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Euro Court ruling means overpaid VAT 'cashback'

Dealers will be able to recover millions of pounds in overpaid VAT on sales of demonstrator vehicles after a landmark ruling by the European Court of Justice removed legislation that capped claims to three years.

The ruling backs up an earlier EU judgement that said Customs & Excise was not entitled to charge dealers VAT on profits made when selling demonstrator vehicles above cost price.

Dealers subsequently launched proceedings to recover VAT already paid, but were restricted to three years under the capping rule. Now they can claim for the full retrospective amount.

“We believe dealers have a strong case to reclaim VAT, but they need to act quickly,” says Frank Hartley, VAT partner at financial advisor Grant Thornton. “The sums involved depend on how liberal the final judgement is, but we've looked at the situation with one large dealer group and we estimate claims in excess of £1m. And this is before interest is added.”

Customs & Excise will delay payments while it assesses the ruling, but Hartley believes claims might be settled within six to nine months. The ECJ ruling concerned a case brought by Marks & Spencer, which argued that retrospective VAT legislation introduced in 1996, capping to three years repayment claims for incorrectly calculated tax, conflicted EU law. The court judged that the UK Government was wrong to introduce the cap without a transitional period.

It applies only to cases where VAT legislation has incorrectly implemented EU rules or UK practice has been incorrect, not for taxpayer error.

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