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Act before the end of this month or lose VAT recovery
12 March 2009
Some years ago, the government reduced the time limit for
claiming back overpaid VAT from six years to three years. This had
a retrospective as well as a prospective effect, applying to claims
brought in relation to accounting periods before, and after, the
introduction of the legislation. There were, however, no
transitional provisions for claims which had already accrued when
the new rules came into force. In July 2002, the European Court of
Justice decided that, without these provisions, it was against
European law to apply the three year time limits
retrospectively.
The Government estimated that this could cost it more than £1
billion, so HM Revenue & Customs attempted to remedy the
position by introducing a non-statutory transitional regime.
However, in January 2008, the House of Lords ruled this did not
work, because it did not exist when the new rules were first
introduced. As a result, the retrospective application of the three
year time limit remained unlawful, and could not apply to claims
which had already accrued, until an adequate transitional period
had been provided.
Such a transitional period was introduced by the Finance Act
2008, but this expires at the end of this month.
This means that any outstanding claims to recover either
of the below, will be statute barred if not filed by 31 March
2009:
- Output tax overpaid or over-declared in accounting periods
ending before 4 December 1996
- Unclaimed or under-claimed input tax from accounting periods
ending before 1 May 1997
Claims relating to accounting periods ending on or after those
dates remain subject to the three year limit.
Claims for the recovery of overpaid VAT could be made on a
variety of grounds and, in theory, could go back as far as 1 April
1973 (when VAT was introduced into the UK). However, of course,
there may be practical difficulties in proving such old claims, for
example, if the relevant accounting records no longer exist.
If you believe to have outstanding VAT claims from accounting
periods between 1973 and 1996/7, we recommend you contact your
accountant, or our experienced tax department without delay!
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The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.