The prospect of paying out millions of pounds in unclaimed VAT repayments is looming over HM Revenue & Customs as it awaits a Court of Appeal ruling on a deal involving two co-operative societies.

The case, brought by Midlands Co-operative Society, deals with transactions where a business sells on its trade and assets to a buyer, but not its shares, and is then wound up.

The Midlands Co-op bought the trade and assets of the Leicester Co-op. But after the Leicester Co-op was wound up, it emerged that it had been eligible for VAT repayments of £100,000.

Midlands Co-op made the claim for the repayments, but HMRC argued that the repayments were due to Leicester Co-op, which had since been wound down. HMRC won at the VAT tribunal but lost in the High Court and is now waiting to see what the Court of Appeal will say in its judgment, due in a month’s time.

Paddy Behan, head of indirect tax at Mercury Tax Group, said the decision could have huge repercussions for HMRC as it would apply to any company that had bought the trade and assets of another business. ‘This is an extensive and significant case that could be very beneficial to taxpayers,’ Behan said.