HM Revenue and Customs Brief 20/14 - Littlewoods Case
Submit Articles Back to Articles
Issued 6 May 2014
HMRC' position following the High Court Judgment in
Littlewoods Retail Ltd and Others
This brief explains HM Revenue & Customs (HMRC)
position following the High Court judgment in Littlewoods Retail Ltd
and Others handed down on 28 March 2014.
The High Court found against HMRC deciding that Littlewoods
claim for additional interest succeeded in full.
This finding was based on the ‘exceptional’ circumstances
specific to the Littlewoods claimants. It does not provide a clear
basis that could be applied to other claimants or a formula for doing
No payments are due to other claimants at this stage.
Littlewoods Retail Limited and Others claimed a refund of
overpaid VAT in respect of commissions on mail order sales. This VAT
was repaid together with simple interest due under VAT Act 1994. They
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’s view is that there is no Community law right or
domestic law right to compound interest and that section 78 of VATA
1994 provides an exhaustive statutory scheme by which only simple
interest is payable.
The High Court ordered a reference to the Court of Justice of
the European Union (ECJ) for a decision as to whether Community law
required payment of compound interest. It was heard in the Grand
Chamber of the ECJ on 22 November 2011.
The judgment of the European Court was delivered on 19 July
2012. The European Court ruled that there is no EU Law right to
compound interest but returned the matter to the UK Courts to determine
whether the UK’s interest provisions comply with general EU principles.
High Court Judgment
The issue was heard in the High Court during a 3 week hearing
in October and November 2013. The Court considered the implications of
the ECJ judgment and, as well as considering the national rules for
payment of interest, the Court considered the quantum of any amount due
if simple interest was found not to be adequate. Each side put forward
a different approach to show how the benefit of overpaid tax might be
quantified, if necessary. The High Court found compound interest to be
due as claimed taking into account the ‘exceptional’ circumstances of
Littlewoods situation. The Court also held that that the current
statutory provisions relating to VAT did provide an appropriate amount
of interest in many cases.
HMRC does not agree with the judgment and considers it to be
at odds with the requirements of European law and how Parliament
intended VAT law to work. Accordingly, this is not the end of the
litigation as HMRC has received permission to appeal the judgment to
the Court of Appeal.
In addition, after careful consideration, HMRC has concluded
that the guidance provided by the judgment about the availability of
compound interest is neither clear enough nor sufficiently general to
be applied to other High Court claims for compound interest. Notably,
the Court set a benchmark as to what the judgment of the ECJ required
for adequate indemnity in relation to the Littlewoods claimants. In
doing this the Court made reference to the specific facts relating to
these claimants and the calculations appropriate to them. The Court
went on to find that the simple interest paid to the Littlewoods
claimants did not meet the aforementioned benchmark and therefore the
claims succeeded in full. However, the Court did not provide a formula
that could be generally applied to other claimants with other claims
for compound interest. Nor did it alter the earlier finding of the
Upper Tribunal that compound interest is not available consequent to an
appeal to the Tribunal.
Further, in relation to a number of other claims, there are
other significant strands of litigation still to be resolved before
these claims can be considered in full with a view to possible
Claims for compound interest
In view of the above, HMRC will apply for any claims for
compound interest already lodged with the High Court or County Court to
continue to be stayed pending the final determination of the Littlewoods
HMRC’s position in relation to Tribunal appeals is unchanged,
namely that these should continue to be stood over until there has been
a final determination as to the availability of compound interest in
the United Kingdom.
Any new requests for compound interest will continue to be
HMRC will reconsider their position in the event that their
appeal to the Court of Appeal is unsuccessful.
About the Author
© Crown Copyright 2014.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2014-05-09 08:08:32 in Tax Articles