Corporate transactions and flotations – Improved VAT Recovery
Many Companies issuing shares will be able to recover more VAT on costs associated with share issues, following the ECJ’s decision in the Kretztechnik AG case. The ECJ followed the opinion of its Advocate General and found that the issue of shares should be ignored for VAT purposes and that VAT incurred on associated costs should be recoverable in the same way as other overhead VAT. Therefore, for a business like Kretztechnik, which charges VAT on all its sales, this VAT should be fully recoverable. Companies that have issued shares in the last three years and have not recovered all the VAT on related costs should consider making a refund claim. It is possible that the judgment may have wider implications and, depending on the outcome of other cases, there could be opportunities for refunds of VAT over longer periods.
Accounting system errors can be expensive! A Judicial review case involving BT has highlighted how expensive VAT accounting system errors can be. BT were seeking repayment of more than £40 million in VAT overpaid due to a systems error but about £24 million of the claim was "out of time" under the three-year cap on claims for repayment of overpaid VAT. BT failed in its attempt to apply the "simple duplication of output tax" concession, which allows the three-year cap to be ignored in some cases. As announced last year, this concession is being withdrawn with effect from 1 July 2005.
Care Homes – UK VAT treatment permitted under EU law
Some care homes may incur higher costs because VAT on their expenditure will not be recoverable. The ECJ has confirmed that the UK law, which allows accommodation in private care homes run for profit to be VAT free, is permitted under EU law. Kingscrest Associates Ltd and Montecello Ltd had argued that they should charge VAT and so could recover VAT on their costs. Since many of the charges made by care homes are paid by local authorities that can reclaim the VAT they incur, charging VAT could have resulted in an overall saving
Retailers – loyalty scheme VAT recoverable
Some businesses operating loyalty schemes may be able to claim VAT refunds following the confirmation by the Tribunal that Loyalty Management UK Limited (the operators of the Nectar loyalty card) can recover the VAT charged by retailers when cardholders redeem their Nectar points. It is not known whether HMRC will appeal.
Companies providing private tuition do not have to charge VAT
Some companies supplying private tuition may be able to claim refunds of VAT paid to HMRC over the past three years. According to the Tribunal in the case of Empowerment Enterprises Ltd companies selling tuition should be treated no differently from individual teachers and their sales should not be subject to VAT.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
