Manchester United’s landmark VAT case could open the floodgates for thousands of claims from businesses across a range of sectors, say tax experts.
The football club has begun legal action to recover more than £300,000 in backdated payments from HM Revenue and Customs, which has already refunded the club £61,000 in VAT and “simple interest” but United claims it is still owed funds in “compounded interest”.
If VAT repayments are paid with compound interest it is estimated that the additional interest could cost the taxpayer more than £2bn, further bloating the public deficit.
Rachel Murphy, head of tax at accountancy firm Hurst, says the Manchester United case highlights an important issue for small businesses. “This case is the tip of the iceberg and thousands of businesses could have a case for claiming compounded interest on their VAT refunds,” she says.
“There’s a lot at stake for businesses large and small and I’m confident we’ll see more claims as businesses do their best to recoup interest. Businesses must make sure their accountant reviews their entire VAT position to check what is owed.
“Although there have been a number of cases on the subject of compound interest which HMRC has won, another judge could look at the point again and come to a different conclusion.
“The outcome of the Manchester United case could be significant for small businesses who are struggling to come out of recession.”
Manchester United is among a group of taxpayers petitioning the High Court for a refund. The claimants say compound rather than simple interest should be paid on VAT refunds.
Manchester United’s claim relates to money the club says it is owed after being charged VAT on its stock market flotation in 1991. United was listed on the London Stock Exchange for 14 years before the Glazers took control in summer 2005.
