UK: Weekly VAT News - Week ended 10 June 2005

Taxpayers who have overpaid VAT may face more difficulty in recovering it, following the latest in a line of cases in the Tribunal and the Courts in which late claims for repayment of VAT have been rejected. The Judge in the case of Condé Nast decided that the claim was made too late and that Customs were right to refuse it. There are several cases on this topic awaiting hearing in the Courts and Tribunal and it is probable that the Court of Appeal will consider at least one of them later in the year. Businesses that discover past overpayments should still consider retrospective refund claims.

It is rumoured that Customs are beginning to make VAT repayments to taxpayers who have incurred VAT on costs associated with share issues. This follows the ECJ decision in Kretztechnik, which decided that the issue of shares should be ignored for VAT purposes and associated costs should be recovered in the same way as VAT on other overheads. Businesses that have issued shares should consider reclaiming VAT on related costs, if they have not done so already.

Some businesses that sell packages of goods and services where VAT is payable on some elements and not on others may be able to save VAT now that the Telewest case has been finalised. The Court of appeal decided that the use of a separate company to sell a listings magazine was proper and legal and that the magazine was VAT-free. Customs had argued that VAT should be paid on the magazines as they were associated with other sales that were subject to VAT and had asked the House of Lords to consider the point. The House of Lords have declined to so and the Court of Appeal’s decision in the case is now final.

Businesses that use aggressive tax avoidance schemes may face the possibility of heavy penalties if moves being considered by HMRC come to fruition. Tax advisers that promote such schemes may also be targeted should the Treasury introduce a US-style penalty regime. The Treasury claims that tax avoidance contributes to substantially lower tax revenues and is looking at ways to counter this.

Off-shore mail order arrangements that allow retailers to make sales to UK customers free of VAT are attracting critical press comment. The schemes allow goods to be sourced from countries like Jersey without VAT, as long as they are imported individually and are valued at less than £18. The Government is being pressed to change the law to counter the practice, but the rule is based on EU law so any change would require EU permission.

The Department of Health has asked the Treasury make condoms VAT-free. This would not be allowed under current EU law but like any EU Member State, the UK could apply the 5% VAT rate to contraceptives.

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