HMRC may have to repay more than £1billion of VAT interest

The repayments will be triggered if the Court of Appeal finds in favour of Littlewoods, a provider of gambling and gaming services, and a consortium of motor traders referred to as the Compound Interest Project. 

The long running dispute between HMRC and the businesses appears to be drawing to a close after the case was referred back to the UK courts by the Court of Justice of the European Court (CJEU).

Littlewoods and the Compound Interest Project have been seeking a legal ruling that businesses should receive compound interest on overpaid VAT rather than the simple interest provided for in UK legislation.

The CJEU has held that while taxpayers have a right to receive restitution for the time they were ‘out of pocket’ due to the overpayment of VAT incorrectly demanded by the Tax Authorities, it was for the UK Courts to decide what ‘adequate indemnity’ meant.

The case will now be referred back to the Court of Appeal who will finally decide whether simple interest is adequate restitution or whether UK law has disadvantaged UK taxpayers and the correct restitution is compound interest.

If the Court of Appeal decides that compound interest should have been paid  then it is very likely that the interest received by businesses will far exceed the VAT originally overpaid and cost the UK Government, according to some reports, in excess of £1bn.