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HMRC will be liable to make repayments up to £30m, say experts, following the department's acceptance that fund management of venture capital trusts (VCTs) should have been exempt from VAT during much of the 1990s.
From 1 October, VCTs will be exempt from VAT, and back-claims will be able to be lodged up to three years following an overpayment.
However (following the House of Lords' decision in the Condé Nast Publications and Fleming cases earlier this year), HMRC have now said they will meet claims for overpayments made between 1 January 1990 and 4 December 1996, as long as they are lodged before April next year.
Accountancy company PKF has predicted that the decision will cost HMRC 'millions of pounds'.
The company's VAT director, Debbie Jennings, remarked: 'This is a great result for VCTs and shows that HMRC are applying VAT exemptions too narrowly in certain areas.
'The capitulation may also indicate that, ultimately, HMRC might give in over the fund management of pension funds and the sums of money involved there are even greater.'
The Association of Investment Companies (AIC) said it was delighted by HMRC's announcement that it will meet back claims of VAT for VCTs, and estimated that this decision could allow trusts to recover around £30m.
AIC deputy director-general Ian Sayers said: 'This… demonstrates the Government's support for the important role VCTs play in the financial system. [They] make an important contribution to the economy… and provide invaluable capital and expertise to young and start-up companies'.
HMRC estimate that the total amount repayable is likely to be in the 'low tens of millions of pounds'.
