Two landmark VAT cases successfully challenge the three year capping rules for input tax
The judgements in two similar cases Conde Nast and Fleming have ruled that the introduction of the 3 year cap with effect from 1 May 1997 was in breach of the principles of Community law as it did not allow the taxpayer a reasonable transitional period in which to submit refund claims. As such it must be disapplied. This opens up the period for submission of old and new claims.
The Lords ruled that a prospective transitional period should now be allowed in order for taxpayers to make claims. Futhermore, as the three year cap has been ruled to be defective, this means that even taxpayers who have not yet submitted claims for input tax incurred before 1 May 1997 will have the opportunity to do so. It is not known how long the transitional period will be, but it could be as short as six months.
Therefore if you have had input tax claims capped in the past, you should now revisit these claims as a matter of priority. When the details of the transitional period are announced, such claims should be re-submitted.
This judgement also calls into question the position following the Marks & Spencer case (relating to overpaid output tax). It may also be possible that the transitional period for output tax claims could be "reopened". Therefore, any output tax claims (overdeclared VAT in the periods prior to 4 December 1996 ) which have been capped by HMRC should also be revisited.
Watch this space for further details...
Date: 6th February, 2008
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