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Customs have published a business brief concerning the European Court of Justice's decision in Marks & Spencer. After outlining the reasons for the introduction of Customs' three year cap on VAT overpayments, and also the European Court's decision on the legality of the cap, Customs explains the practical effect of the judgment, as follows.
Customs have published a business brief concerning the European Court of Justice's decision in Marks & Spencer. After outlining the reasons for the introduction of Customs' three year cap on VAT overpayments, and also the European Court's decision on the legality of the cap, Customs explains the practical effect of the judgment, as follows.
Customs will now give effect, albeit retrospectively, to a transitional régime for when the three year time limit was introduced in 1996 to allow tax-payers to make the claims that they ought to have been able to make at the time. This transitional régime will apply from 4 December 1996 to 31 March 1997.
The judgment of the European Court of Justice only actually requires that Customs give effect to this transitional period for those taxpayers who overpaid amounts by way of VAT in breach of directly effective rights of the Sixth Directive as a result of the United Kingdom's failure to give proper effect to the directive and were prevented, by the manner in which the three year time limit was introduced, from recovering those amounts.
However, if Customs had provided for a transitional régime at the time when the three year time limit was introduced, it would not have been applied in such a selective manner. Customs will not, therefore, restrict payment of claims only to those who would benefit from a strict interpretation of the European Court of Justice's judgment in Marks & Spencer.
Taxpayers can now make claims under section 80, VAT Act 1994 for repayment of amounts overpaid, regardless of the cause of the overpayment, subject to the following criteria.
Customs are now inviting all taxpayers to submit claims to their local VAT offices where:
* they made claims before 31 March 1997, which were capped (either by Customs or by them in expectation that no more than three years would be paid); or
* they made claims before 31 March 1997, which were repaid in full and amounts more than three years old were then clawed back by Customs by means of a recovery assessment; or
* they made no claim but can demonstrate that they discovered the error before 31 March 1997; and
* in all cases, the overpayments of VAT were made before 4 December 1996.
The deadline for submission of claims is 31 March 2003. Claims may be refused in whole or in part if Customs are satisfied that repayment would lead to the unjust enrichment of the claimant.
Claims made after 31 March 1997 will be subject to the three year time limit. For example, if between 1 April 1973 and 4 December 1996 VAT was accounted for at the standard rate on supplies, which ought to have been exempted from VAT, and the error is discovered on or after 1 April 1997, it will be limited to the amounts overpaid in the three years before the date on which the claim is made.
Claims relating to overpayments made after 4 December 1996 will be subject to the three year time limit. For example, a claim made after 5 December 1999 in respect of an overpayment made on 5 December 1996 will be out of time.
Claims must be made in writing and must include:
* a statement of the amount being claimed and the method of calculation;
* the dates on which the overpayments were made;
* a copy of your original claim (where appropriate);
* copies of documents, schedules, etc. used in support of the application;
* the prescribed accounting periods in respect of which the claim for recovery of the overpayment was made;
* the reason for the claim;
* the reason why the claimant will not be unjustly enriched if a repayment is now made;
* any claim for interest that the taxpayer considers he is entitled to make, and the reasons why the claim arose as the result of an error by Customs.
Claims should only be made for the net amount overpaid for any given prescribed accounting period.
When the time limit for making claims for overpaid VAT was reduced from six years to three, with effect from 18 July 1996, Customs' power to make assessments was also reduced by the same amount with effect from the same date. This remains unchanged.
(Source: Customs Business Brief 22/2002 dated 5 August 2002.)
