The Final Word On Compound Interest Claims Against HMRC?

The Supreme Court has unanimously rejected a taxpayer's claim for compound interest on overpaid VAT in Littlewoods Ltd and others v HMRC [2017] UKSC 70. The case alone was worth £1.2 billion to Littlewoods but worth potentially over £17 billion to the Exchequer when considering the five thousand cases stayed pending its outcome.

Background

Between 1973 and 2004, Littlewoods overpaid more than £200 million in VAT to HMRC. The sum was later repaid along with simple interest. Littlewoods disagreed with HMRC's decision to repay the sum with only simple interest and argued that compound interest was due.

Simple interest vs. compound interest

Section 78 of the VAT Act 1994 confirms that HMRC shall pay interest in cases of official error leading to taxpayers accounting for too much VAT in an applicable period. The interest is calculated on a simple interest basis.

Littlewoods argued that HMRC was unjustly enriched by payments made under a mistake of law and made a common law claim for restitution of the use value of monies mistakenly paid.

Claims excluded by statute?

The first issue for the Supreme Court was whether the claims were excluded by section 78 and 80 of the VAT Act 1994. The Supreme Court held that the section 78 excluded the right to compound interest as the right to interest was subject to limitations. Such limitations would be effectively pointless if taxpayers could circumvent them by bringing common law claims. More importantly, it was held that a literal interpretation of a statute can be ignored if it does not conform to Parliament's intention. Otherwise this would undermine the statutory scheme.

The second issue was whether such exclusion was contrary to EU law. The Supreme Court clarified how the lower...