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HMRC Vs Littlewoods and the VAT battle. 28/07/12

The European Court of Justice (ECJ) has referred a long-running battle between Littlewoods and HMRC over VAT interest repayments back to the UK’s High Court.

The owners, Sir David Barclay and Sir Frederick Barclay, are suing HMRC for failing to add compound interest when it refunded the retail group excess VAT payments going back more than 30 years.
HMRC had agreed that Littlewoods had overpaid around £200m of VAT in connection with commissions paid to its agents. This VAT, together with simple interest amounting to over £250m, had been repaid to the company. However, Littlewoods claimed that the interest should be calculated on a compound basis and that it was consequently entitled to around £1bn.

The ECJ said that it was up to the national court in the UK to determine whether or not the rules in the VAT Act governing the payment of interest, are equivalent to those for similar claims for interest on infringements of domestic law. In that respect, if the payment of simple interest under UK VAT law is found to be less than that payable for similar domestic claims, the UK court would be required to interpret and apply the national rules in such a way that the interest payable for VAT purposes is in accordance with the more favourable rules applicable to the similar claims.

It was hoped that the ECJ decision would be a landmark ruling on whether taxpayers could reclaim not only repayment of VAT but also the compound interest on that sum. Stuart Coleman, Manager of the Tax Department of ABDS says:
“Taxpayers can take some encouragement from the fact that the ECJ had not completely dismissed the notion of compound interest and referred the matter back to the UK court.”
Although there is no specific UK statutory right to claim compound interest in circumstances where tax has been overpaid, an earlier case confirmed that the UK courts do have jurisdiction to award compound interest.

If you have any questions or concerns about VAT, Tax Planning and compliance, Contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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