VATman goes to the limit

The saga continues. Just when you thought the great VAT scare had run its course, along comes another little fright to get those tax specialists excited.

Customs & Excise has mostly kept its counsel in the wake of, first, the discovery of the pounds 6bn shortfall in last year's VAT receipts - attributed variously to tax avoidance and forecasting errors - and, then, the spate of reverses in the courts. Instead, the victorious accountants and lawyers have been able to claim their place in the sun in order to tot up ever more outlandish estimates of the potential cost to the Exchequer.

However, last week Customs & Excise let it be known that the then-Paymaster General, David Heathcoat-Amory, was proposing a three-year limit on refunds of VAT and other indirect taxes. Since he has now resigned in order to campaign against a single currency, the story has an extra twist. Will his successor take the same view?

Whatever the answer to that question, the accountants have been predictably swift to respond. Peter Jenkins, VAT partner with the never-backwards- at-coming-forwards accountancy firm Ernst & Young, said: "The three-year limit on repayment claims is a predictable response by a harassed government to a series of defeats in the VAT tribunal and courts leading to large repayment claims going back many years, and to cases where UK VAT law has been overturned by the European Court." It was unfair.