HM REVENUE & CUSTOMS is to challenge the Court of Appeal’s ruling that it must repay more than £1bn in VAT and interest to high street retailer Littlewoods, claiming it is at odds with European law.
The court found that the retailer’s case for compound interest on VAT overpayments that it made between 1973 and 2004 was valid – despite HMRC having already repaid the VAT with simple interest – and ordered HMRC to pay £1.2bn to the Barclay brothers-owned chain.
HMRC has vowed to appeal, claiming the ruling was “based on the ‘exceptional’ circumstances specific to the Littlewoods claimants”.
“It does not provide a clear basis that could be applied to other claimants or a formula for doing so,” HMRC added.
No payments are due to other VAT compound interest claimants at this stage, and for any other claimant to succeed, the details of their claim would have to be considered in similar detail in a separate court hearing, which could prove similarly protracted.
The taxman is seeking permission to take the case to the Supreme Court for a final ruling. It could be a matter of months before HMRC will know the outcome of its application for permission to appeal.
HMRC’s view is that the latest ruling fails to provide a clear method for calculating the level of interest which provides adequate indemnity to claimants. The Court of Appeal followed similar reasoning to the High Court, ruling that the claimants had a right to adequate indemnity, and this was not met by the statutory interest already paid.
It added any new claims for compound interest would continue to be refused.
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