TaxCorporate TaxCustoms faces VAT rebate crisis

Customs faces VAT rebate crisis

Thousands of UK companies could receive VAT rebates worth millions of pounds following a European Commission decision that HM Customs had infringed EU tax law.

Link: EU VAT change pushes up broadband prices

The EC is in contact with Customs to inform the VAT collector that it acted unfairly by setting the burden of proof for claiming backdated rebates too high. This comes after Customs was told it had acted unfairly by changing rules without proper notice.

The argument centres around Customs’ response to the loss of a Marks & Spencer VAT case in July 2002. M&S won the right to reclaim overpaid VAT and interest going back to 1973, which added up to £12m.

Customs made changes to ensure claims could only go back three years, and that claims could be made only if companies could prove they were seeking compensation before 31 March 1997 – an impossible task for most.

Anant Suchak, indirect tax partner at KPMG, urged companies to claim overpaid VAT dating back to 1973, which he said applied to ‘most of UK plc’. He is pursuing a £1.5m rebate for the University of Sussex, which led him to write to the EC complaining about the burden of proof issue.

The EC wrote to KPMG saying it was ‘pursuing the matter in accordance with the infringement procedure in Article 226 of the EC Treaty’. If Customs does not agree with the EC it will be hauled in front of the European Court of Justice.

A Customs spokesman said it ‘aims to co-operate and reply to the EC as soon as possible’.

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