The HoL held that the 3-year restriction was incorrectly introduced with no transitional period. Such a period could not be later introduced retrospectively by notice rather than legislation, meaning that claims for unclaimed input tax could feasibly be made for the period April 1973 – 30 April 1997.
Although the two cases considered by the House of Lords did not concern output tax, HMRC had acknowledged after its earlier loss at the Court of Appeal that if the input tax cap fails, the cap for overpaid output tax introduced on 4th December 1996 must also reasonably fail.
Sure enough, in Revenue & Customs Brief 07/08, issued 20 February, HMRC accepted the legitimacy of refund claims for both underclaimed input tax (up to 1 May 1996). The Brief advised, however, that HMRC were still considering the wider implications of the judgement, so a further announcement from them seems likely in due course (perhaps as part of the Budget).
On the face of it, this is a huge blow to HMRC, and could well result in numerous claims for VAT refunds stretching back many years prior to 1996/7.
However, in reality, one wonders how difficult it will actually be in practical terms for the smaller sized businesses to successfully obtain a refund. Clearly, those very large businesses that have ‘Big 4’ or top 10 accountancy firms as their advisers will have been kept abreast of this issue all along. They will doubtless be in a position to present (or have presented for them) massive refund claims backed up by all the appropriate documentary evidence and business records.
For the smaller business, though, it is very doubtful whether any records have been kept at all before 2001 (i.e. longer than the statutorily required period of 6 years). It would appear that the validity and likely success of claims based on estimated/extrapolated figures will be very much at the discretion of HMRC, and given their dogged (at times almost blind) resistance to the issue throughout, the prospects for leniency on the issue of completeness of claims and supporting evidence are not great!
Andrew Needham
