Customs in repayment U-turn
Confusion gripped Customs & Excise offices this week after a directive placing a blanket ban on all VAT payouts under the new three-year rule was issued, and then withdrawn within hours.
Since the rule was introduced on 18 July, Customs has automatically repaid three years worth of any longer claim.
But Customs’ head of VAT policy, Martin Brown, ordered that all such claims should be held in ‘abeyance’ after a frosty meeting with representatives from the Big Six firms recently, who warned him that Customs’ controversial limit was illegal.
On Tuesday, Customs made a rapid U-turn promising to withdraw the instruction within a week after taking advice from lawyers. VAT experts were astonished by Customs’ actions.
Leading tax lawyer Hugh Mainprice said the Government body was running scared. ‘It is in a panic because it hasn’t got the money to pay the claims.
The Big Six told Brown it was unlawful only to pay back three years, so he took the opportunity to stop the lot.’
Price Waterhouse’s VAT practice head Richard Watson added: ‘The directive was intended as a bit of a standstill because they found themselves under far more pressure than they anticipated.’
Ernst & Young’s national VAT partner Peter Jenkins said: ‘It’s a bit of a mix-up.
It is paying claims up to three years and then time-barring them. Customs claims the right to do so because it says new legislation is going to be passed. It seems it is sticking to its guns over this.’
A Customs spokeswoman confirmed the about-turn. She said: ‘We’re withdrawing the guidance to offices and saying that they can commence repaying claims up to three years.’
The three-year rule faces its first major challenge next month. A series of VAT tribunals on 15, 16 and 17 October will determine whether the diktat is unlawful. The move comes after Customs settled out of court a first test case with the Faculty of Building in Manchester on Monday.
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Mainprice, who is handling two key cases involving the Royal Institute of Surveyors and the Royal College of Gynaecologists, was confident of victory.