This case concerned whether the taxpayer was entitled to compound interest in addition to statutory interest on a simple basis with the repayment of overpaid VAT. It was accepted that statutory interest represented only 24% of the taxpayer’s actual time value loss from the overpayments. The two issues for the Supreme Court were:
- Whether Littlewoods’ common law restitution claims for the extra compound interest were excluded by sections 78 and 80 of the Value Added Tax Act 1994 as a matter of English Law, and without reference to EU Law. The lower courts found that Littlewoods’ common law claims were barred by the 1994 Act. Littlewoods appealed on this issue.
- If Littlewoods’ claims for compound interest were excluded by sections 78 and 80 of the 1994 Act, whether that exclusion was contrary to EU Law, in light of the CJEU’s judgment in Case C-591/10 Littlewoods. The lower courts found that denying compound interest was contrary to EU law. HMRC appealed on this issue.
The Supreme Court unanimously dismissed Littlewoods’ cross-appeal on the first issue. Like the lower courts it held that the correct reading of the VAT Act is that it excludes common law claims and although references are made to interest otherwise available these are clearly references to interest under other statutory provisions and not the common law. To decide otherwise would render the limitations in the VAT Act otherwise meaningless.
The court allowed HMRC’s appeal on the second issue, holding that the lower courts were wrong to construe the CJEU’s requirement of an “adequate indemnity” as meaning “complete reimbursement”. The Supreme Court construed the term as “reasonable redress”. They did so for three reasons:
- They read the CJEU’s judgment as indicating that the simple interest already received by Littlewoods was adequate even though it was acknowledged to be only about 24% of its actual loss;
- It is the common practice among Member States to award simple interest with the repayment of tax. If the CJEU intended to outlaw that practice they would have said so;
- The reading “reasonable redress” is consistent with the CJEU’s prior and subsequent case law.
This article appears in the JHA October 2017 Tax Newsletter, which also features:
- HMRC announces change in policy on VAT treatment of pension fund management services by Christopher Kientzler
- HMRC v Mercedes Benz Financial Services – CJEU clarifies test on nature of supply of leasing contracts with option to purchase by Katy Howard
