VAT cap stays after M&S defeat

The Treasury breathed a sigh of relief this week, after Customs successfully defeated an attempt by Marks & Spencer to overturn its three-year cap on VAT refunds.

The landmark case, which looks certain to set a precedent, effectively scuppers any plans by other companies to challenge Customs’ authority to set the rule.

Government officials were concerned that hundreds of millions of pounds of VAT under dispute would need to be paid back if Customs had lost the battle to keep the capping arrangements in place.

VAT tribunal chairman, Stephen Oliver QC, ruled the three-year cap should stay, after he stated that European directives could not be used to override rules determined in the UK. Customs said it hoped companies would now accept the rule during disputes over VAT refunds.

The decision is a blow to M&S, which claimed its statutory rights under EC law had been violated. It wanted to reclaim VAT going back 21 years related to the sale of teacakes in its shops and the sale of gift vouchers going back to 1991.

The retailer, which was represented by Deloitte & Touche, had wrongly charged VAT on these products. It said it was owed #272,000 for the teacakes and #900,000 for the vouchers that fell outside the three-year period.

After a six-day hearing, Oliver ruled over-payments of tax had not resulted from ‘violations of enforceable Community rights’.