The Government was not acting in breach of EU law when it reduced the length of time taxpayers had to recover overpaid VAT from six to three years, even where that overpayment was not the fault of the taxpayer, a tax tribunal has confirmed.
The Upper Tribunal found that the limitation period, which has since been lengthened to four years, was valid even though Leeds City Council was only required to pay VAT because the UK Government had not incorporated an EU exemption into domestic law (29-page / 250KB PDF). The Sixth VAT Directive exempts supplies made by a public body in fulfilment of its statutory duties from VAT, but HM Revenue and Customs (HMRC) treated the disputed transactions as standard-rated supplies.
The 1997 Finance Act reduced the limitation period for claims for overpaid VAT to three years from 4 December 1996. At the same time, the limitation period was amended to run from the date that the VAT was paid rather than the date on which the mistake was, or reasonably could have been, discovered. Although this was later successfully challenged in the 2008 Fleming case due to the absence of transitional provisions, any claims had to have been made before 1 April 2009 for the previous rules to apply.
Leeds City Council submitted two separate overpayment claims to HMRC. The first of these, submitted on 11 May 2007, concerned VAT paid on memorial items placed in cemeteries, library charges and excess parking charges. The second, on 27 March 2009, concerned VAT paid on trade waste collection charges and administrative charges relating to housing improvement loans.