Catalogue giant to drag Vat rule to High Court

Walker Morris partners Gwendoline Davies and Simon Concannon are taking on HM Customs and Excise with the first High Court legal challenge to its controversial three-year cut-off rule.

The rule, introduced by Customs in July amid fears it would have to pay back between £3bn and £30bn, means companies claiming to have over-paid Vat can only claim for the three years immediately before a claim is made.

It has sparked protest from firms trying to reclaim overpaid Vat and next month an industrial tribunal in London is due to hear retail giant Great Universal Stores argue that the three-year rule is unfair.

Now Bradford-based mail- order catalogue firm Empire Stores has instructed Walker Morris to take the first High Court action against the rule.

Customs had agreed in June that Empire had over-paid £250,000 in Vat over six years after mistakenly paying on the costs of debt recovery. But when Empire submitted its claim in late July, Customs said it would only pay back about £100,000 because of the rule.

Empire's finance director Bob Jones said: "We negotiated for months to get this agreement. This is outrageous. The Vat man takes money he did not have a right to take, eventually admits his mistake, then says he won't pay it back. This attitude is terribly cynical, unjust, and we believe, illegal."

Davies has issued a High Court writ challenging the legality of the rule. "Customs & Excise announced this rule change without consultation or legislation," said Davies. "The Government has said it will introduce legislation towards the end of this year. If the three-year rule enters the statue books we could well take the Government to the European Court of Human Rights."

Empire went to the European Court of Justice in 1994 and won on a separate Vat dispute. Jones said: "It would appear that Customs is limiting the rights of individuals and companies to make lawful recoveries of over-taxation."

A Customs & Excise spokesman said: "It was a political decision to introduce the rule. The Government didn't want to refund large sums of money going back years when for all those years a lot of sales were quite agreeable to both seller and consumer." He said the three-year rule had to be introduced without advance publicity to avoid a rush of claims.

Jones said the issue of "unjust enrichment" - companies getting back money that should go to the consumer - did not apply to his company.