Companies urged to move fast on VAT

Companies are being urged to move quickly to claim against the Customs and Excise for repayment of value-added tax because of the danger of legislation being introduced to limit the amounts payable.

The advice came yesterday from Alan Buckett, national chairman of the VAT Practitioners Group, in the wake of last week's landmark court victory by furniture company Primback. The Court of Appeal held that Customs had wrongly calculated the VAT payable on goods sold through interest-free credit deals ever since the tax was introduced in 1973.

Since Customs is appealing against the decision to the House of Lords, no claims can yet be made. But many of Britain's retailers dealing in items such as televisions and washing machines as well as furniture are preparing proceedings in case the tax authorities lose.

Many VAT experts calculate that - if interest is included - the cost to the Exchequer could be as much as pounds 5bn.

Mr Buckett, a VAT partner at accountants Binder Hamlyn, said the scale of the potential claims could prompt the Government into introducing a time limit. Ministers could also seek to pass wider anti-avoidance legislation, he added.

Customs said the idea was "pure speculation" at this stage. It is also seeking to downplay the figures on the grounds that it is "extremely difficult to accurately quantify" the number of businesses that are in the same position as Primback.

It is understood that it believes the amount it would have to pay if it loses the House of Lords hearing will be less than pounds 1bn.

However, this case - which follows the revelation of a pounds 6bn shortfall in VAT revenue for the financial year just completed - is believed to be just the tip of the iceberg.

Research just published by accountants Coopers & Lybrand suggests that the "worst-case scenario" could see the Treasury having to pay out between pounds 30bn and pounds 40bn over the next three years.

The biggest claim involves the "blocking order" under which Customs does not allow British companies to claim back VAT on the cost of cars purchased for their fleets.

The case, being brought in the name of the drinks company formerly known as Allied-Lyons, is due in court shortly and could lead to claims totalling pounds 15bn to pounds 25bn.

Mr Buckett believes that figure is exaggerated, with the true amount likely to be between pounds 5bn and pounds 7bn. He also suggests that the overall amount given by Coopers is too high, since it would approach the sum that was the total VAT collected last year.