BTG Tax VAT and Indirect Tax Bulletin

Welcome to the BTG Tax VAT and Indirect tax bulletin. The aim of the bulletin is to give a high level update of indirect tax issues affecting businesses and clients. If you identify an issue of importance to you contact our VAT and Indirect Tax director Barry Stocks whose contact details are below.

This first issue kicks off with one of the most significant VAT decisions for some years – that could cost the Treasury £1bn in overpaid VAT if some estimates are to be believed.  The decision potentially gives taxpayers the opportunity to recover overpaid VAT back to 1973 – but the government is expected to slam the door shut very quickly – so urgent action is required to make claims now.

Continuing the theme of decisions against the Revenue, also in this issue we report on another major decision against HMRC in a case on carousel fraud, where the Tribunal supported the taxpayer in a case of whether a business should have knowledge of fraud somewhere in the chain of transactions, and the case of Weald Leasing which held that a cash flow planning scheme was not abusive.

Cumulatively, the cost to the Treasury of these decisions will be dramatic – but taxpayers will need to act quickly, as the Government will take steps to lessen the impact.


Major opportunity for reclaims as 3 year capping held illegal in landmark decision

The House of Lords has ruled in the cases of Fleming and Condé Nast that the 3 year cap introduced in 1997 was implemented illegally, and cannot have retrospective effect.  This opens up the opportunity for claims for VAT overpaid before the cap’s introduction.   However, it is widely anticipated that the window of opportunity will be limited, with a six month time limit expected to be introduced.  Claims that have already been made should now be repaid but where claims have not yet been lodged swift action is required.

All businesses and advisers should check through records to identify any opportunities for reclaims before the door is slammed shut – this is a one-off opportunity.  Claims can be enhanced by asking for compensation at full commercial rates of interest – this would often amount to more than the VAT itself rather than simple interest provided for under statute.  However, before such an interest claim is paid another battle through the courts is needed.


Defeat for HMRC in Carousel Case

In a significant decision in the case of Livewire Telecom the Tribunal overturned a decision by HMRC that a company “knew or should have known” about fraud in a supply chain.  HMRC’s arguments included an allegation of VAT losses allegedly offset by so called “contra trading”. Livewire Telecom should have £2.14m in VAT payments returned to it in a decision that could pave the way for funds to be returned to businesses in a similar predicament

The decision will be of interest to hundreds of companies who have had their repayments denied or withheld in similar cases, and a number of the Tribunal’s key findings should have a marked effect upon future cases to involve alleged defaulting or missing traders.  However, it is doubtful whether HMRC will change their approach significantly.

Cashflow scheme is not an “abusive practice”

The High Court has held in the case of Weald Leasing that an arrangement for deferring VAT payment was not an abusive practice.  The arrangement spread the VAT cost of IT and office equipment for an insurance business that was unable to recover VAT on all its costs.  The court decided that even if the tax payer admitted that a tax advantage was the essential aim of the arrangement the arrangement was not contrary to the purpose of the VAT system.

The decision is great news for businesses (and charities) that have, or are about to enter into, cash-flow planning who should consider whether any steps should be taken to improve VAT recovery.

VAT recovery opportunities on bookmakers SIS costs

Following a decision in the VAT Tribunal HMRC have accepted that VAT incurred on satellite information system (SIS) services can be partially recovered – they had previously said that the VAT on these costs was wholly irrecoverable.

Bookmakers should prepare claims for VAT on these costs.   Careful consideration should be given to the best method of calculation.

Barry Stocks
Director, VAT and Indirect Taxes


T: 0161 837 1876
E: barry.stocks@btg-tax.com

www.btg-tax.com