THE TAXMAN was spared a hefty bill after the European Court of Justice referred a VAT dispute between HMRC and high-street retailer Littlewoods back to the UK High Court.
The legal battle centred on whether refunds on VAT overpayments, made by Littlewoods between 1973 and 2004, should have been refunded with simple interest, or with compound interest where interest added to the original amount also earns interest.
Had the court ruled in Littlewoods‘ favour, HMRC would have faced a bill in the region of £1bn, with the door flung open to hundreds of similar claims.
The case will now come to back to the UK court, which many predict will favour the HMRC.
Lorraine Parkin, head of indirect tax at Grant Thornton, said: “The European Court of Justice’s decision means that Littlewoods, and other taxpayers with outstanding claims for compound interest, will have to hold their breath a little longer for the matter to be resolved – at least until the UK High Court makes a determination on whether other taxes provide more generous remedies.
“They can, however, take some encouragement from the fact that the European Court of Justice has not completely dismissed the notion of compound interest and has referred the matter back to the UK court.”
Stuart Walsh, partner at Pinsent Masons, added: “Relying on the principle of equivalence, the High Court will now conclude that HMRC need only pay interest in a way that is consistent with similar repayments across equivalent taxes.”
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