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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 on this page 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.

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