No compound interest on overpaid VAT

01 Nov 2017

Littlewoods Ltd and others v HMRC [2017] UKSC 70

The Supreme Court has handed down judgment in Littlewoods Ltd v HMRC [2017] UKSC 70. The Court has ruled that those claiming refunds of overpaid VAT from HMRC do not have a right to compound interest either under EU law or under the common law; and that interest on such refunds is limited to statutory, simple interest under section 78 of the Value Added Tax Act 1994. The Court held (upholding Vos J and the Court of Appeal, and dismissing Littlewoods’ appeal) that sections 80 and 78 of the 1994 Act exclude any common law cause of action in respect of the time or use value of overpaid VAT (whether compound interest or otherwise). The Supreme Court further held (reversing Henderson J and the Court of Appeal, and allowing HMRC’s appeal) that EU law–in particular, the principle of effectivenessdid not give Littlewoods any EU law right to compound interest; and that the UK’s regime, providing for simple interest did not deprive Littlewoods of “an adequate indemnity for the loss occasioned by undue payment” of the tax. Consequently, the High Court’s 2014 judgments in favour of Littlewoods, totalling approximately £1.25 billion, will be set aside. The Court’s judgment also puts paid to approximately 5,000 other claims, estimated at £17 billion, for compound interest on overpaid VAT. This is an important judgment, not just because of the very large sums involved and number of taxpayers affected, but also for the Supreme Court’s reasoning on the relationship between EU law rights and national law remedies and its conclusion that EU law had not harmonised and did not dictate the content of national law interest remedies.

Andrew Macnab and Peter Mantle of Monckton Chambers (led by Jonathan Swift QC of 11 King’s Bench Walk) represented HMRC.

The judgment can be found here.