Outlook remains murky following a recent court judgement involving HMRC and Littlewoods.
Brief 20/14 HMRC’ s position following the High Court Judgement in Littlewoods Retail Ltd and Others highlights that the High Court found against HMRC and that Littlewoods’ claim for additional interest ‘succeeded in full’.
HMRC has stated that it considers that there is not a clear basis of claim for others as there were ‘“exceptional” circumstances specific to the Littlewoods claimants’. The case, explained below, concerns the adequacy of interest paid following repayment of overpaid VAT.
HMRC has stated that ‘They [Littlewoods Retail Ltd and Others] then argued that the interest already paid to them was not adequate and that they were entitled to compound interest both as a matter of European Community law and also as a matter of English domestic law’. HMRC is appealing the case, but if you have received interest on overpaid VAT you may wish to review this case.
Case overview
The case Littlewoods Retail and Others v HMRC concerns a claim for refund of overpaid VAT in respect of commissions on mail order sales. The refund attracted interest and HMRC paid simple interest together with the VAT refund, legislative reference Section 78 VAT Act 1994.
The claimants argued that the simple interest paid to them was inadequate and that their entitlement under European Law and domestic UK law went as far as allowing compound interest to be paid on the VAT refund. HMRC disagreed, arguing that there is no such law allowing such entitlement.
The High Court referred to the Court of Justice of the European Union (ECJ) for a decision on the payment of compound interest. The ECJ ruled that there is no EU law right to compound interest;, however, the matter was referred back to the High Court and for the UK courts to determine whether the UK’s interest provisions comply with general EU principles.
The High Court considered the ECJ judgement and referral back to the UK. It also considered laws in the UK on the payment of interest was of the opinion that any amount due if simple interest was not adequate. HMRC and the claimants submitted their own approach and methodology to calculating the interest. The decision found that compound interest to be due as it took into account the ‘exceptional’ circumstances of claimant situation. The decision also noted that current UK legislation provides an appropriate amount of interest in many cases.
The decision went against HMRC, which has described the conclusion as ‘exceptional’ as it does not provide a clear basis for other claimants to follow this decision. HMRC has stated that no payments are due to other claimants at this stage; however, please note that this is HMRC’s view. HMRC believe the decision to be ultra vires with EU law and will be appealing the matter to the Court of Appeal.
Following this decision, HMRC will apply for any claims for compound interest already lodged behind this case to remain lodged pending the outcome of further litigation. HMRC’s stance remains the same: any new requests for compound interest will continue to be refused.
If you or your clients believe that due to this and preceding cases your businesses have been directly affected, submitting a claim to comply with the usual condition of the four year time limit, setting off, providing backing evidence and unjust enrichment apply.
For further details please view VAT Notice 700/45: How to correct VAT errors and make adjustments or claims.
Article contributed by ACCA