Expert View: VAT - Get your claim in before time runs out

VAT has been a difficult area for charities for a long time. However, a number of recent court rulings have been helpful to them.

In particular, a recent ruling by the House of Lords means charities can reclaim VAT that was overpaid several years before, which means the possibility of an unexpected windfall.

Charities have until 31 March next year to submit claims for overpaid VAT dating right the way back to the introduction of the tax in 1973.

Before the landmark ruling by the House of Lords earlier this year in the cases of Fleming (trading as Bodycraft) v HM Revenue & Customs and Conde Nast v HMRC, HMRC would not refund overpaid VAT if it related to a VAT return period that was more than three years before. HMRC took the view that the introduction of three-year cap provisions in the mid-1990s meant that it was not liable to make repayments relating to earlier years.

However, the House of Lords ruled that the imposition of the original three-year capping provision on claims was illegal. As a result, any charity that overpaid output VAT in the period between 1 April 1973 and 4 December 1996 or did not reclaim input VAT in the period between 1 April 1973 and 30 April 1997 can now submit a claim.

A point of interest

Where the overpayments arose as a result of an error by HMRC - for example, from its misinterpretation of EU legislation - interest will also be payable on the VAT refund. Where interest is payable, it will often form a larger proportion of total repayment than the tax itself.

An example of where a charity might have overpaid output VAT is when VAT has been overpaid on entrance fees to theatres, exhibitions and museums. Input tax might have been under-claimed on production costs incurred by not-for-profit theatres, say, or on staff entertaining and mileage expenses.

There might also be scope for a repayment if VAT has been incurred on investment management fees and on business assets (including building projects) with both a business and a non-business use.

A lack of detailed records should not be a barrier to submitting a claim because charities should be able to base claims on contemporaneous accounting information and data and by using sampling techniques.

I would therefore recommend that charities consider their historical VAT positions to determine whether there is scope to submit a claim before the deadline of March 2009.

- Jacki Wells is a VAT director with accountancy and consultancy group Mazars.

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