The Government may be forced to pay out billions of pounds in VAT rebates to companies in a move that would blow a hole in the already threadbare public finances. In the latest setback for Chancellor George Osborne, a court has ruled that VAT rebates can be claimed on bad debts covering the period from 1973 to 1997.The case was brought by BT and GMAC, the finance arm of General Motors, before the Upper Tier Tribunal, which is a tax court. A Revenue spokesman said it was considering whether to appeal.

BT alone is set to claim £92 million plus interest. A spokesman said: ‘BT is a significant contributor to the Exchequer, collecting and paying taxes of about £3 billion in a typical year. We went to court as we believe we overpaid VAT related to bad debts for more than a decade and the court has upheld our claim.’ Reclaiming VAT on debts that had gone sour before 1997 used to be complicated and many organisations did not bother. But if the latest ruling stands, the current four-year cap on backdated rebate claims would be lifted, clearing the way for claims dating from the introduction of VAT in 1973 up to 1997.....Read more here: VAT shock: Chancellor George Osborne faces a bill for billions