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HM Revenue and Customs Brief 20/14 - Littlewoods Case


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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 so.

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’s position

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 settlement.

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 litigation.

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 refused.

HMRC will reconsider their position in the event that their appeal to the Court of Appeal is unsuccessful.

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© 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.

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Article Published/Sorted/Amended on Scopulus 2014-05-09 08:08:32 in Tax Articles

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