A UK referral to the Court of Justice

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GRT100456
Summary
There is no provision of the VAT
Directive which governs the
recovery of Output VAT that has
been paid when not due. Such
repayments are governed by the
operation of general principles of
EU law.
On the other hand, the VAT
Directive provides a statutory right
for businesses to reclaim VAT
incurred on the purchase of goods
and services.
The Advocate General considers
that, as the two sorts of claim, are
entirely different, it is legitimate for
the UK to have different starting
dates to the three-year limitation
period.
The full court will give judgment in
due course.
06 March 2017
Court of Justice of the European Union
This case relates to the UK’s operation of the so called ‘three-year cap’ and is a referral
to the Court of Justice (CJEU) from the UK’s First-tier Tribunal (FTT). In 1997, the
UK Government introduced legislation to limit the number of years (from six to three)
for which a taxpayer could claim back output VAT that should not have been paid by
them. After many years of legal wrangling, the imposition of the ‘cap’ was found to
contravene EU law. Ultimately, HMRC allowed taxpayers to make claims for output
tax paid for VAT periods ending on or before 4 December 1996. Originally, there was
no similar provision in UK law limiting the ability of taxpayers to reclaim input VAT
not previously claimed but then HMRC sought to put both types of claim on the same
footing by imposing a three-year cap on input tax for periods ending on or before
1 May 1997. Compass Contract Services Ltd (Compass) took issue with HMRC
arguing that the different start dates for the two limitation periods contravened the EU
principles of equal treatment, fiscal neutrality and effectiveness.
Compass had a claim for overpaid output VAT for the period from 4 December 1996
to 30 April 1997 which HMRC had refused to pay on the grounds that the claim was
time barred. The Advocate General considers that none of the principles of EU law
were contravened. In particular, he is to recommend to the full court that it is not
contrary to EU law for a Member State to introduce different start dates for limitation
periods. Claims for overpaid output VAT are entirely different to claims for recovery
of input VAT. Whilst both claims, if legitimate, would result in the payment of a VAT
credit to the taxpayer, they arise from the exercise of materially different rights.
Comment – although that possibility remains, it seems unlikely that the full
court will disagree with the Advocate General when full judgment is given in
due course. If the full court decides that the Advocate General is wrong, it
seems likely that UK law will have to be construed in such a way as to align
both time limits.
Compass Contract Services – AG’s opinion
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556
Vinny
McCullagh
London & South East vinny.mccullagh@uk.gt.com (0)20 7383 5100