HMRC have now published detailed guidance relevant to making historic VAT claims.

By way of background, in 1996 and 1997, the Government introduced a three year limitation period for repayment claims for overpaid VAT, the correction of errors and late claims to input tax. HMRC have now published detailed guidance which sets out how to deal with these claims.

That legislation had ‘prospective’ effect in that it applied to all claims relating to accounting periods ending after the date of enactment (post-implementation periods). It also had retrospective effect in that it applied to all claims made in relation to accounting periods that ended before the date of enactment (pre-implementation periods). This applied regardless of whether the claim was made before or after the enactment of the time limit.

The detailed guidance can be found at http://www.hmrc.gov.uk/menus/fleming-guidance.pdf In 2002 the European Court of Justice (ECJ) held, in case C-62/00 Marks & Spencer Plc v CCE, that the UK had breached principles of Community law because it had failed to provide an adequate transitional period to allow claims to be submitted for pre-implementation periods before the three-year time limit took effect.

In an attempt to comply with the judgment in Marks and Spencer, HMC&E introduced an administrative transitional regime by the publication of two Business Briefs which invited claims under section 80 of the VAT Act 1994 for output tax overpaid before the three-year cap was brought in.

The Business Briefs did not invite input tax claims for the same periods nor did they include claims for output tax overdeclared in accounting periods for which repayment returns had been rendered. The exclusion of input tax claims, and the rejection of output tax claims that did not meet the conditions of this administrative regime, led to a number of appeals to the VAT & Duties Tribunals.

In January 2008 the House of Lords in CRC v Michael Fleming (t/a Bodycraft), held that the three-year cap must be disapplied in relation to pre-implementation periods until an adequate prospective transitional period had been provided.

As a result, on 20 February 2008, HMRC published Revenue & Customs Brief 07/08 which invited claims for input tax where the entitlement to claim deduction of that input tax arose in an accounting period ending before 1 May 1997. This invitation was repeated in VAT Notes 01/2008 which were sent out with VAT returns for the accounting periods ending on 30 April, 31 May and 30 June 2008.

With the publication of RCB 07/08, HMRC also announced that it considered that the terms of the judgment in Fleming meant that the administrative regime for output tax claims had been inadequate.

As a result, claims were also invited for output tax overpaid or overdeclared in pre-implementation periods.

On 18 March 2008, Parliament passed a resolution giving effect to section 121 of the Finance Act 2008 from 19 March 2008. Under section 121 businesses were given a statutory transitional period running until 31 March 2009 during which they could make claims for:

• output tax overdeclared in accounting periods ending before 4 December 1996 (section 121(1) of the Finance Act 2008), and
• unclaimed input tax in respect of which the entitlement to claim deduction arose in accounting periods ending before 1 May 1997 (section 121(2)).