Government could face huge VAT repayment bill

by Calum Fuller

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29 Aug 2012

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A BILL running into billions of pounds could be on its way to the chancellor after an upper-tier tribunal ruled that VAT rebates can be claimed on bad debts for the period between 1973 and 1997.

The case was brought by BT and GMAC, which is the finance arm of General Motors, and HM Revenue & Customs is likely to appeal the decision, reports the Daily Mail.

BT stands to claim £92m as well as interest, while the total the exchequer could end up paying out could run into billions.

Reclaiming VAT on bad debts has seldom been done in the past due to the complexity of the process, but should the tribunal's decision stand, it will open the door to claims stretching back beyond the current four-year cap.

Should the taxman decide to appeal, there is a strong chance the European Court of Justice could become involved.

The ECJ has already ruled VAT should not be charged on food sold for immediate consumption, regardless of whether it is eaten inside or outside the retail premises, with sandwich chain Subway preparing a test case that could lead to other similar retailers putting together their own claims depending on the result.

Karen Robb, partner at Grant Thornton, told the Mail that the extent of the damage to HMRC is still uncertain.

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