HM Revenue and Customs Brief 9/15
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First published: 23 June 2015
This brief explains HM Revenue and Customs’ (HMRC) position
following the Court of Appeal judgment in Littlewoods Retail Ltd and
others handed down on 21 May 2015.
The Court of Appeal found against HMRC deciding
that Littlewoods claim for additional interest succeeded in full.
Like the High Court’s earlier ruling 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 VAT compound interest 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 inadequate and
that they were entitled to compound interest both as a matter of EC law and also as a
matter of English domestic law.
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 and adequate statutory scheme by which only simple interest
The High Court ordered a reference to the Court of Justice of
the European Union (CJEU)
for a decision as to whether community law required payment of compound
interest. It was heard in the Grand Chamber of the CJEU
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, by
providing the claimants with an adequate indemnity.
High Court judgment
The High Court considered the implications of the CJEU
judgment and, as well as considering the national rules for payment of
interest, the Court considered the total amount due if simple interest
was found not to be adequate.
The 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.
Court of Appeal judgment
The appeal was heard in March 2015. The judgment was released
on 21 May 2015. The Court of Appeal supported the conclusions of the
High Court but were careful to emphasise that their ruling applies to
the specific circumstances of the Littlewoods claimants.
The judgment did not provide a general methodology for
calculating the amount of interest which would give ‘adequate
indemnity’ to the claimants. The court maintained that statutory
provisions will provide an adequate amount of interest in many cases,
therefore it is not the case that compound interest will always be
payable where there has been an overpayment of tax.
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 is seeking
permission to appeal to the Supreme Court. It may, however, be a number
of months before HMRC
will know the outcome of its application for permission to appeal.
view is that this ruling does not provide a clear method for
calculating the level of interest which provides adequate indemnity to
claimants. The Court of Appeal followed similar reasoning to the High
Court, ruling that the claimants had a right to adequate indemnity, and
this was not met by the statutory interest already paid. This was based
on the facts and circumstances of those claimants. The litigation is
not yet final so, given the Court of Appeal did not change the High
Court judgment, the position taken by HMRC is
The Court of Appeal, like the High Court, ruled that in many
cases the statutory interest paid would be adequate and no further
payments would be due. For any other claimant to succeed, the details
of their claim would have to be considered in similar detail in a
separate court hearing.
The Court of Appeal provided no further guidance on how claims
to compound interest made through the Tribunal appeals process should
be treated. Nor did it alter the earlier finding of the upper Tribunal
that compound interest is not available consequent to an appeal to the
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 examined and concluded.
is seeking leave to appeal to the Supreme Court, the availability of
compound interest in any circumstances remains in dispute.
Claims for compound
In view of the above, HMRC
will apply for any claims for compound interest already lodged (and new
claims) with the High Court or County Court to continue to be stayed
pending the final determination of the Littlewoods litigation.
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 UK.
Any new requests for compound interest will continue to be
will reconsider their position in the event that permission to appeal
to the Supreme Court is not granted.
An update to this brief will be issued in due course.
About the Author
© Crown Copyright 2015.
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 2015-07-17 09:12:22 in Tax Articles