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Caledonia reclaims £7m from VAT as other retailers pressure Customs

Retailers are set to claim more than £240m in overpaid VAT, according to financial experts.

It comes after an earlier landmark European Union ruling which declared Customs and Excise was not entitled to charge dealers VAT on profits made when selling demonstrator vehicles above cost price.

Customs estimates that the total cost to the entire retail sector is close to £400m, excluding interest, with the automotive industry close to £120m, excluding interest, or £240m with interest.

Financial consultants Grant Thornton and KPMG are dealing with a total of 140 claims between them. The rest of the claims are being shared out among smaller consultants in the sector.

KPMG's Simon Bush says the company is handling claims from 20 dealer groups – 10 of which are in the AM100 top 40. Each claim is worth up to £5m.

Although the deadline for claims officially closed in June, both Grant Thornton and KPMG are confident applications can still be submitted. Retailers can claim for overpaid VAT as far back as 1973.

Grant Thornton's Gerry Myton says: “Most dealer groups who were in business and VAT registered before 1996, including those that unfortunately no longer exist, have claims.”

Caledonia Motor Group has already received its one-fall windfall payment of nearly £7m. It plans to use the money to reduce company debt and invest in new facilities.

Inchcape is another big-name retailer making a claim. Chairman Sir John Egan says: “In line with other in our industry peer group, we have submitted a claim for the recovery of overpaid VAT for the period 1973 to 1994.

“Discussions with Customs and Excise regarding the claim are still at an early stage,” he adds. Customs has launched a new simplified claims procedure that allows retailers to make claims without producing paperwork.

The landmark European Court of Justice 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 with EU law. The Court judged the UK Government was wrong to introduce the cap without a transitional period.

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