Litigation can be a risky business, for there can be no guarantee of the final outcome in any legal action.

This is true of cases heard in the highest courts in Europe as well as those at the relatively low level of the VAT tribunal.

A recent case illustrates the point. A business owner had originally been hit with a 95 per cent penalty in respect of unpaid VAT.

The figure ran into tens of thousands of pounds. Following discussions with Customs, the penalty was subsequently reduced to 25 per cent the maximum reduction normally available within departmental guidelines where a business owner has provided full co-operation during the inquiry. Not satisfied with this, an appeal eventually went before the VAT Tribunal.

Much to the business owners' dismay, rather than removing the remaining 25 per cent penalty, the tribunal chairman considered that there had been no justification for the earlier reductions and upped it to 50 per cent, plus Customs' costs.

Experience suggests that, while it would be wrong to automatically accept Customs' rulings at face value, there has to be a balanced view of when to leave well alone. There is scope for sensible negotiation before proceeding to a full tribunal.

Elsewhere, the long-running saga concerning the right of businesses to reclaim VAT on company cars has taken another lurch forward. In a case with clear implications for British firms, the European Court confirmed the right of the French authorities to refuse VAT claims on a similar basis.

In the light of this, thousands of British appeals seem set to fold. However, there have been more twists and turns in this tale than in a Jeffrey Archer novel and there may be more of the plot left to unfold.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.