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VAT: Littlewoods Ltd and others – Supreme Court judgment released

VAT: Littlewoods Ltd and others – Supreme Court

The Court has found against the taxpayer thus ending their ‘Compound Interest’ challenge.

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This case concerns interest and what constitutes adequate reimbursement for loss arising from unlawfully demanded VAT. This case concerns interest and what constitutes adequate reimbursement for loss arising from unlawfully demanded VAT. Following a largely positive outcome for the taxpayer before the High Court and a unanimous taxpayer victory before the Court of Appeal, the case was appealed to the Supreme Court. The Court has found against the taxpayer thus ending their ‘Compound Interest’ challenge.

As indicated on the adjournment of the hearing in July, the Court has agreed with the High Court and the Court of Appeal, that the statutory regime set out in section 78 and section 80 VATA 1994 is an exclusive remedy and therefore the common law right to a restitution claim is excluded as a matter of English Law. This is in line with the recent finding of the Supreme Court in Investment Trust Companies (in Liquidation) and others [2017] UKSC 29.

However, unlike the High Court and the Court of Appeal which determined the effects of such exclusion breached EU law, the Supreme Court has determined there to be no such breach. The Supreme Court has reached this conclusion by determining that ‘adequate indemnity’ does not require the full reimbursement of the loss associated with the overpayment and that ‘reasonable redress’ is sufficient to meet the EU Law requirement. The Court has further concluded that the amount of simple interest which the taxpayer has already received pursuant to s78 (circa £268 million), being in excess of the amount overpaid (circa £204 million), is sufficient to amount to ‘reasonable redress’. 

What now?

The Supreme Court has given a very clear judgment which not only determines the common law claim for restitution before it, but which has also brought to an end the challenge the taxpayer currently has in the form of tribunal appeals stood behind the Supreme Court proceedings. The conclusion that the current provision for interest in the form of s78 VATA 1994 meets the EU Law test for ‘adequate indemnity’ rules out a further challenge that s78 and s80 should be interpreted to enable further interest to be awarded to Littlewoods.

Whilst Littlewoods has been determined on its own facts (and in particular the values of the claim and interest payment), it is likely HMRC will see this case as determining the challenge for greater interest, whether in the form of compound interest or otherwise, for all taxpayers. Whilst it is also likely that the courts will agree with this approach with regard to compound interest, it remains to be seen whether there are any other avenues of challenge for securing further relief for other taxpayers.

To access the judgment click here and to access the press summary click here.

For further information please contact:

Amanda Brown

Hilary Waters

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