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High street retailer Dixons lost a bid to reclaim £1.8m of overpaid VAT for one simple reason…

In Dixons Retail Plc v HMRC [2019] the high street retailer lost a First Tier Tribunal appeal for the right to reclaim £1.8m of overpaid VAT on dishonoured cheques – because the claim was made out of time.

The question in the appeal was whether Dixons was entitled to reclaim £1.8m of overpaid VAT on cheques which had been dishonoured in the period 5/12/1996 to 6/2/2003. Dixons had discovered the error in 2011 and made a claim to recover the overpaid VAT.

The claim made was under s.80 VATA 1994 and as a result was subject to the four-year cap. Dixons appealed to the FTT but the appeal was withdrawn following HMRC’s win in a similar case involving Leeds City Council.

Dixons then made the adjustment on its January 2018 return on the grounds that its VAT retail scheme contained no time limit by which adjustments should be made. HMRC refused to accept the adjustment on the basis that it was out of time and subject to the four-year cap.

Both parties accepted that:

  • the UK allows retailers to have simplified schemes in order to account for VAT
  • Dixons bespoke retail scheme agreement (BRSA) provided that the calculation of VAT was to exclude the value of cheques which had been tendered in payment for supplies which were then dishonoured.

However, the FTT rejected Dixons’ argument that the BRSA has no implied time limits. In its interpretation it stated:

  • In any event, Dixons’ BRSA did not say ‘may’ but actually required an adjustment to be made. An adjustment for dishonoured cheques was clearly required to be made immediately. It logically follows that if a taxpayer made the adjustment it was obliged to make at the time it was supposed to make it, there could be no implication into a retail scheme that there was permission to make the adjustment at a later stage.

Because Dixons had failed to adjust its VAT calculation at the time the cheque was dishonoured, the correct recourse was to make a claim under s80. As Dixon’s claim was made outside the four-year time limit, its claim was time barred.

Article from ACCA In Practice