Customs crumbles after biscuit victory

The retailer claimed it was owed more than £5.5m (with interest this climbs to £12m) in VAT it paid on tea cakes, bottled water, biscuits and gift vouchers to Customs & Excise dating back to 1973.

Customs argued that its three-year cap on overcharged VAT meant that M&S could not submit a claim dating that far back. A spokesperson for M&S at the time said Customs had admitted to overcharging the supermarket group but refuses to return all the VAT because of the ‘three-year capping rule’.

The European CoJ however ruled in favour of M&S. It said, that while the three-year cap was was not in conflict with European law, the transitional period given for this rule was inadequate and did contravene European Law. In effect, the court disputed the manner in which the rule was introduced.

Customs will however still be forced to stick with the three-year tax limit on carrying out assessments for collecting tax.

Frank Hartley, VAT partner at Grant Thornton, said this allowed people who had a VAT repayment claim dating back more than three years to put in a claim now.

‘Businesses that submitted claims but had these limited to three years may be able to obtain additional repayments and interest on these amounts. In some cases these claims may go back to the introduction of VAT.

‘The range of businesses that could benefit is very wide and includes financial services, motor dealers, opticians, university and local authorities,’ Hartley told

However, he warned that it was not likely to cover ‘pure taxpayer error’ where a taxpayer submitted a claim incorrectly.

Hartley said the only option for Customs now was to allow an adequate transitional period before introducing the rule.

‘I expect that Customs will have to initiate new legislation but there is a warning in this judgment that tax payers should be given a transition period to bring their claims up to date. If the legislation does not allow this, there could be further challenges.’

Customs said it had just received a copy of the ruling and would study it carefully before making any statements.

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