Three-year cap
HMRC have recently published a Business Brief relating to the three-year cap in the light of two recent Court of Appeal decisions, Michael Fleming (trading as Bodycraft) v CRC [2006] 864 and Condé Nast Publications Ltd v CRC [2006] SWTI 1881.
Three-year cap
HMRC have recently published a Business Brief relating to the three-year cap in the light of two recent Court of Appeal decisions, Michael Fleming (trading as Bodycraft) v CRC [2006] 864 and Condé Nast Publications Ltd v CRC [2006] SWTI 1881.
The court decided against HMRC in Michael Fleming but has granted permission for HMRC to appeal to the House of Lords. Pending the outcome of such an appeal, HMRC will give effect to the Court of Appeal's judgment for those who wish to make a claim, although there will be a requirement to repay, with interest, in the event that this judgment is overturned.
The Court of Appeal's judgment has implications beyond late claims for input tax. HMRC accept, for present purposes, that any claim under VAT Regulations 1995, regulations 29, 34 or 35 or VAT Act 1994, s 80 arising before the enactment of the respective capping measures, is effectively uncapped. However, in their view this does not mean that the three-year time limits, as they operate currently since the date of their enactment, are themselves contrary to Community law or in any sense invalid.
Taxpayers may wish to claim without waiting until the matter is finally determined in the House of Lords. Where a claim, relating to an event more than three years earlier, has already been made and remains 'active', either because no appealable decision has yet been given by HMRC or because the matter is subject to appeal, taxpayers should write to HMRC asking for their claim to be considered in accordance with Business Brief 13/06.
In all other cases, a fresh claim can be made where an amount:
- has been improperly paid as VAT before 4 December 1996; or
- has been overdeclared as output tax in an accounting period ending before 4 December 1996; or
- became deductible as input tax on or before 30 April 1997 and has not yet been deducted.
New claims must be made in writing and include copies of relevant documentation, reason for the claim and why the claimant will not be unjustly enriched, etc. All claims should be sent to the Voluntary Disclosure Team, HMRC, 'Fleming' Claims Team (Leeds), Queens Dock, Liverpool, Merseyside, L74 4AA, tel: 0113 389 4432.
With regard to Condé Nast Publications Ltd, any taxpayer who is likely to benefit from this decision will benefit from the judgment in Fleming and can lodge, or pursue, a claim as explained above.
The Court of Appeal hearing Condé Nast was bound by, and followed, its majority judgment in Fleming and disposed of the appeal on that basis. However, the Condé Nast litigation raises an important issue not present on the facts of the Fleming case. HMRC consider that, in the absence of a transitional period expressly provided for in legislation, the capping provisions should only be disapplied to the extent necessary to give effect to a taxpayer's Community law rights, where, in individual cases, it was made impossible to exercise those rights by the manner in which the cap was introduced. It should not be disapplied generally in respect of all claims arising before the capping legislation as was decided by the Court of Appeal. Consequently, HMRC argue that, if a taxpayer would not have put in a claim even had a transitional period been provided when the cap was introduced, the absence of a transitional period cannot be said to have infringed his Community law rights by preventing him from making his claim and the three-year time limit should not be disapplied.
The Court of Appeal decided this point against HMRC. As it has significance in the event that the House of Lords overturns the judgment in Fleming, HMRC have now petitioned their Lordships for leave to appeal against the Court of Appeal's judgment in Condé Nast.
Business Brief 13/06 dated 24 August 2006
