Littlewoods has been successful in its High Court VAT claim worth more than £1.2bn. The case is a landmark VAT case on whether taxpayers should be paid compound rather than simple interest by HMRC on any overpayments of VAT that they make. Giles Salmond, head of indirect taxes and tax dispute resolution at Eversheds, has commented on the case.’
He said: ‘Littlewoods had overpaid VAT between 1973 and 2004 in relation to its home shopping business. HMRC repaid the overpaid tax plus interest set by statute. Littlewoods claimed that based on principles of EU law it was entitled to the compounded use value of money it 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 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 taxpayer who has 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 shorter time limits for claiming overpaid VAT. This failure resulted in a change of law that 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.’