HMRC sees off £1.25 billion Littlewoods claim for interest on VAT error

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Nov 02, 2017
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The case could have lead to further claims totalling more than £17 billion against Revenue and Customs

David Bebber for The Times

The clothing retailer Littlewoods has lost a landmark attempt to recover £1.25 billion in interest on overpaid VAT. 

The claim involved one of the largest sums yet disputed in a tax case in a British court, and commentators said that the savings for the Treasury “will be enormous”.

It is also likely to put the brakes on as many as 5,000 similar claimants who were hoping it would provide a green light precedent.

Littlewoods overpaid VAT to Revenue & Customs between 1973 and 2004, and between 2005 and 2008 the tax authorities repaid the principal sum of £205 million together with simple interest of £268 million.

Littlewoods claimed that additional interest, calculated on a compound basis as £1.25 billion, was due under the common law of restitution.

However, five Supreme Court justices, led by the court’s former president, Lord Neuberger, ruled that the right to interest in the Value Added Tax Act 1994 was subject to certain limitations. In other words, there are statutory limits on the amount of interest HMRC is liable to pay in cases where the tax authorities have made an error.

The court went on to rule that those limitations “would be defeated and rendered effectively pointless if it were possible for the taxpayer to bring a common law claim”.

Lawyers said that officials at Revenue and Customs would be considerably relieved at the ruling. “The saving for the exchequer will be enormous,” Dominic Stuttaford, a partner at the City of London law firm Norton Rose Fulbright, said.

He estimated that claims valued at more than £17 billion were queued up behind the Littlewoods case. It is understood that as many as 5,000 taxpayers had similar potential claims that could have relied on the judgment if the court had ruled against the taxman.

Heather Gething, a partner at the City law firm Herbert Smith Freehills, predicted that Revenue and Customs would use the ruling to argue that “the decision has general application, in particular where similar provisions exist which restrict the remedy available to taxpayers to the statutory regime and the payment of simple interest only”.

Sitting with Lord Neuberger were Lords Clarke, Reed, Carnwath and Hodge.

Leading the legal team for Revenue and Customs was Jonathan Swift, QC, of 11KBW chambers in the Temple, who was instructed by the general counsel at Revenue and Customs. Laurence Rabinowitz, QC, of One Essex Court chambers in the Temple, led the team for Littlewoods, instructed by the City office of the US law firm Weil, Gotshal & Manges.

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