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HM Revenue and Customs Brief 41/09

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Issued 17 July 2009

Three-year cap for VAT claims CRC v- Scottish Equitable Plc (unreported) Order of the Inner House of the Court of Session

The judgment of the Inner House

In an Order handed down on 2 July, the court overturned the 2006 decision of the VAT and Duties Tribunal that the introduction of the three-year time limit without a transitional period in 1996 meant that it had never been lawfully enacted.

The Inner House held that the Tribunal was wrong to decide that the absence of transitional provisions, that enabled claims to be made under the old time limits before the new time limit took effect, meant that the provisions were void. The court stressed that it was well recognised that national legislation which breaches Community law is not void and noted that the Tribunal had failed to recognise the difference between rights to claim that accrued before the enactment of the three-year cap and those that accrued afterwards.

The Inner House followed the judgment of the House of Lords in CRC v- Fleming (t/a Bodycraft) [2008] UKHL 2 in which the Law Lords held that the three-year time limit should be disapplied in relation to rights to claims that had accrued before its enactment and that that disapplication should continue until the expiry of an adequate, prospective transitional period.
There will be no application for leave to appeal to the House of Lords.

Current case law on time limits

There are a number of judgments of the European Court of Justice (including Marks & Spencer Plc v- CCE [2002] STC 1036) confirming that the imposition of reasonable time limits does not breach principles of Community law and that they are necessary to provide legal certainty for both the citizen and the state.

The judgment of the House of Lords in Fleming (referred to above) led to the enactment of section 121, Finance Act 2008. This provided businesses with a prospective transitional period of twelve months, ending on 31 March 2009, in which claims could be made for accounting periods ending before the introduction of the new time limits.

The Inner House in Scottish Equitable has taken the same view as the High Court in Local Authorities Mutual Investment Trust v- CCE [2003] EWHC 2766 (Ch), which held that VAT claims for accounting periods ending after the enactment of the new time limit were properly capped.

Status of VAT time limits

All VAT claims are now capped at four years, or back to 1 April 2006, whichever is the shorter see section 80(4) of the VAT Act 1994 as amended by Articles 2 and 6 of the Finance Act 2008, Schedule 39 (Appointed Day, Savings and Transitional Provisions) Order 2009, SI 2009/403 (output tax claims) and regulation 29(1A) of the VAT Regulations 1995 as amended by regulation 3 of the VAT (Amendment) Regulations 2009, SI 2009/586.

Appeals on-hold behind this litigation

A significant number of appeals to the First Tier Tribunal (Tax Chamber) are on-hold, pending the outcome of this litigation. Appellants will need to consider, in the light of the recent order, whether they wish to withdraw their appeal or proceed to a full hearing. HM Revenue & Customs are now taking steps to have these appeals restored to the Tribunal list so that, where necessary, a hearing date can be fixed.


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Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.



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Article Published/Sorted/Amended on Scopulus 2009-07-18 21:32:34 in Tax Articles

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