The government has climbed down on backdated VAT claims and introduced a transitional period to allow businesses to recoup overpaid indirect tax going back to 1973 when it was introduced.

The measure, introduced in the Budget, will give businesses until 31 March to lodge claims for VAT they have either overpaid or underclaimed. The move follows HM Revenue & Customs’ landmark court case against Condé Nast, in which the House of Lords ruled against the taxman, stating that the changes made to limit the publisher’s back claims to three years in 1996 were in breach of EU law.

According to Ernst and Young’s Charles Brayne, the legislation sends a clear signal to HMRC on two counts: ‘Firstly, you can’t simply revoke taxpayers’ rights which have already accrued,’ he said. ‘And equally, you can’t fudge the processes by which taxpayers have to be given adequate notice.’

Brayne said that it remained to be seen how the move would apply to other tax changes, such as capital gains tax, pointing out a clear distinction between rights taxpayers had already accrued, and those which they expected to accrue in the future.

Budget 08 Special Report