VAT: Littlewoods – Supreme Court case adjourned | KPMG | UK

VAT: Littlewoods – Supreme Court case adjourned

VAT: Littlewoods – Supreme Court case adjourned

The Supreme Court has adjourned the Littlewoods hearing on the second day to determine whether a further reference to the CJEU is appropriate.


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The Supreme Court has adjourned the Littlewoods compound interest case after two days. The Court had been due to decide what constitutes ‘adequate reimbursement’ for the taxpayer loss that arises when unlawfully demanded VAT, which has been collected in breach of EU law, has been overpaid to HMRC. The taxpayer can claim a refund of this VAT by making a section 80 claim. If the taxpayer also makes a claim for interest on the principal sum overpaid, HMRC are obliged to pay it in cases where HMRC have made an official error (s78 VATA 1994) - but HMRC only pay simple interest (although s78 does not actually specify that it is simple interest). Littlewoods was arguing that simple interest was not enough in the circumstances.

Currently s80 claims for overpaid VAT are capped at four years and as interest rates are so low, the difference between compound and simple interest is negligible. However, Littlewoods’ claim for the repayment of VAT unlawfully demanded was an uncapped Fleming claim, covering periods when interest rates were far higher, and the difference between compound and simple interest was significant. 

English common law also envisages a right to restitution where there has been a mistake in law and previous UK court decisions have confirmed this provision can apply to taxes. However, the Supreme Court has now indicated that for VAT, the statutory regime of s78 and s80 is the only remedy – there is therefore no right to a common law restitution claim (to which more generous time limits also apply). Restitution would involve HMRC paying back the benefit unjustly conferred on them by the VAT overpayment.

The Supreme Court has also given a preliminary view that it does not consider this limitation, or s78, to be in breach of EU law. If s78 was in breach of EU law, and could not be interpreted in such a way as to make it compliant (Marleasing), it would have to be disapplied.

However, before giving judgment the Supreme Court wishes to consider whether a further reference to the Court of Justice of the European Union (CJEU) is required. The decision on whether a further reference is needed will be released in October. It is however hard to see, in view of the CJEU’s previous answer in 2012, that the CJEU will spell out to the national court in detail what adequate reimbursement for the loss constitutes and whether it should be simple, compound or some other type of interest calculation (such as simple interest but at a higher rate).

For further information please contact:

Karen Killington 

Steve Powell




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