Companies with VAT claims rush to beat Budget

Businesses are rushing to make value added tax refund claims ahead of the Budget because of the prospect of the Chancellor introducing legislation designed to limit payouts.

The scramble in the run-up to the Budget on 26 November is being fuelled by a court battle between Customs & Excise and six organisations, including GUS Home Shopping, Kay & Co and the Royal College of Obstetricians and Gynaecologists, that is due to reach the High Court in the next few days.

Last week, the VAT Tribunal ruled that, despite Customs' recent imposition of a three-year cap, claims going back several years and ranging in value between pounds 34,000 and pounds 1.9m were valid. But Customs is appealing against the decision.

Because the tribunal cannot direct Customs to pay the money, companies are being urged to issue writs for the sums owed them, and advisers such as accountants Deloitte & Touche say that some clients have seen their actions succeed.

With Customs confident of having the cap included in the measures announced by Kenneth Clarke later this month, Alan Buckett, national chairman of the VAT Practitioners Group, said there was a danger that if businesses did not take proper advice soon they "may miss the boat".

As the increasingly bitter tussle develops, Customs has announced concessions on its decision to crack down on NHS trusts' ability to recover VAT on contracted-out services. In September, it restated its policy which held that in the interest of creating greater certainty over Exchequer revenue, government departments would only be able to make claims relating to the current financial year. Accountants estimated that the move could cost already financially-stretched trusts about pounds 150m a year. But last week Customs informed trusts that those that had already launched back-dated claims would be able to go back beyond the current financial year.

Though welcoming the concession, John Kennedy, VAT partner at Deloitte & Touche, said the move did not provide trusts with much opportunity to sort out their affairs. Robert Jones, partner at Neville Russell, added that because very few trusts would benefit, the change was discriminatory.

The tightening-up on claims by NHS trusts and other government departments and the imposition of a three-year limit on refund claims are not directly linked. But both moves have their roots in the Government's determination to reduce its potential exposure to large payouts.

A spate of cases earlier this year raised the spectre of the Government having to pay billions of pounds in VAT refunds to such businesses as retailers operating interest-free credit deals and operators of company car fleets.

The rulings in favour of the furniture company Primback and the drinks company formerly known as Allied-Lyons came shortly after the revelation that the approximately pounds 43bn in VAT received by the Government in the financial year to the end of March 1996 was about pounds 750m below the estimate in last year's Budget.

A Customs spokesman said the crackdown was "a political decision" based on the Government's need to have greater certainty about revenues from its second-biggest tax. "If the Exchequer has to pay out large sums, it will have to make it up from somewhere."