Billions earmarked for VAT overpayment claims

HM Revenue and Customs (HMRC) is facing £8.5 billion in claims for overpaid VAT.

The claims arise from a European court ruling on a UK government decision in 1997 to impose a three-year time limit on the refund of overpaid VAT. Before that, claims could be backdated for six years.

A further judgement by the House of Lords meant that businesses were entitled to reclaim overpaid VAT going back to 1973.

As a result of the rulings, HMRC allowed Fleming claims, so called after the Aston Martin dealer who fought one of the series of legal cases brought on the issue, to be submitted by the end of March this year.

Up to now HMRC has repaid £1.5 billion in refunds and has set aside another £4.8 billion for repayments that may arise from the claims still being assessed.

Only 40 per cent of the 13,000 claims submitted are likely to be regarded as legitimate under the rulings, HMRC has said.

Although many claims have yet to be reviewed, it is thought that payouts will probably fall within the amounts anticipated by the tax authorities.

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants said: “The lesson for any government is that they should not just make changes retrospectively to tax laws without thinking through the consequences.”