Revenue & Customs Brief 43/10 sets out information concerning a review by HMRC of the proper treatment of claims submitted as a result of the Italian Republic ECJ decision (C-45/95).

The claims are for output tax over-declared on car sales where input tax was blocked on the purchase of the cars and typically involved the sale of demonstrator vehicles, courtesy cars and daily rental vehicles by businesses in the motor trade. A large number of such claims were submitted following the House of Lords decision in Fleming/Condé Nast. UK law on the input tax block was changed in 1999 and so these claims are for historic periods only.

Following a review of the implications of the ECJ decision in Nordania Finans, HMRC are now stating that these claims did not take proper account of European case law on partial exemption.

As a result HMRC is asking those businesses whose claims have not yet been paid to revise their claims to take account of the partial exemption implications. Where claims have already been repaid by HMRC without making adjustment for partial exemption HMRC is issuing recovery assessments subject to the appropriate time limits.

HMRC state that these assessments will carry statutory interest subject to the time limits in the VAT Act 1994. Default interest will be also charged where appropriate. Where payments have been made incorrectly and there is insufficient time to accurately establish the position before assessment time limits expire, HMRC will issue estimated assessments on a best judgment basis. Where this happens HMRC will remain open to working with the businesses concerned to establish the exact impact and amend assessments where appropriate.

The full text of the brief can be found at http://www.hmrc.gov.uk/briefs/vat/brief43010.htm