Know your limitations
One of the quirks of VAT law is that you only get four years to claim back overpaid VAT from HMRC – but a customer can demand an overcharge back from a supplier for six years. So if you charged someone ‘plus VAT’ five years ago, and they now discover that the supply was exempt, you could be stuck – they can claim the money from you but you can’t get it back from HMRC. This is clearly unfair, but fortunately it doesn’t happen too often.
Now the European Court of Justice has given a ruling that suggests it’s not just unfair – it’s against EU law. They say that someone with a right – such as a right to get back some VAT they shouldn’t have paid – can’t be deprived of that right by this sort of discrepancy in a member state’s laws. It’s not clear exactly what the court thinks ought to happen – whether the customer gets the money directly from HMRC, or HMRC would have to give it to the supplier in order to refund the customer – but it seems that HMRC can’t rely on an unfair law.