Compound interest and the taxman

Reports today suggest the taxman is terrified of hundreds of claims appearing at the High Court seeking compound interest on over-charged VAT (click here).
A recent case forced HMRC to pay out interest in this way, instead of a flat rate, but it now appears, according to reports, as many as 300 other claims have emerged and threaten to blow a hole in the public finances.
I have to say see it seems a like a stretch to see it as a massive hole.
The projected take on VAT for 2009-10, according to Treasury figures, is around £64bn. To put a material dent in that, the compound interest claims would have to amass to more than a billion for it to be significantly worrying. Even then it would still be less than 2 percent of the total. Even if some of the cases go back years, it’s hard to see how the total cost could get to that level. Many claims will fail and others may prove much lower sums than the claimants may first have believed.
Annoying and difficult, but the taxman has faced much bigger threats and seen them through. These claims rarely prove as damaging as many first believe.

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