VAT overpayments – New direct claims?

If a recipient of a supply makes an overpayment of VAT (usually as a result of standard rated tax being charged when a supply is reduced rated, zero rated or exempt) the remedy for the customer is to go to the supplier to obtain a new invoice/VAT only credit note and. repayment of the VAT paid. However, this can cause practical problems, disputes and an actual cost if a supplier has ceased business or become insolvent. HMRC has recognised that if the supplier has paid output tax on the supply then there is an inherent unfairness.

Following the decision in PORR Építési Kft. (C 691/17) which considered the principles of; proportionality, fiscal neutrality and effectiveness, HMRC invited interested parties to discuss a direct HMRC claim process where the taxpayer has pursued a refund via its supplier for overpaid incorrectly charged VAT but where, as stated in the cases, “recovery is impossible or excessively difficult”. In such cases the taxpayer “must be able to address its application for reimbursement to the tax authority directly”. In the past, HMRC has directed that such claims from them are pursued via the High Court (or County Court if under £30,000). The meeting discussed the new route to direct claims without initial court action including guidance, time limits and claim processes.

We await the outcome eagerly as this situation is quite common, I have found it is an issue particularly in; property and construction supplies, Financial Services and cross-border transactions (place of supply issues). If HMRC are minded to introduce a “direct claim” this will bring welcome relief to taxpayers and introduce fairness for all parties and do away with windfalls received by HMRC.