Motor dealers set to appeal VAT ruling

The High Court ruled the group made claims for compound interest outside the relevant time limits.

Despite this, the court also ruled that compound interest is payable by HM Revenue and Customs on VAT repayments made to taxpayers if there is a serious breach of European Community law, which could see a flood of similar cases being heard.

Experts believe the case could be worth hundreds of millions of pounds in interest on VAT refunds.

The group litigation order of motor dealerships, including FJ Chalke in south-west England and AC Barnes Wokingham in Berkshire, took the case against HMRC to court in an attempt to secure additional compound interest on VAT relating to demonstrator cars. The claimants lost the case on the basis of time limit restrictions but they are now expected to make a restitution claim in the High Court under EU law.

Paddy Behan, VAT partner at Vantis, said: ‘It is quite possible that a higher court could take a different view on when time began to run and, if so, the taxpayers would have a good chance of success…we have not heard the last word on compound interest.’

Mike Sheppard, VAT partner at Grant Thornton, said: ‘For some taxpayers, the compound interest will increase significantly the repayment from HMRC, exceeding the value of the tax itself.’

Tony McClenaghan, senior indirect tax partner at Deloitte, said it was a landmark case.