Overpaid VAT will attract only simple interest: final judgment in Littlewoods case

HMRC has issued Revenue and Customs Brief 5 (2017) to explain its position following the Supreme Court judgment in Littlewoods Limited and others.

Littlewoods Limited and others claimed a refund of overpaid VAT for commissions on mail order sales. This VAT was repaid together with simple interest due under VAT Act 1994. They then argued that the interest already paid to them was inadequate and that they were entitled to compound interest, both as a matter of EU law and also as a matter of English domestic law.

The Supreme Court found in favour of HMRC, ruling that the simple interest at statutory rates paid to the claimants is sufficient to vindicate the EU law right to an adequate indemnity and that it is unnecessary for compound interest to be paid. This litigation is now final.

Claims for compound interest on overpaid VAT or for any compensatory amounts other than simple interest under the provisions of the VAT Act 1994 will not be paid by HMRC. It will invite claimants to withdraw their claims and any related appeals to the Tribunal.

There are a number of claims where the underlying tax litigation is not yet final. Those underlying issues should now proceed.

Previous Revenue and Customs Briefs 9/2015 and 20/2014 issued about this litigation are now withdrawn.