Revenue closes VAT loophole

The court found in favour of HM Revenue and Customs in all three VAT test cases - which were being taken by Halifax, the UK bank, Bupa, the private healthcare group, and the University of Huddersfield. Banks, hospitals and higher education institutes do not charge VAT to their customers, so are therefore not allowed to reclaim any VAT they incur through building their infrastructure.

However, numerous complex tax-avoidance schemes have been devised to enable these firms to reclaim VAT. In the case in question, Halifax had managed to reclaim millions of pounds in VAT it paid when it built three new call centres in the UK.

The ruling deemed these schemes to be "abusive", permanently closing the door on all companies managing to reclaim VAT where they typically would not be able to.

Greg Sinfield, a tax partner at Lovells, the City law firm, said the rulings would be a heavy blow for the many industries which are affected.

"This decision has been keenly awaited by all banks, insurance companies, universities, hospitals - and all the businesses that have problems recovering VAT," he said. "Collectively, it will cost them billions."