The Lords decided that London-based metals trader Sempra Metals could claim compound interest, rather than simple interest, on historical payments of advanced corporation tax. The decision will apply to charity VAT claims as well.
The RNLI, which is bringing a tribunal case against HMRC to recover VAT on fundraising costs on unrestricted income, has calculated that, if it were successful, it would be able to claim £1.5m more as a result of the precedent. This sum, based on interest going back 33 years, would buy 12 new Atlantic-class lifeboats.
Another case won last year by car dealer Michael Fleming allows charities to make claims going back as far as 1973, when VAT was introduced. Two charities eligible for such backdated claims are Oxfam and Greenpeace. But neither charity was able to say by how much the recent ruling could augment a potential win from HMRC.
Thomas Mobee, a VAT adviser at accounting firm Saffery Champness, said: “Charities bringing claims should contact their tax advisers in order to make sure they maximise this opportunity.”
The first charity to challenge HMRC on reclaiming VAT on fundraising costs for unrestricted income was the Children’s Society, which won its case two years ago (Third Sector, 3 August 2005).