£1bn at stake: taxpayer wins compound interest on overpaid VAT

The High Court (Henderson J) handed down its decision on 28 March 2014 awarding mail-order and retail company Littlewoods Retail compound interest on sums of overpaid VAT that had originally been reimbursed to it by HMRC with simple interest. Littlewoods’ claim is estimated at in excess of £1bn, representing interest on repaid sums going back many decades. Littlewoods is by no means alone in this matter and thousands of similar claimants have had their claims stood behind this main action.

The judgment, described by Henderson J himself as ‘a long and twisted journey’, has culminated in a comprehensive defeat for HMRC, which it must be said used every conceivable defence to the claim.

It was many years ago that the House of Lords in Sempra Metals Ltd v Commissioners of Inland Revenue determined that compound interest was an adequate indemnity under EU law. That case involved mistaken repayment of advance corporation tax. So those who have justifiably put in claims for compound interest on overpaid VAT have no doubt been somewhat perplexed by the tortuous court processes (including a referral to the CJEU) that has eventually determined compound interest as payable on VAT…

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