Government may lose billions in VAT ruling
The European Court of Justice has issued a draft opinion, which could cost the UK government billions of pounds in retrospective VAT claims.
The draft says the shortening of the claim period is incompatible with EU VAT law, which stems from the 6th VAT Directive.
In 1997, one of the last acts of the Tory government was to set a retrospective time limit of three years on how far back a VAT recovery claim could go.
The time limit was introduced because the government feared that billions of pounds of VAT might have to be repaid to businesses and it wished to put a ceiling on its obligations.
Chas Roy-Chowdhury, ACCA’s head of taxation, said: ‘As far as VAT is concerned, if the government loses on this issue before the ECJ, its worst nightmare may come true, namely the reopening of the floodgates which it tried to close, with billions of pounds of VAT claims becoming payable back to businesses.’
He added: ‘This case could prove to be a very important watershed, sending a strong message to governments not to enact tax law retrospectively.
‘Where governments do introduce retrospective legislation, they need to make sure it is able to withstand detailed scrutiny. Businesses which have a VAT repayment claim relating back to before 1997 must submit the paper-work to their Customs & Excise offices before March 2003.’