Littlewoods VAT court win leaves HMRC with £1.2bn bill

LITTLEWOODS has won a VAT dispute with HM Revenue & Customs in the High Court, a ruling set to cost the tax-man more than £1bn.

The retailer contested HMRC should pay it compound interest on VAT overpayments that it made between 1973 and 2004. HMRC had paid simple interest on the overpayment refunds, resulting in a much smaller payment.

Despite HMRC paying simple interest on the overpayment refunds – resulting in a much smaller payment – the High Court upheld the retailer’s case, a decision meaning the taxman faces a £1.2bn bill.

HMRC, however, confirmed it is seeking leave to appeal, adding it believes the ruling is “at odds with how Parliament intended the law on VAT interest to work”.

Giles Salmond, head of indirect taxes and tax dispute resolution at Eversheds said: “This is an important victory for taxpayers, but it is very likely that HMRC will seek permission to appeal to the Court of Appeal. In the meantime, relevant taxpayers will be entitled to rely on the judgment to get the enhanced interest payments, but they will have to repay the money if HMRC ultimately succeeds.

“These large VAT claims resulted from the government’s failure in 1996 to properly implement a shorter time limits for claiming overpaid VAT. This failure resulted in a change of law in which allowed taxpayers being able to claim back overpaid VAT to 1973 if they claimed before 1 April 2009.”