Following Customs’ guidance issued in 2002, BSG was seeking to recover VAT on the sale of demonstrator vehicles since 1973 – the year VAT was introduced in the UK. Initially, HMRC refused to pay, but the VAT Tribunal has now ruled that its claim for a ‘substantial amount’ was valid.
This is not the first successful automotive retail appeal since HMRC’s three-year time cap rule of 1996, but the Tribunal’s ruling in the BSG case – advised by the Indirect Taxes team at Deloitte – may well open more opportunities for others in the industry.
The Tribunal made a distinction between those who “would have” made a claim in 1996 for overpaid VAT dating back more than three years and those who “could have” done so. According to the Tribunal, a taxpayer like BSG did not have to prove that it “would have” made a claim in 1996, but merely that it “could have” done so if the three-year cap had not been introduced.
Customs issued its guidance to taxpayers in 2002 in an attempt to cure the error made in 1996, when the three-year cap was introduced without taxpayers first being given time in which to make uncapped claims.
Oliver Jarratt of Deloitte’s Indirect Taxes legal team, says: “This is the first time the VAT Tribunal has expressly indicated that Customs’ attempt in 2002 to correct the error is itself flawed.
Customs may now need to give taxpayers a further opportunity to submit uncapped claims.” AM understands Customs is unlikely to appeal the Tribunal’s decision, although it has until mid-February to decide.
David Raistrick, head of Deloitte’s Indirect Tax Automotive Group for Europe, warns that Customs is increasing pressure on the industry. “Over the last year or so, it appears to have sought a greater VAT take from the industry in a number of ways and has also taken a much more aggressive stance in other areas, such as partial exemption.”
Partial exemption relates to dealers who offer F&I. As the VAT-exempt turnover from finance is usually a small part of a dealer’s turnover, the dealer only becomes exempt to a small extent, meaning it can still recover most of its input VAT.
Customs now argues that the correct way to calculate the partial exemption percentage is by profit rather than turnover.
Raistrick says: “We have seen Customs starting to challenge the industry. If successful, we’d see assessments running into millions of pounds for retailers.”