HMRC win £136m VIC GLO VAT test claims in Court of Appeal

29 Mar 2010

Monckton barristers Peter Mantle and Philip Woolfe acted for HMRC in their successful defence of the first group litigation in VAT to reach trial.  This should end a group of claims valued at around £136 million. The Court of Appeal upheld HMRC’s arguments that the test claims should be dismissed in their entirety. Further, the court accepted submissions on behalf of HMRC that, although unnecessary to decide this appeal, the question of whether Community law requires compound interest to be paid in respect of overpaid VAT was important and difficult enough that a reference should be made to the Court of Justice of the European Union when a proper opportunity arises. The claimants have not sought permission to appeal.

This appeal determined the test claims in “VAT Interest Cars” Group Litigation. They concerned HMRC’s alleged liability to pay compound  interest on overpayments of VAT levied in breach of Community law from motor vehicle dealers in connection with “manufacturers’ bonuses” and the second-hand car margin scheme.  HMRC had already repaid the principal amount of the overpaid VAT together with simple interest.  The issue in these proceedings was whether the claimants were entitled to compound interest, rather than just simple interest, on the overpayments, first, as a matter of principle as a Community law right, and, second, in the light of the lapse of time since payment of the overpaid amounts. At first instance, the Claimants succeeded in persuading Henderson J. that Community law required the payment of compound interest in such circumstances. However, HMRC defeated the claims by successfully arguing that the claims were time-barred, and that the application of the limitation defences did not contravene Community law.

On appeal, the Court of Appeal upheld HMRC’s case on time-limits. In particular they rejected the Claimants’ arguments that Community law required the Limitation Act 1980 time limits to be disapplied or extended. The Court of Appeal was also persuaded by HMRC’s submissions that the question of compound interest was not clear as a matter of Community law, taking a more favourable view than the judge below, and considering a reference desirable..

Peter Mantle and Philip Woolfe represented the respondents, HMRC, alongside Jonathan Swift QC, First Treasury Counsel

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Peter Mantle
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