Potential VAT Reclaim Opportunity – Business Entertainment Expenditure

A recent development in VAT case law may mean that it is possible to reclaim VAT incurred on business entertainment costs.

More background is below. The position is not certain at the moment but if you are interested in making a claim, please do not hesitate to contact us.

Background

A Dutch company has challenged the Dutch rules on input tax recovery, in essence arguing that the input tax blocks, currently included in Dutch VAT legislation, are not legal within the context of EU legislation. The case is currently before the European Court of Justice (ECJ) and the Advocate General has published his opinion that the Dutch law is, in some areas, too widely drawn and is therefore invalid. 

The Advocate General looks at cases before they come before the Court and his opinion does not create legal precedent. It does however give an indication of how the European Judiciary is going to view a particular issue. 

It is important at this stage to remember that we do not have the Court’s final judgment on this issue and even if the judges of the ECJ agree with the Advocate General, it will probably take further action in the UK courts before the UK input tax restriction is overturned.

Protective Claims for VAT Refunds

At the moment the capping provisions (these time limit historic claims for VAT) permit claims to be made for VAT periods which end on 1 April 2006 or within the last four years, whichever is the later date.

This means that VAT returns for the period ending on or after 30 April 2006 will shortly start to fall out of time. 

The ECJ's judgment it not expected for a few months and additional time will pass while the UK’s VAT law is subjected to scrutiny. Rather than wait for the position on UK VAT recovery to become clearer, businesses may wish to submit a protective claim for a VAT refund.  Although claims submitted now, in respect of VAT incurred in 2006 and onwards, will not be paid by HMRC, they will remain on file and if UK law is changed such claims will be honoured.