ECJ ruling adds to tax rebate woes

Revenue & Customs is bracing itself for a fresh set of tax refund claims, after the European Court of Justice ruled that EU companies could recover VAT on professional fees charged for advising on the raising capital.

Link: ECJ may force change to UK VAT rules

The ruling allows businesses to recover the VAT incurred when raising capital with share issues, including flotations, in the last three years.

The decision on a case involving Kretztechnik, an Austrian unit of General Electric, is expected to cost the Treasury at least £300m in reclaimed VAT on the fees and £100m in lost annual VAT receipts going forward.

Advisers moved quickly to encourage companies to make VAT claims as soon as possible. Patrick Walker, head of indirect taxes at PricewaterhouseCoopers, said: ‘Many affected businesses will have already made claims based on the earlier advocate-general’s opinion. Those that have not should take swift action as the three-year time limit has effectively been shortened by changes included in the newly published finance bill.’

Paddy Behan, VAT specialist at Grant Thornton, added that interest payments on VAT refunds ‘could be very significant’.

He said: ‘We believe that any business making a claim will be able to argue that the interest payment should be higher than the statutory rate that Revenue & Customs will expect to apply.’

The Revenue & Customs was unavailable for comment as Accountancy Age went to press.