community law.

The case of Fleming (trading as Bodycraft) V. HMRC [2006] EWCA Civ 70 rectifies this unfairness, by following Community law in respect of VAT repayments due before the time limit was brought in.

The Court of Appeal heard that in 1989 and 1990 Mr Fleming purchased thirteen Aston Martin motor cars for the purpose of his business. He reclaimed the input tax on ten of the cars, and his claim was paid. He did not receive VAT invoices at the time of the purchase the remaining three cars, and without this essential paperwork, he could not make a claim to recover input tax on the purchase.
The invoices later arrived, and on 23 October 2000, he made his input tax claim, which was refused because of the three year rule.

The court decided that:

  • Mr Fleming had an accrued right to deduct input tax under Community law which could not be taken away by domestic legislation which had a retrospective effect.
  • Community law incorporates transitional arrangements to allow an adequate period after the enactment of new legislation for lodging claims which persons were entitled to submit under the original legislation. There are no transitional arrangements in s.29(1A).
  • Conde Nast Publications (CNP) was also allowed to intervene in the hearing, one issue being whether the taxpayer has to show that he would in fact have made a claim within the transitional period that should have been allowed. CNP made a late claim after it discovered an input tax error in the years between 1973 and 1997 on 27th June 2003.

    It was noted in court: "There are several instances in domestic and VAT law where time limits have been introduced without a transitional period for claims which thereby become statute barred, While the decision in this case may have implications in other fields'any other problems that arise in those other fields will have to await consideration on another occasion."

    There also remains unanswered the question as to the length of any transitional period when legislation is changed retrospectively. The court thought that any transitional period must be sufficient for taxpayers readjust to new time limits and effectively bring forward their actions, for instance, if a five year repayment period is reduced to three years, they felt that a transitional period of a mere three months may well be inadequate, six months might be better regarded as a minimum.

    In theory this decision could open the floodgates for claims which were previously thought to be time barred. The question remains whether businesses have still retained any of the relevant paperwork to make such a claim, or even if anyone can remember what could have been claimed if a repayment had ever been contemplated. In short we have another instance of an interaction of Community law that few people even knew about, it will be extremely interesting to see how it will interact in the future UK tax provisions.

    Nichola Ross Martin

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    By AnonymousUser
    08th Mar 2006 20:49

    1 good 10 bad
    For every decision that benefits SME there are 10 that don't.

    The whole idea of the EU has been lost.
    Accounts not ratified in 11 years!!!!! Oh we know where the money is we just can't find it attitude. EU has grown out of all proportion to Europes' needs.
    Eventually there will be no money to pay for all this Euro-legislation. At least then we will be able to get back to basics.

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