Taxpayers to lose out on billions of VAT interest

TAXPAYERS ARE UNLIKELY to be able to seek billions of pounds in compound interest from the taxman from overpaid VAT, according to senior European opinion.

The advocate general in the European Court of Justice has decided that overpaid VAT by UK taxpayers, due after HMRC breached European law, would only require simple interest applied to it.

Taxpayers had argued that the overpaid tax, some of which dates back to 1973, should be subject to compound interest.

However, advocate general Trstenjak said that taxpayers would be unlikely to be able to claim compound interest when delivering opinion on the Littlewoods case.

The advocate general's opinion is usually followed by the judges in the European courts.

"This is a significant blow to thousands of British businesses which are contesting VAT claims," said McGrigors tax partner Stuart Walsh.

"Given the vast sum of money at stake and the parlous state of the public finances, this guidance could provide a major boost to the Treasury's coffers.

"Allowing HMRC to pay simple interest below the base rate effectively incentivises it to sit on taxpayers' money to improve its own cashflow position. Compound interest would have removed that perverse incentive."