Charities could be set for a tax windfall worth "tens of millions of pounds
following an EU ruling on VAT.
Customs and Excise this week conceded that charities can make rebate claims after it lost a pivotal European Court of Justice case which found that it had no right to retrospectively set a time cap on backdating VAT repayments.
Customs introduced a three-year time cap on VAT repayments in July 1996.
But the European Court ruling in a case brought by retailer Marks & Spencer means that charities which believe they have overpaid or under-recovered VAT could now put in claims going back before 1996 and, in some cases, to April 1973 when VAT was introduced. The ruling opens the way for new claims and for the resubmission of claims cut off by the three-year cap.
Russell Moore, VAT partner at specialist charity accountants Saffery Champness, said: "There appears to be an opportunity for the sector to enjoy a significant windfall in respect of either VAT incorrectly paid or VAT which had not been recovered prior to July 1996. It could be worth tens of millions of pounds in total."
Moore said that Saffery Champness was already dealing with three major claims. "We have negotiated windfall recoveries of more than £30 million in the past three years, all of which were subject to the three-year cap, and clients are excited about going back further."
The potential claims apply to both overpaid output tax where charities have incorrectly declared VAT on income they have received and also under-recovered input tax where charities have incurred VAT in the course of business activities. Claims on overpaid VAT were previously subject to a six-year time cap which meant that claims could only go back to 1990.
But claims on under-recovered VAT were unrestricted before the three-year cap so in theory they could go back to April 1973 when VAT was introduced.
Charities, often working with firms of accountants, frequently discover errors on VAT payments. Because these errors may have gone unnoticed for long periods, repayment claims can stretch back many years.
Nick Kavanagh, chairman of the Charities Taxation Reform Group, advised charities to keep a close eye on the legal update which is expected to be released imminently by Customs. "Charities need to watch this carefully because those that have been making these claims could be affected. If they think they are, they should contact their professional adviser,