6 March 2015

The Court of Appeal has ruled that VAT incorrectly charged by a supplier may be claimable directly against HMRC in restitution, and this claim is not bound by the 4 year cap.
The case was brought by the Investment Trust Companies (ITCs) following a CJEU ruling in JP Morgan Claverhouse that certain investment management services should have been exempt, contrary to the taxable treatment insisted upon by HMRC.
This case concerns whether the ITCs, who were wrongly charged VAT on investment management services that should have been treated as exempt, can bring a direct claim against HMRC to recover sums not repaid to them by their suppliers. Suppliers, in turn, will not be happy to repay any amounts
of VAT incorrectly charged unless they receive the same amounts from HMRC. According to the judgement, the 4 year cap (previously 3 years) applies to repayments by HMRC to the suppliers, but not to the restitution claim.
Claims in restitution should be made within 6 years of the time at which the error could reasonably have been discovered. Often this will be the date of the court ruling which shows that tax has been charged incorrectly on particular supplies, and recently there have been such cases in the field of pension funds. A claim should be made to the supplier for the capped period, and an uncapped claim in restitution should be made to HMRC.
HMRC had reduced the amount repayable to suppliers by the amount of input tax which becomes reclaimable, and the Court of Appeal found that this was correct.