Tribunal rattles Customs with repayments ruling

Customs & Excise has settled a key case against the three-year rule on VAT repayments after a tribunal chairman ruled partially against the Government department.

The decision came as opposition to the diktat grew, with opposition MPs demanding changes to the controversial new limit.

The Institute of Directors claimed that the three-year rule could ‘sink’ marginally solvent businesses.

Leading tax lawyer Hugh Mainprice, who won the u568,000 settlement for the Royal College of Obstetricians and Gynaecologists, claims that Customs has ‘softened its line’ on input tax claims.

Mainprice said: ‘Customs take the view that the rule is totally justified on output tax where the public are never going to get their money back.

‘The input tax claims, which are not the big ones, suffered a knock-on effect as a result of cases like Primback and Elida Gibbs, where Customs thought they were right to try and recover the money.’

Customs argued that the Royal College’s case was almost unique and did not set a precedent. But a spokesman for the department said that similar cases, where a late first VAT return covered input tax beyond the past three years, would receive repayments.

SNP leader Alex Salmond and Lib Dem finance spokesman Malcolm Bruce called on the Government to thrash out a ‘fair and reasonable’ alternative to the three-year rule.

They submitted to Parliament Deloitte & Touche’s Waelbroeck report, highlighting 15 points of principle under European law to combat the ruling. Plaid Cymru and Ulster Nationalist MPs have also supported a parliamentary motion calling for the abolition of the proposal.

IoD taxation executive Richard Baron said the proposals would hit weak businesses. ‘Denying such a business recovery of VAT which it has mistakenly paid could easily push it over the edge.

‘There is then a direct cost to the public purse as the former employees would claim the jobseekers’ allowance with all the additional costs associated with the collapse of the business.’

DIY home-builders have had fears about the VAT treatment of their new properties eased. Customs said that self-build homes are not covered by the three-year rule. Concern arose as VAT is only recoverable after a property is completed, which can take over three years.