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GMAC: getting bad debt relief right

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In a dispute lasting more than ten years, the Court of Appeal has ruled, in HMRC v GMAC (UK) Plc, that the UK’s pre-1997 VAT bad debt relief rules did not comply with EU law. The old UK rules included two conditions for bad debt relief: the property had to have passed (‘the property condition’); and the debtor must be formally insolvent (‘the insolvency condition’). The court considered the property condition neither appropriate nor necessary under EU law. The court also objected to the insolvency condition on the grounds that the inherent need for legal proceedings, which could not be justified in the case of small debts, had the effect of excluding entire classes of bad debt claims from relief. GMAC’s claims were not time-barred by applicable EU law principles; however, claims in relation to supplies made before 27 July 1990 were time-barred under domestic law. 

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