HMRC says Lords ruling won't affect charity VAT

HM Revenue & Customs is contesting the argument that a recent House of Lords ruling means charities will be able to benefit by claiming more interest on backdated VAT rebates.

Earlier this year, the Lords ruled that commercial metals trader Sempra Metals had the right to claim compound interest, instead of simple interest, on refunds of previous payments of advanced corporation tax (Third Sector, 25 July).

The decision was welcomed by charity accounting firm Saffery Champness, which said charities could use it as a precedent to claim compound interest when recovering VAT on fundraising costs on unrestricted income.

Charities due to proceed with such claims include the RNLI, Oxfam and Greenpeace. The RNLI forecast that it would be able to claim back an extra £1.5m in refunded tax as a result of the precedent.

However, HMRC has now said that the Sempra Metals ruling should have no effect on charity VAT claims.

"HMRC is suggesting the Sempra win has no bearing on indirect tax," said Russell Moore, charity VAT consultant at Saffery Champness. "We are currently taking further legal advice on the matter."

Moore added that he was optimistic that charities could expect to receive a rate of interest that was "higher than the basic simple rate".

The Children's Society became the first charity to successfully reclaim VAT on fundraising costs on unrestricted income when it won a case against HMRC in 2005.

An HMRC spokesman said he could not discuss the Sempra Metals ruling on the grounds that the department was "still considering its potential effects".

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