Taxman to pay out hundreds of millions on VAT cases

The government is set to pay out hundreds of millions of pounds to businesses
in overpaid VAT, after dropping its request for a ‘stay’ in the
Fleming-Bodycraft case.

The Court of Appeal ruled in February of this year that Bodycraft, a motor
trader who dealt mostly in second hand Aston Martins, could claim for overpaid
VAT in excess of a time limit of three years imposed in the mid-1990s.

The court ruled that since there was no transitional period involved when the
government introduced the three-year cap, the cap was incompatible with European
Union law.

The news comes as Condé Nast, also pursuing a similar point, won a case at
the Court of Appeal. Tony McClenaghan, head of indirect tax at Deloitte, said of
the Condé Nast case: ‘the claims are likely to amount to at least £100m.’

Though the government has not decided to cease pursuing the Fleming case, it
has dropped its non-payment of the disputed overpayments, meaning it will pay
out and seek to recover money later if it subsequently wins.

The case is one of more than 700 arising out of the introduction of the
three-year rule. Paddy Behan, VAT expert at Grant Thornton, told
Accountancy Age that the government’s move meant it might have to repay
as much as hundreds of millions of pounds in tax.

Tax advisers have referred to the implications of the case as potentially
‘horrifying’ for the UK Treasury.

The Fleming-Bodycraft case is one of a series of actions that has included
EMI, GMAC, Condé Nast and BT.

An HMRC spokesman said: ‘HMRC has reconsidered its position with regard to
the application for a stay in the case of Michael Fleming-Bodycraft, and has
decided to withdraw it. A Business Brief will be published in due course.’

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