VAT Focus - February 2012

Compound Interest Update

The Advocate General (AG) has recently given his opinion in the Littlewoods Retail case at the Court of Justice of the European Union (CJEU). The AG has indicated there is no basis under European law for compound interest reimbursement but did suggest that when national courts consider how their laws governing this should be interpreted, they should be no more or less favourable than in the case of refunds of other taxes (such as UK direct taxes). There may still be some scope to suggest that compound interest can apply in the UK if any other tax refunds can qualify for compound interest. Many taxpayers had argued that repayments for overpaid VAT, some of which date back to the beginning of the VAT system in 1973, should be subject to compound interest until the date of repayment by HMRC.

What next?

The AG's opinion is not always followed by the Court, and it remains to be seen whether the Court will do so in this case. If it does, this could provide a welcome relief for the Treasury, but may not be the end of the matter; with billions at stake, the appellants may be e xpected to continue their campaign until every line of argument has been exhausted.

VAT on postal charges

Many charities, not-for-profit organisations and businesses in the VAT-exempt sectors will be affected by the introduction of VAT on a number of Royal Mail parcel services from 2 April this year.

Some postal services, including stamped or franked first and second class letter post, will remain exempt from VAT as they are provided under the Royal Mail's Universal Service Obligation. Other postal services subject to regulatory price control will also remain VAT exempt.

However, VAT will be charged from 2 April 2012 on:

business collections Special Delivery " Next Day (on account only) door to door. A full list of the postal services that will now be subject to VAT can be found on the Royal Mail website. The addition of 20% VAT on postal services will be a significant cost increase for organisations and businesses that cannot reclaim all of their VAT and an incentive to find more tax-efficient ways to communicate with their customers. For those that are partly exempt and able to reclaim a proportion of their VAT costs, it may be an opportune time to review their VAT recovery calculations to try to mitigate the irrecoverable VAT costs.

What now?

Charities and other organisations that are not VAT registered, should ensure that they are taking advantage...