Tax cases

Three year cap applies

In 1991 British Telecom introduced a monthly payment plan whereby customers paid for their telephone use on a monthly fixed payment basis usually in advance. When such an arrangement was closed and the account was in credit the customer was paid the balance. At that time a negative entry equal to the VAT fraction of that payment should have been included on an account on the BT accounting system. This is because the effect of the payment to the customer reduced the consideration received by BT in the first place which in turn would cause a negative entry to be placed on BT's VAT output account reducing BT's overall VAT liability. However because of an error in BT's accounting software £40 million in VAT was overpaid to HMRC over an 11-year period.
BT claimed a...