Littlewoods wins £1.2bn VAT compound interest case

The High Court has ruled in favour of Littlewoods in a landmark claim for VAT worth over £1.2bn

The case (Littlewoods Retail Ltd & Ors v HM Revenue & Customs [2014] EWHC 868) concerns whether taxpayers should be paid compound rather than simple interest by HMRC on any overpayments of VAT which they make and related to VAT that had been overpaid by Littlewoods between 1973 and 2004, in relation to its home shopping business.

In their written closing submissions on this part of the case, counsel for HMRC criticised expert evidence presented by Littlewoods and preferred evidence of their own expert witness.

But the presiding judge, Mr Justice Henderson, preferred the expert witness presented by Littlewoods.

‘I prefer the approach and methodology of Mr Prestwich, and I accept his calculation of the set-off amount,’ he said, after stating earlier in his ruling that the methodology of HMRC’s expert witness, Mr Barker, appeared ‘flawed in principle’.

‘For example, on the issue of unused reliefs it is suggested that no conclusions can safely be drawn from the eight computations where there is evidence of unused reliefs, because (a) five of them relate to years in which the Littlewoods group was not paying corporation tax, so it is not surprising if some reliefs were unused, (b) the other three computations may not have been in final form, and (c) even if there were surplus unused reliefs in those three years, there must have been a specific reason why they were not utilised, and in the absence of evidence to the contrary it is reasonable to assume that they would not have been utilised against the additional profits,’ Judge Henderson said.

He stated further that it is not it is not open to HMRC to reopen the underlying tax issues, because it would be an abuse of process to permit them to do so.

He also said that EU law entitles the claimants to receive an adequate indemnity for the loss occasioned to them by the overpayments of VAT; and that as a matter of EU law, such an indemnity requires the payment to the claimants of an amount of interest which is broadly commensurate with the loss of use value of the overpaid tax, running from the dates of payment of the tax until the dates when the loss of use value is fully restored to them.

Giles Salmond, head of indirect taxes and tax dispute resolution at Eversheds, said that HMRC repaid the overpaid tax plus interest set by statute.

‘Littlewoods claimed that, based on principles of EU law, they were entitled to the compounded use value of money they had paid to HMRC as VAT. In a very lengthy judgment Mr Justice Henderson has upheld EU law principles and said that HMRC must pay an adequate indemnity for the loss resulting from the overpayments of VAT.

‘Today’s judgment means that HMRC will be liable to pay billions in interest to other taxpayers who have already claimed overpaid VAT going back to the early 70s but have only been paid simple interest based on a reduced average of bank base rates. These large VAT claims resulted from the Government’s failure in 1996 to properly implement a shorter time limits for claiming overpaid VAT. This failure resulted in a change of law in which allowed taxpayers being able to claim back overpaid VAT to 1973 if they claimed before 1 April 2009.

‘This is an important victory for taxpayers, but it is very likely that HMRC will seek permission to appeal to the Court of Appeal. In the meantime, relevant taxpayers will be entitled to rely on the judgment to get the enhanced interest payments, but they will have to repay the money if HMRC ultimately succeeds,’ said Salmond.


Penny Sukhraj |Content editor, Accountancy - (up to 2016)

Penny Sukhraj, former content editor and writer for Accountancy and Accountancy Live, responsible for commissioning and editing news...

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