VAT overpayment drive set to cost Treasury £7bn

Date: 29th June 2009

A new £7 billion 'black hole' looks set to be created within the Treasury after thousands of British businesses have claimed back on VAT overpayments, the Daily Telegraph has reported.

Since the High Court issued its ruling that businesses would be able to claim back any overpayments made from 1973 to 1996, firms of all sizes have turned to professional accountancy services in an effort to be compensated.

As well as businesses that have been overcharged by the Treasury for their VAT, firms that were themselves responsible for VAT overpayments are also able to claim back any amounts of overpaid tax.

A spokesman for HMRC told the Telegraph: "It is not possible to say how much will be repaid until all claims have been verified."

It is believed that the Treasury is already taking steps to challenge a number of claims, with the figure of £7.25 billion therefore likely to shift over the coming weeks and months.

"Refusal and reduction of claims is currently running at over 50 per cent. Many claims also involve complex issues and relate to accounting periods for which records may not have been retained," the official spokesman added.

When Treasury had initially estimated that the decision to repay VAT overpayments would cost just £1 billion.