Revenue & Customs are to introduce measures, outlined in a new finance bill, to combat the series of multibillion refund claims that have plagued them during recent years. From April 2010, taxpayers will no longer be able to sue Revenue & Customs in the High Court to reclaim overpaid corporation, income and capital gains tax.

In the future all claims will be subject to a statutory process, which limits the time period for refunds to four years and may reduce the amount of interest owed. Furthermore, these changes will prevent businesses from uniting to file for a group refund claim.

Several large companies including Marks and Spencer, British American Tobacco and Cadbury Schweppes have launched group litigation orders (GLO)on behalf of many UK businesses, challenging the compatibility of the UK’s tax regime with European law. An expert said, “By preventing claims from going to the High Court, HMRC [ the Revenue] will stop companies from joining together to bring a GLO, which will mean that pursuing a claim is likely to be far more expensive on top of the returns being lower,”

Thus, experts are advising companies to pursue any outstanding GLO’s prior to the introduction of the new legislation. Consequently, in the short term, the Revenue is likely to experience a peak in the number of GLO claims as well as a dent in their finances.

Nevertheless, the new rules will make GLOs more difficult saving the Treasury a significant amount of money. It is thought that the litigation led by M&S cost the Revenue up to £1bn.

Under the statutory regime for tax claims, it is still possible for similar cases to be consolidated under the “lead company” system used by tax tribunals. However, the process will be less straightforward because of the absence of compulsory cost-sharing, meaning that companies would have to agree to split the expenses of a test case.