High Court rules that HMRC must pay compound interest on overpaid VAT

10 May 2009

On 8 May The High Court gave judgment in the first ever VAT Group Litigation test claims, in the VAT Interest Cars Group Litigation. The test claims against HMRC were dismissed in their entirety. As a result of the judgment it appears that all of the claims in the group litigation, valued at about £150 million will be successfully defended by HMRC. Peter Mantle and Philip Woolfe of Monckton represented HMRC, along with first Treasury Counsel (Chancery). The judge upheld HMRC’s argument that, generally, common law claims for interest were excluded by VATA 94. In a headline ruling he decided that where the overpayment of VAT was caused by breach of directly effective provisions of EU law, EU law required HMRC to pay compound interest. This creates conflicting High Court decisions, the judge refusing to follow Lawrence Collins L.J. in ToTel. HMRC succeeded on limitation and causation points. Henderson J. also held that the introduction of the 3 year cap was not a sufficiently serious breach of EU law to give a right to claim damages. The claimants are not appealing the dismissal of their damages claim, but obtained permission to appeal against the successful limitation defence to their restitution claims. Thus the Court of Appeal should hear the compound interest issue. Related Tribunal claims by car dealers are to be heard in June with Peter Mantle and Philip Woolfe again representing HMRC.

For the High Court judgment, please click here.

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Peter Mantle
Philip Woolfe