UK: Deloitte Weekly VAT news - Week ended 24 June 2005

Some businesses that have received interest on overpayments of VAT resulting from "official errors" may be able to claim compound, rather than simple interest. However, while compound interest claims may be possible in some circumstances, a claim for compound interest might lead to a challenge to simple interest paid already. We have identified and are working on ways to minimise this risk.

Insurance Companies and outsourcing Insurance companies and outsourcers facing increased costs following the ECJ decision in the Arthur Andersen (Accenture) case should consider a response to HMR&C’s consultation document, which is to be released on 8 July. Customs recently confirmed that UK law would have to be changed and as a result many outsourced services that were previously VAT free will become subject to VAT

Businesses that wish to reclaim VAT that they have overpaid to Customs should bear in mind that the revised time limits announced in the Budget are now in force. All claims must now be made within 3 years of the end of the VAT period in which the error was made.

Businesses that receive deposits (e.g. for bookings at hotels, etc.) that are not refunded when the customer cancels or does not turn up may be able to reclaim any VAT paid in the last three years, if the ECJ decides the French case of Société Themale d’Eugenie-les-Bains for the taxpayer. Most UK businesses already treat lost deposits as compensation and reclaim VAT on them when the customer cancels in advance but it may be possible to extend this treatment to "no-show" charges.

The Tribunal’s decision that companies providing private tuition should be treated in the same way as individual teachers in Empowerment Enterprises Limited has been appealed by Customs. If the appeal succeeds, companies will have to charge VAT on their fees, even though the same work done by individual teachers would be VAT free.

Nurseries and similar organisations (including workplace childcare) may not see the reduction in their VAT costs suggested by the Tribunal’s decision in K&L Childcare Services Limited, a company providing staff to various childcare institutions. Customs have now appealed and are arguing that VAT should be charged. Businesses are now facing a period of uncertainty until the appeal is decided.

As announced last year, the concession that allowed "simple duplications of output tax" to be reclaimed from Customs no matter when they occurred is being withdrawn from 1 July. From that date, all repayments of overpaid tax will be subject to the "three year cap" and only errors made on returns for periods ending during the last three years can be corrected.