VAT man faces £5 billion bill

In terms of its size, the practice of Hugh Mainprice, based in Victoria, London, is very small – a three-strong team headed by barrister-turned solicitor Mainprice and his barrister daughter Clare.

But size does not always equate with status and that of Mainprice and his team is second to none in the heady world of VAT law. When the firm's name appears on case papers, Customs & Excise has good reason to sit up and take serious note. Even more so after a recent Court of Appeal ruling in which Mainprice master-minded a victory for one of his clients which will land the VAT man with an anticipated £5 billion pay-back bill.

As competition in the high streets has increased, interest- free credit deals are a major selling point on anything from cameras to cars. But Customs & Excise decided that interest-free arrangements, unlike normal credit, were subject to VAT. And as a result, the retail industry has been collectively charged an estimated £5 billion over the years on the deals.

Mainprice, who was involved in drafting the original VAT legislation and has written two definitive works on VAT, was called in by furniture retailers Primback, now in liquidation, which objected to the VAT charge. Mainprice agreed and, in an action understood to have been funded in part by a consortium of small retail organisations, he mounted a mighty battle with the Customs & Excise.

The case fell at the first hurdle when a VAT Tribunal held that Customs & Excise was right. It went down again at the second fence when the High Court upheld the tribunal line.

But now Lords Justices Stuart-Smith and Hutchison in a majority decision have held that the tribunal and the High Court got it wrong.

Admittedly Customs & Excise has been given leave to take the case on to the Lords which means the matter is not finalised. But there has been no stay of execution on the appeal order which means, with the prospect of delays in the case reaching the Law Lords, retailers are now in a position to begin reclaiming VAT paid on interest-free deals.

The individual rebate levels the Customs & Excise could face will vary, however, it is estimated the parent company of Primback, the Kingsway Furniture Group, could be in line for a £6 million pay-back.

During the legal argument, figures of between £3 to 5 billion were bandied about in court.

Mainprice said: "Although the decision was based on the sale of furniture, it has established a precedent for a large range of consumer durables offered for sale on interest-free credit terms. Retailers affected should consult their advisers with a view to putting in repayment claims, including interest.

"The appeal in the House of Lords is unlikely to be heard for over a year," he added.

"As Customs has always maintained that VAT was payable on interest-free credit, claims are admissible back to 1 April 1973, when VAT was first introduced.

"Since the decision was based on EC law it will not be possible for customs to change UK law retrospectively."

Apart from the significance of the ruling, the case also shows that it is not just the major firms who notch up the big wins.

Mainprice's daughter Clare, who also played a major role in master-minding the case and instructing the in-court team of Justin Fenwick QC and Perdita Cargill Thompson, said: "It was a David and Goliath battle in every sense. But the result has shown that, provided you specialise in a given area and are prepared to persevere, you don't have to be a multi-partner firm to succeed."